Benami Transactions - Ownership and Taxation Issues Presented in the Workshop organized by the Committee on Public Finance & Government Accounting at Kolkata on January 25, 2018 at Kolkata By CA Bharat R. Popat, Ahmedabad, Gujarat 1
Erstwhile Benami transactions (Prohibition) Act, 1988 containing only 9 sections has been completely revamped in the form of Prohibition of Benami Properties Transactions Act, 1988, with 72 sections, with effect from 1 st November, 2016 The earlier law was only a paper tiger, which was never implemented in real sense 2
Precautions for ensuring that the provisions of the Act, especially the penal ones, are not struck down (in relation to the existing benami properties), holding the same to be retrospective thus against Article 20 of the Constitution of India (providing that if an act is not an offence on the date of its commission, a law enacted in future cannot make it so): 1 Continuation of the 1988 law, albeit with amendments and insertions; 2. Declaration of the Income Declaration Scheme and corresponding insertion of section 190 in the Finance Act, 2016, which stated as under: The provisions of the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) shall not apply in respect of the declaration of undisclosed income made in the form of investment in any asset, if the asset existing in the name of a benamidar is transferred to the declarant, being the person who provides the consideration for such asset, or his legal representative, within the period notified by the Central Government. 3
Effective date of implementation of new Benami Law Though the notified date of this Act is 1 st November, 2016, it also applies to all earlier Benami transactions as well, if not declared and subjected to subsequent compliance under Income Disclosure Scheme (IDS), 2016 4
Policy vs Strategy PM s interview on television, clarifying that while the policy declared by the Government at the centre will remain unchanged, the strategic moves being adopted for policy implementation may be frequently changed in order to defeat the wrong doer s intentions May be compared with game of Chess 5
Strategic use of PMLA, Benami and Taxation laws Unexplained cash credit, investment, money etc., will result in higher taxation (and several other deterrents) in view of amendment in section 115BBE of the Income tax Act; This, in addition to the above, may also simultaneously trigger- (i) invocation of Benami Law resulting in attachment and eventual confiscation of the property; or (ii) PMLA, resulting in immediate arrest of the person as a first step 6
Quick actions by bureaucracy and/or judiciary PMLA: Rohit Tondon vs. ED, as reported at (2017) 87 taxmann.com 260 (SC); Gagan Dhawan and Sterling Biotech Limited; Virendra and Surendra Kumar Jain, Bail Application Nos. 1113 and 1114/2017, Delhi High Court; Benami: Ramesh Chand Sharma and several other cases, where nobody claims the ownership of the Benami properties, thus giving way for their confiscation without litigation 7
Powers of requiring mandatory filing of information Section 59 of the Act empowers the Central Government to issue orders, instructions or directions for furnishing information as it may deem fit for the proper administration of the Act and after having regard to various criteria like territorial area, classes of persons, classes of cases, etc. Rule 4 of the PBPT Rules, 2016 provides that the IT authority referred to in section 285BA of the Income tax Act, 1961 or such other authority or agency which is prescribed therein shall electronically transmit a copy of statement received by it under section 285BA(1) to the IO or such authority or agency authorized by the IO, on or before 15 days from the end of the month in which said statement is received 8
Property to include the following: Movable and immovable properties Tangible and intangible properties Corporeal and incorporeal properties Right, interest, legal documents or instruments evidencing title to or interest in any such properties Converted form of the property Proceeds from the property 9
Meaning of the term Beneficial owner A person for whose benefit the property is held by the Benamidar It is not material as to whether the identity of the beneficiary owner is revealed / known or not 10
Benamidar Benamidar can be under any status individual, HUF, Firm, Company etc. Benamidar can also be a Non-person i.e fictitious or non - existent persons or one who is already dead 11
Categories of Benami Transactions Benami transactions can be divided into four categories: Category-1 Transaction or arrangement where the consideration is paid or provided by a person other than the transferee or the person in whose name the property is held 12
The exceptions to category-1 of the Benami transactions: Property of HUF held by Karta / Members Property held in fiduciary capacity Property held in name of spouse / child Property held in name of Brother / Sister / Lineal ascendant or descendant if name of the person is appearing as joint owner and the consideration is paid from known sources. 13
Category-2 Where the transaction or an arrangement in respect of a property is carried out in fictitious name Category-3 A transaction or an arrangement in respect of a property where the owner of the property is not aware of or, denies knowledge of, such ownership Category-4 A transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious 14
Explanation to section 2(9) Benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882, if, under any law for the time being in force,- i ii iii Consideration for such property has been provided by the person to whom possession of any property has been allowed but the person who has granted possession thereof continues to hold ownership of such property Stamp duty on such transaction or arrangement has been paid and The contract has been registered 15
Section 53A of Transfer of Property Act, 1882 When any person contracts to transfer for consideration any immovable property in writing, and the transferee in part performance has taken possession of property or any part thereof or continues in possession and already has / is willing to perform his part of the contract, then, notwithstanding that the contract required to be registered is not so registered or that the transfer has not been completed, the transferor shall be debarred from enforcing against the transferee any rights in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided for in the terms of contract. 16
