What is Benami property or Benami Transaction?
Any property, whether movable or immovable, tangible or intangible, which has been the subject matter of a Benami transaction, is a Benami property. This would also include the consideration received from such property. Benami property would also include the right or such other document evidencing title or interest in such property.
Benamidar: the other person on whose name the property is shown with or without his/her consent.
Benami Transaction: is a transaction or an arrangement 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 the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration.
Let us understand what a Benami transaction is and who are the parties involved with this example:
X property is purchased and registered in the name of Mr X. However, it is Mr Y who actually pays for the same. Mr X only agrees to hold the property for Mr Y. This makes Mr Y the beneficial owner of the property.
In a Benami transaction, a property is transferred or held by one person (Mr X, the ‘Benamidar’) and the consideration for such property is paid by another person (Mr Y, the ‘beneficial owner’) for whose benefit such property is held.
The following transactions also fall under the definition of Benami transactions:
- Where a property related transaction is carried out under a fictitious name – The Benamidar can also be a fictitious person
- Where the owner of the property has no knowledge / denies having any knowledge of the ownership of such property
- Where the person providing the consideration is untraceable or fictitious – the identity of the beneficial owner may also be unknown.
Categories of Benami transactions:
Transaction or arrangement
- Where payment is provided by person (say A) other than the transferee or person in whose name the property is held (say B)
- Where , the Benamidar is fictitious person or entity
- Where Benamidar is not aware of or denies knowledge of transaction
- Where payer of consideration is fictitious or is untraceable.
Exceptions –
- HUF property held in the name of karta/member and payment is made by the HUF
- Property held in the name of the spouse or child.
- Property held by individuals in joint name of self/brother/sister or linear ascendant or descendant.
- Property held in fiduciary capacity.
Instances of Benami transactions
- Every state has a certain limit on the amount of agricultural land that an individual or his family can hold. Thus, where such a limit is reached, people try to purchase the property in the name of another person but provide the consideration for the said property.
- A person who has access to price sensitive information of a company as a result of being in a position of power within the company would not be allowed to trade in the shares of the company since it would amount to insider trading. Therefore, to find a way out of this, they involve a third unrelated party and give him the funds to trade on their behalf.
- During demonetization, there were many instances of persons depositing old notes into their bank accounts which belonged to another person and then exchanging them for new notes. The definition of property under the benami act is very wide and also includes cash. Hence such a transaction would also be termed as a benami transaction.
Punishment under the Benami Act
The various forms of punishment under the Benami Act are as follows:
- Confiscation of benami property
- Where a benami transaction has been entered into to defeat the provisions of any law, avoid payment of statutory dues or avoid payment to creditors, any person who enters or abets/induces another person to enter into such a transaction would be punishable with:
- Imprisonment between 1 to 7 years and
- Fine up to 25% of the fair market value of the property
- Where a person who is required to provide information under this Act provides false information, he shall be punishable with:-
- Imprisonment between 6 months to 5 years and
- Fine up to 10% of the fair market value of the property