Benami Property Holders – Beware You May Lose Your Property

Benami Property is one of the first real estate jargon i learned in my childhood. Unfortunately, even after 25 years, the benami property still exists. In my childhood, i used to wonder what is meant by benami property. I concluded, a property that is not in anyone’s name is benami property :). One fine day, i asked my father and he shared real life example to explain the concept in easy to understand language. Let’s check out with the same example

What is Benami Property?

In my hometown, there was a very big single screen theater. My father knew it’s owner i.e. Person A. One fine day, Person A died of a heart attack. At the time of the inheritance, it came to light that the single screen theater was bought by Person A in the name of her sister i.e. Person B. During those days, the laws were not that strict and The Benami Transactions (Prohibition) Act, 1988 was relatively new. Therefore, person B staked a claim in all the benami property bought by person A in her name. The family of person A made a lot of hue and cry but nothing much happened. Now person B is one of the richest ladies of my hometown :).

Therefore, in the above-mentioned example, the property was held by a person i.e. Person B, but the consideration value of the property was paid by Person A. The Person B was not aware of the same. Therefore, the property in question was benami property. The law/act defines a benami transaction as a transaction where a property is held by or transferred to a person, but has been provided for or paid by another person. The definition of benami property is recently amended by The Benami Transactions (Prohibition) (Amendment) Bill, 2015. Following 3 transactions are also included in the definition of benami property for more clarity

(a) The property is bought in a fictitious name

(b) The property owner is not aware or denies knowledge of the property transaction/ownership

(c) The person who paid for the property transaction is not traceable

Besides the change in definition, the recent amendment also established adjudicating authority & appellate tribunal and made penalties more stringent for entering into benami transactions. Benami Property transactions are illegal and prohibited by the law.  The purpose of The Benami Transactions (Prohibition) Act, 1988 and the subsequent amendment is to curb the domestic black money.

Exclusions of Benami Property

The following are the exceptions to the act.

1. Property bought in the name of a Wife or Unmarried Daughter

2. Contract partly executed under the Transfer of Property Act, 1882

3. GPA (General Power of Attorney) transactions provided stamp duty is paid and contract is registered

4. Joint property ownership with Wife, Children, Siblings etc. through known sources of fund

5. A Karta of HUF (Hindu Undivided Family) buys a property for the benefit of the trustee. The only condition is that karta should act in fiduciary capacity and funds should be paid from the known sources of income.

6. Benami property disclosed under Income Declaration Scheme (IDS) 2016

How is the Property defined as Benami Property?

In certain cases, the answer is straightforward as i shared in the definition. On the other hand, cases like property bought in the name of wife or unmarried daughter are bit complicated. The answer is “Intention/Motive/Reason behind the purchase decides whether the property is benami or not”. In layman terms, who is/will be the beneficiary of the property? decides the answer to this question.

For example, if i buy a property in the name of my brother and he is not aware of the same. In this case, he will be known as benamidar. On the other hand, i am the beneficial owner i.e. i will benefit from the property being held by the benamidar. Therefore property is benami in nature. In other words, beneficiary and owner of the property are two different persons.

In case the property is bought in the name of a wife or unmarried daughter then the basic/by default assumption is that the property is bought for the benefit of the wife or unmarried daughter. If it is proved otherwise then the property is benami property.

Now in certain cases, a person buy a property in the name of a wife or unmarried daughter only for the convenience/savings purpose but not for her benefit. The best example is the purchase of property in the name of wife to save stamp duty/property registration charges or avail rebate on the home loan interest rate. In most of these cases, wife does not have any source of income. In such scenario, surrounding facts and circumstances prove the real ownership of the property. Therefore, you can consider following points to prove that property is not purchased for the benefit of wife or unmarried daughter and claim ownership in the property.

1. What is a source of funds for property purchase?

2. The reason for purchase in the name of a wife or unmarried daughter

3. Who has custody of the original property documents?

4. Whether you declared the property in your income tax returns or not i.e. income from house property?

5. Who is occupying or retaining the possession of the property?

Depending on the facts/motive/reason/intention, the property will not be benami in this case and a person can claim ownership of the property despite being in the name of a wife or unmarried daughter.

How is the Action initiated against the Benami Property holder?

The proper rules are defined to initiate/conduct an inquiry and investigation. There are 4 authorities

(a) Initiating officer

(b) Approving Authority

(c) Administrator

(d) Adjudicating Authority

Now you must be wondering how the govt will know that the owner of the property is benamidar. The first goldmine of data is property transactions of more than 10 Lakh where the PAN is not quoted by the buyer :). Recently department of income tax issued a more than 7 lakh notices for high-value transactions where the PAN was not quoted by the buyer. Besides this there are other checks in place like TDS is not deducted, suspicious transactions etc. The job of initiating officer is to identify such transactions and once he believes that the owner is benamidar knowingly/unknowingly then the real action begins

Step 1: A notice is issued to the person who is believed to be benamidar.

Step 2: Depending on the case to case basis, an initiating office may hold the property for 90 days from the date of the issue of notice. The permission of “approving authority” is required in this case.

Step 3: This holding period can be extended by the initiating officer on the expiry of the notice period. The case will be referred to adjudicating authority. With the permission of Adjudicating Authority depending on the documents and evidence provided by the initiating officer, the order will be passed whether to hold the property as benami property or not.

Step 4: Once the order to confiscate the  benami property is passed by the adjudicating authority then the property is handed over to the administrator.

Step 5:  The appeal against the order of adjudicating authority can be filed with an Appellate Tribunal. The order of Appellate tribunal can be challenged in the high court.

Penalties for holding Benami Property

The stringent penalties can be imposed on the holder of Benami Property.

1. The Centre Govt has the power to confiscate the benami property. Confiscate means to impound or seize the property.

2. Rigorous imprisonment of minimum one year up to seven years and a fine up to 25% of the fair market value of the benami property. As i understand fair market value means circle rate or guidance value or ready reckoner rate.

3. In case false information is provided to the govt authorities then there a provision of rigorous imprisonment of minimum six months up to five years and a fine up to 10% of the fair market value of the benami property

The offense can be tried in specified session courts designated as special courts under The Benami Transactions (Prohibition) (Amendment) Bill, 2015.

Words of Wisdom:

The black money is like cancer for the economy of the country. Recently, one of my friends took my opinion whether to declare the undisclosed assets under Income Declaration Scheme (IDS) 2016 or not. Her biggest misconception was that Govt will not come to know about the benami property. For such people, i can only say that they are living in a Fool’s Paradise. Therefore, pay you taxes on time & disclose benami property to avoid any sleep disorder :) or spend time behind bars. Otherwise, you will always carry a risk of losing your property.

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