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Finally...Action Against Benami Transactions!

Published on Fri, Jun 12,2015 | 23:17, Updated at Mon, Jun 15 at 22:05Source : CNBC-TV18 |   Watch Video :

Almost three decades in and India's efforts to crack down on benami transactions have fallen flat. With a half done, non-implementable benami law, there is little
evidence to suggest that anyone thinks twice before engaging in a benami transaction in the country. But that may soon change. An amendment to the Benami Transaction Prohibition Act proposed earlier this year, could change everything from the very definition of a benami transaction to giving government authorities the much needed power to regulate benami transactions. Have we got it right this second time? Rohit Pathak & Aayush Ailawadi find out.
   
A benami transaction, is a transaction where the person in possession of an asset is not the actual owner of the asset. And a benamidar, that is the person who claims to be the owner, need not be a real person at all.

HP Ranina
Advocate, SC
“It can be just a fictitious name, so if you keep property or assets in a fictitious name, then that would be treated as a benami transaction.”

Owning property in someone else's name wasn’t always considered wrong or harmful.


Kuntal Dave
Proprietor, Nanubhai Desai & Co
“We had a law which said, the farmer tilling the land will become owner of the land. So it was a mixture of the operation of the law and the custom that benamidar transactions came into existence.”

The mindset underwent a change only when tax authorities discovered several instances of benami property transactions executed to further illegal objectives, chief among which was evasion of taxes.

Rajesh Simhan
Head- International Tax Practice, Nishith Desai Associates
”India was and has been a high tax jurisdiction, so you’ve had a situation in the past where you’ve had a tax rate as high as 97 or 98 percent. This was back in the 70’s, so when you have that kind of high tax rate, then there is a complete disincentive for people to actually to report their complete income or to pay complete taxes on their income and which is where people really start engaging in a benami sort of transaction and I think that’s really the whole evolution of it.”
 
While the Law Commission of India started examining the prohibition of benami transactions as early as 1972, it wasn’t until 1988, that The Benami Transaction (Prohibition) Act came into existence. The act made it illegal for a person to hold or transfer property the consideration for which was paid by another person. But several shortcomings made the act ineffective.

THE BENAMI TRANSACTIONS (PROHIBITION) ACT, 1988

Prohibition of benami transactions
- No person shall enter into any benami transaction

Definitions-
Benami transaction means any transaction in which property is transferred to one person for a consideration paid or provided by another person;

HP Ranina
Advocate, SC
“They had to setup the mechanism, they had to setup the staff, they had to setup the method of detecting benami transactions, because it is no use having a law if you don’t have the enforceability, the enforcing mechanism and if you do not have the right administrative structure, so to setup that administrative structure is a very serious thing and a very complex thing, that is what took them so long which they were not able to do, therefore the earlier law was not implemented.”

After 27 years of non-implementation…the Government decided to fix the problems. And so an amendment bill was introduced in Lok Sabha in May this year. The bill provides for an Assistant Commissioner or Deputy Commissioner of income tax to initiate inquiry proceedings against alleged benami transactions and it proposes to establish a tribunal and appellate tribunal for the adjudication of benami property cases and the confiscation of property. The penalties have also been made more stringent – with double the jail time and a fine of upto 25% of the property’s market value.

THE BENAMI TRANSACTIONS (PROHIBITION) ACT, 1988

Initiating Officer
 -Assistant Commissioner/Deputy Commissioner

Adjudication
 -To establish Tribunal & Appellate Tribunal

BENAMI TRANSACTIONS (PROHIBITION) AMENDMENT BILL, 2015

Penalties for engaging in a benami transaction
-    Imprisonment: 1 year -7 years
-    Fine: Upto 25% of the fair market value of the property

Kuntal Dave
Proprietor, Nanubhai Desai & Co
“The latest amendment definitely is more harsh as compared to the earlier proposed law, the penalty tenure has also been increased, coupled with that a monetary fine has also been introduced. A penalty has also been provided under the new law for furnishing of the wrong information. You may not be a party to a benamidar transaction but if you furnish wrong information, then also you are subject to prosecution under the new law, so no doubt this law has enough powers being bestowed upon the officer to initiate the penalty and prosecution proceedings against the offenders.”

The amendment also casts a wider net by re-defining benami transactions. In the 1988 law a benami transaction was defined as any transaction in which property is transferred to one person for a consideration paid or provided by another person. Under the 2015 amendment however, the property also needs to be held for the immediate or future benefit, direct or indirect, of the person providing the consideration. It further adds to the definition of benami transactions to include transactions where the benamidar is fictitious, is unaware or denies ownership and also when the person who provided the consideration is fictitious or untraceable.

Kuntal Dave
Proprietor, Nanubhai Desai & Co
“No doubt the property has been defined in a very exhaustive manner in a very wide term which is going to cover many transactions which otherwise also could have been very genuine transactions because also if you see direct or indirect holding for benefit of some third party is also sought to be captured in the benamidar transaction definition. There could be a genuine transaction where there is a loan arrangement where it would be necessary for somebody to pay directly to either a lender or to the transferor but if you were to apply the definition today and implement the law today, probably such transactions even though they are genuine commercial transactions, may also fall within the purview of definition of property or benamidar property, so that is something which the government will probably have to clarify.”
 
The expanded definitions are accompanied with a shift in the burden of proof. When an Income Tax officer has reason to believe that an individual is in possession of a benami property, he can serve him with a notice. The accused has only 90 days to prove that the property under investigation is not benami.
 
Rajesh Simhan
Head- International Tax Practice, Nishith Desai Associates
“There is a presumption that you are guilty which to my mind is a huge issue because effectively the burden of proof has completely shifted on to the taxpayer to show that he is actually not guilty.”

The Amendment bill, if approved by parliament, may finally give The Benami Transactions Prohibition Act the teeth it’s been missing. But will it make the policing of benami transactions more effective?

To start with, there is the problem of cash. For instance many property transactions in urban and rural India are done in cash. Discovering these benami transactions could prove to be a challenge.
 
HP Ranina
Advocate, SC
“You have to move away from the cash transactions and make it mandatory that certain transactions will only be done through debit cards, credit cards and through the banking system. Now they have been talking about this, even the Finance Minister in his budget speech has said it in February that he wants to reduce, now they have to implement those laws, now they have to bring in the legislation so its not just the Benami Transaction Act, the whole system has to be changed.”
 
While moving away from cash transactions might be a slower process, the immediate discovery of benami transactions might be possible through the government’s growing IT infrastructure and the interface it can provide for communication between various government agencies.
 
Rajesh Simhan
Head- International Tax Practice, Nishith Desai Associates  
“You are finally having a sort of IT infrastructure that’s in place, where the department is able to track multiple different transactions and try and put it all together and which is where things were slightly different from where we were in 1988 where you know to prove any of these would have been next to impossible as against a situation today where there is intra-governmental cooperation which is happening across different governments, there is cooperation that's happening between the different arms of the finance ministry, whether it’s RBI, whether it’s income tax authorities, so there you actually are able to track the bigger picture.”
 
Tax experts are not quite clear on whether this amended Benami Law will apply to Indian owned foreign property as well, or whether it will leave that to the undisclosed foreign income and assets law to cover. But together the two will give the government serious ammunition to go after black money in India and abroad!

 
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