Need to address following Questions:
- What is Benami Transaction?
- What is Unexplained Receipts, Expenditure and Investments?
- Whether additions made as Unexplained Receipts, Expenditure and Investments can be termed as benami transactions.
- Whether Benami Act and ITA are supplementary or complimentary to each other?
- Whether the surrender of Income under ITA can be termed as Benami Transactions if source of the funds in itself in question?
As per S- 2(a) of the 1988 Act, Benami Transactions should have following important elements:
- a transfer of property for consideration; and
- the consideration is provided by some other person, not by the transferee.
As per S-2 clause 9 of the amended PBPT Act, Benami Transactions should have following important elements:
- Transaction or arrangement whereby a property is transferred; or
- Transaction or arrangement in respect of a property.
Benami Transactions is defined in 4 parts as under:
Part A: Transaction or arrangement: (Subject to some exceptions)
- where a property is transferred to, or is held by, a person for a consideration provided, or paid by, another person; AND
- the property is held for the immediate or future benefit, direct or indirect, of the person providing the consideration.
EXCEPTIONS- 5 exceptions to benami transactions are as under:
- Karta or member of HUF holding HUF property if consideration provided or paid out of known sources of HUF;
- Property held by a person in standing in a fiduciary capacity;
- Property held in the name of spouse or any child of an individual and consideration provided or paid out of known sources of individual;
- Property held in jointly in the names of an individual and his brother/sister/lineal ascendant/lineal descendant where consideration provided or paid out of known sources of individual;
- Genuine Stamp duty paid power of attorney transactions referred to in S-53A of transfer of Property Act where contract is registered and transferee has taken possession or paid consideration to transferor but the property remains in the transferor’s name.
Transaction or arrangement in respect of a property:
Part B: where ownership carried out in a fictitious name; or
Part C: where owner denies ownership or not aware of ownership; or
Part D: where person providing consideration is not traceable or is fictitious.
To sum up, to identify any property as benami property, we need to test the property on Part B, C or D and if it covers any of these clauses no need to go to Part A. And if property fails the above test, we need to test Transaction or arrangement whereby a property is transferred to Part A and exceptions provided therein.
A purchased shares worth Rs. 1.50 Crore from the Gift received from his brother. This is not a benami transaction as along as Gift is irrevocable irrespective of the fact whether or not his brother able to prove source of his income. If in this case it is proved from the documentation that gift is revocable and shares is actually for the benefit of his brother, it becomes benami transaction.
A purchased a property worth Rs. 5 crore and provided 2.5 crore from the loan taken from bank paid directly to the builder and 1.5 crore cheque from his account and 1 crore as cash. Such transaction can not be termed as benami as it is not specifically covered in the definition of benami transactions, however the matter may be dealt under ITA.
Therefore at this juncture, we need to address Whether Benami Act and ITA are supplementary or complimentary to each other?
There are specific sections which cover Unexplained Receipts, Expenditure and Investments and penal provision are also provided to deal with non compliances under this Act. These provision can be discussed as under:
S- 68 deals with unexplained credits in the books of the assessee maintained for any year.
S-69 deals with unexplained investments made by the assessee in the previous year.
S- 69A deals with unexplained source of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him.
S-69B deals where the investment exceeds the amount recorded in this behalf in the books of account, if any, maintained by him.
S-69C deals with unexplained expenditure of any year.
S-69D deals with amount borrowed or repaid on Hundi otherwise than through an account payee cheque drawn on a bank.
Please note that if the tax department can track the amount of unexplained Receipts, Expenditure and Investments to some other person, then only benami Act can apply. In other words, if the sources of funds belong to the person irrespective of his legal or illegal source it cannot be termed as benami.
This differentiation is important as under both Acts, the punitive provision are different which are explained as under:
Punitive Action under ITA for unexplained Receipts, Expenditure and Investments as covered u/s 68 to 69D are as under:
- Voluntary disclosure made by the assessee in any return filed u/s 139 before any notice issued by the tax department or before any search or seizure is carried out, applicable tax rate is 60% and surcharge of 25% and applicable cess.
- Undisclosed income Other than voluntary disclosure and search, then 10% penalty shall apply as per S-271AAC.
- In case of search, in addition to penalty as above, an additional penalty under sub section 1A of S-271AAB which provides 30% in case search if the assessee:
- Admits undisclosed income; and
- Substantiates the manner in which the undisclosed income was derived;
- Pays tax and interest along with return of income for the years in which undisclosed income arises.
In other cases , 60% penalty shall be leviable.
Punitive action under PBPT Act is as under:
- Property as cover under Benami transactions stands confiscated to CG; and
- Punishable with rigorous imprisonment for a term not less than one year to seven years AND fine which may extent to 25% of the fair market value of property to benaidar, real owner and the person who abets or induces any person for entering into benami transactions.
It is also arguable that a corrupt person cannot escape from the rigorous provisions of the PBPT Act by just amass properties in the name of benamidars, file tax return in their name and pay taxes on their behalf and claim that property actually belongs to him as if this proposition was accepted, then it would lead to disastrous consequences.
To conclude, the assesee need to aware of the facts that AO under scrutiny assessments are trying to termed unexplained credits as benami property in the absence of clear documentation and explanation offered during assessment proceedings.
CA Sanjay Kumar Agrawal