INTRODUCTION
Benami transactions, literally meaning fictitious one, is a practice very prevalent and antique in India where the person owning the land and the one benefitting from it are not the same. However, the apt legal definition is being provided in sec 2(9) of Benami Transaction (Prohibition) Amendment Act, 2016:
“Benami transaction” means a transaction or an arrangement— (a) where a property is transferred to or is held by, a person, and the consideration for such property has been provided or paid by, another person; and (b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration.[1]
Reasons behind such transactions can be many. But over the period of time, they became a tool in the hands of corrupt people to evade taxes, hold black money and bypass government’s welfare legislations. They could simply transfer their surplus property to someone they could trust and there was no legal provision to hold them accountable. In this article, we will discuss the historical and evolutionary aspects of anti-Benami legislations.
BENAMI TRANSACTIONS IN PRE AND EARLY INDEPENDENCE ERA
Benami transactions had been a part of Indian culture since time immemorial. Apart from naïve reasons like having a property in somebody else’s name for more fortune to entering into them for beneficial purposes like evading taxes, fooling moneylenders or for simply not coming in the eyes of looters, their vast prevalence is something that no one would question. In fact, it is one of the reasons that neither the British administrative offices nor the judges ever thought about a blanket ban on these transactions. In the case of PetherPerumal v. Muniandy[2], it was held that simply the sheer prevalence of Benami transaction precludes authorities from out rightly prohibiting them.
They also derived their validity from some of the acts passed by the British government which were continued even after Independence. Section 82 of the Indian trusts act, 1882, provides that where property is transferred to one person for a consideration paid or provided by another person, and it appears that such other person did not intend to pay or provide such consideration for the benefit of the transferee, the transferee must hold the property for the benefit of the person paying or providing the consideration.[3]This section created a kind of fiduciary relationship between the benamidaar and the beneficial owner and in a way gave security of recovery of property to benamidaar since the emphasis was laid on paying of consideration for the purchase and not on intention of holding the land for good.
Judicial interpretations were also on similar lines. In the case of Smt. Surasaibalini Debi v. Phanindra Mohan Majumdar[4], the court differentiated the transactions on the basis of presence or absence of criminal intent and held that as long as Benami transactions are not intended for unlawful purposes, they are completely valid in the eyes of law. The efforts to curb evasion of taxes through Benami transaction were also limited in this period and mainly focused on stringing the tax regulation through Sec 296C of the Income Tax Act, 1961[5] which empowered the authority to question the transfer of property without consideration and discouraging proxy ownership through Sec 66 Of the Civil Procedure Code, 1908[6] which read as no person shall sue in court against any other person for transfer of property, claiming that the property has been bought in his behalf or for his benefit. Both Sec 82 of Indian Trust Act,1882 and Sec 66 of the Civil Procedure Code, 1908 have been repealed now.[7]
THE CONUNDRUM OF BRINGING ILLEGALITY TO BENAMI TRANSACTION
This problem of Benami transaction turned into a serious dilemma for tax revenue authorities and thus Indian government for long pondered over the possibility of directly targeting this practice. The Law Commission Report of 1973[8] goes as far as holding benaami transactions liable for failure of land ceiling laws and poor implementation in license raj. The first major step in this sphere was the formation of a Law commission in 1973 for recommending the future discourse.
However, the Law Commission report of 1973 recommended what was already being tried through legislative provisions. The two primary recommendations were:
(l) No suit to enforce any right in respect of any property held Benami against the person in whose name the property is held or against any other person shall be instituted in any court by or on behalf of a person’ claiming to be the real owner of such property.
(2) In any suit, no defence based on any right in respect of any property held Benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any court by or on behalf of a person claiming to be the real owner of such property.[9]
There were two primary hindrances for this limited approach which bothered even the subsequent commission.
- Firstly, Right to property was still a fundamental right under Article 19(1)f of the Constitution. There was no visible way as to how the government authorities bypass this right and acquire or even someone’s property. The 1973 Commission felt that reasonable restriction on this right will arise only on the ground of public interest and thus government cannot make an active intervention and the only Judiciary can settle the issue if such a matter comes.[10]
- For the commission of 1988, the first problem was resolved as the right to property was removed from the fundamental rights chapter through 44th However, another problem arose with respect to the application of the act. Even though the proposed legislation is not likely to violate any fundamental right, it was suggested that even to meet the test of reasonable classification under Article 14, a rational approach demands that some time must be given to those who entered into Benami transactions at the time when they were valid according to the law in force. Therefore, any interpretation of Article 14 in the light of its new dimension was to deny power to the Legislature to deal with the concentration of property, the very doctrine of arbitrariness would perpetuate arbitrariness.[11]
However, the 1988 Committee did strongly recommended an anti-Benami law which would stand the test of legality on the grounds of public interest, following which Benami Transactions (Prohibition) Act, 1988 was passed. The provisions made Benami transactions invalid and unlawful and made it an offence with imprisonment of up to 3 years.[12] This was considered a big step towards reforming land property laws.
The act, however, failed on various levels. Firstly, the act did not clarify on the point of retrospective application. In the case of Zarinabi v. Shamima Sultana[13], the point was clarified and the act was restricted to only prospective uses. Thus, benamidaar can still transfer the property to the beneficial owner considering that transaction happened before 1988.
Another criticism was that the act though placed a restriction on the transfer of Benami lands; no proper acquisition procedure was laid down. Further, no enforcement mechanism was prescribed which left the act in limbo. It appeared that the act had only bones and no flesh.
Thus, despite such strong legislation, the ground reality on Benami lands didn’t undergo any major change. As late as in 2017, The Income Tax Department has attached Benami assets worth Rs 1,833 crore so far as part of its “sustained action plan” against such properties.[14]
INSIGHTS INTO BENAMI TRANSACTION (PROHIBITION) AMENDMENT ACT, 2016
The lacunas of 1988 Act have largely removed the Benami Transaction (Prohibition) Amendment Act, 2016.
They are discussed under the following heads:
- The act provided a much inclusive definition to the Benami transaction which included sham transaction as well.[15]
- Considering the ancient Indian culture, the act provided an exception for Joint Hindu family and property in the name of spouse, child or brother or sister provided consideration for such property has been provided or paid out of the known sources.[16]
- Detailed confiscation procedure by the government was laid down with prohibition on transfer to the beneficial owner.[17]
- Provisions for creating appellate tribunals with guidelines on how adjudicating authorities are going to be appointed and how they would operate.[18]
- This act increased the implementation to even retrospective transactions. In addition, considerable time was given to change the ownership, thereby not violating the principles of natural justice.
CONCLUSION
Benami transactions’ status has modified a lot over the years, from being legally recognized to a criminal offence. This shift has primarily been because of a change in its usage. It’s just another case of Indian cultural practice being followed as a moral value and tradition and then being exploited for personal economic benefit. Though the 2016 legislation prima facie appears to be a strong one, only time will tell how effective it can get in curbing tax evasion considering that powerful players of the society are shrewd in finding loopholes to serve their interest.
References:
[1]Sec 2(9),Benami Transaction (Prohibition) Amendment Act, 2016.
[2](1908) I.L.R 35 Cal. 551, 558
[3]Sec 82, Indian trusts Act, 1882.
[4] AIR 1965 SC 1364
[5]Sec 296C,Income tax act, 1961.
[6]Sec 66,Civil Procedure Code, 1908
[7]Sec 7, Benami Transactions (Prohibition) Act, 1988.
[8]Ministry of Law and Justice, Government of India (1973).Fifty-seventh Report on Benami Transactions- A Continuum.
[9]Ibid.
[10]Ibid.
[11]. Ministry of Law and Justice, Government of India (1988). One Hundred and Thirtieth Report on Benami Transactions- A Continuum.
[12]Benaami Transactions (Prohibition) Act, 1988
[13]Zarinabi v. Shamima Sultana, (2008) 110 (2) Bom LR 723
[14]Benami assets worth Rs 1833 crore attached; CBDT’s strong action
Availableat:https://economictimes.indiatimes.com/https://economictimes.indiatimes.com/news/economy/policy/benami-assets-worth-rs-1833-crore-attached-cbdts-strong action/articleshow/61534065.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst[Accessed 31st May,2020]
[15]Benaami Transaction (Prohibition) Amendment Act, 2016.
This article is authored by Mayuresh Kumar, First-Year B.A.LL.B.(Hons.) student Nalsar University of Law.
Also Read – Difference Between Gift Deed and Will