Authorities under the Act The designated officers of the Income-tax Department have been entrusted the roles of Administrator, Initiating Officer (IO) and Approving Authority (AA) The designated ITOs, ADITs/ACITs/DDITs/DCITs and Joint/Additional DITs/CITs are thus to play the roles of the Administrator (Section 2(2)), IO (Section 2(19)) and AA (Section 2(4)) respectively The designated authorities under PMLA have been notified as the Adjudicating Authority and Appellate Tribunal (AT) under the Transitional Provisions, as contained under section 71 of the Act, till separate appointments in this regard are made 17
Administrative set up of the Authorities Administrator, IO and AA are cumulatively denoted as Benami Prohibition Units (BPUs) and they function under the control of the Principal Director of Income tax (Investigation) BPU notified in Kolkata will have jurisdiction over the Areas within the limits of the States of West Bengal and Sikkim, Union territory of Andaman and Nicobar Islands 18
Adjudication and Appellate Jurisdiction under the Benami Law In exercise of the powers conferred under section 71 of the Act, Central Government has notified on 8 th December, 2016 that the Adjudicating Authority and the Appellate Tribunal established under the Prevention of Money Laundering Act, 2002 shall discharge the respective functions even under the Benami Act, until the Adjudicating Authorities are appointed and the Appellate Tribunal is established under that Act 19
Overriding powers of the Adjudicating Authority and AT in regulating their own procedures Sections 11 and 40 of the Act specifically provide that these Authorities shall not be bound by the procedures laid down by the Code of Civil Procedure, 1908 and shall have powers to regulate their own procedures, albeit guided by the principles of natural justice Section 16 further provides that the act or the proceedings of the Adjudicating Authority shall not be invalidated by reason inter alia of any irregularity in the procedure not affecting the merits of the case 20
Certain Officers to assist an inquiry etc. The following officers to assist the authorities under the Benami Law for enforcement of the law: The officers under Income-tax Department, Custom and Central Excise and Narcotic Drugs Departments The officers of stock exchange, Reserve Bank, Police, FEMA and SEBI Officers of any other Body Corporate constituted or established under any Central or State Acts Any other officers of Central / State Government, Local authorities or banking companies as may be notified 21
Time-line - 1 Specific periods of limitation have been prescribed almost for every stage. As a result of this, once the notice under the Act is issued by the IO, the dispute arising out of the same is compulsorily required to be resolved within a very short period of time. This has been elaborated in the next two slides While the periods of limitation have been prescribed for concluding the proceedings at various stages, no limitation period is prescribed for initiating the proceedings by issuing a notice under section 24(1) of the Act 22
Time-line - 2 Section Event Time-line 24(1)/ 24(2) Issuance of notice to the benamidar/ beneficial owner Day 0 24(3) Provisional attachment, if deemed fit Day 0 24(4) Provisionally attaching or confirming the provisional attachment done earlier in appropriate cases 24(5) IO to draw a statement of case and refer the same to the Adjudicating Authority Within 90 days from above Within 15 days from above 26(1) Adjudicating Authority to issue notice to the persons concerned, granting not less than 30 days time for compliance Within 30 days from above 23
Time-line - 3 Section Event Time-line 26(3) Order to be passed by Adjudicating Authority 27(1) Confiscation and vesting of benami property by the Adjudicating Authority 46(1) Appeal before the Appellate Tribunal (AT) Within 1 year from the end of the month in which reference under section 24(5) was received After giving an opportunity of being heard to the person concerned, when an order under section 26(3) is passed Within 45 days from the date of order u/s 26(3). The appeal may be filed by any aggrieved person, including even by the IO 46(5) Final order by the AT AT to pass the final order within one year from the last date of the month in which the appeal was filed, as far as possible 24
Strategic provisions of the Act - 1 Though the IO has to pass an order within 90 days from the date of issuance of the notice, there is no time limit prescribed by which such notice may be issued Since the IO is occupying the position of ADIT/ACIT/DDIT/DCIT under the Income-tax Act and since he is having express powers inter alia of availing assistance from various departments (section 20), of calling for various information (section 21) and also of impounding the documents (section 22), he would for all probability issue the notice only after he has full and complete information/documents available with him, as there is no time limit prescribed for issuance of such notice 25
Strategic provisions of the Act - 2 While the initial role of unearthing Benami properties and of provisionally attaching the same is entrusted to the designated Officers of the Income tax Department, that of the Adjudication and Appeal are at present vested with PMLA Authorities While the confiscation order for the Benami property is to be passed by PMLA Authority, the management of the properties so confiscated lies with the designated Officer of the Income tax Department These departments are completely independent of each other and the decision making role of the designated Officers of the Income tax Department ends after drawing up a statement of the case and referring the same to the PMLA Authority 26
Certain adverse consequence of Benami transactions entered into before 1 st Nov, 2016 Imprisonment upto 3 years with or without fine Confiscation by Central Government Prohibition of right to recover the property Prohibition of retransfer of property by the Benamidar (except in cases where routed through IDS, 2016, as specified in section 190 of the Finance Act, 2016. Also refer to section 27(2) of the Act) Transfer so made, after issue of a notice under section 24, is to be ignored and will also be treated as null and void, if confiscated under section 27 27
Certain adverse consequence of Benami transactions entered on or after 1 st Nov, 2016 Imprisonment up to 7 years with fine which may extend to 25% of FMV of property Confiscation by Central Government Prohibition of right to recover the property Prohibition of retransfer of property by the Benamidar (subject to what is stated at section 27(2) of the Act) 28
Miscellaneous Section 55 provides that no prosecution shall be instituted against any person in respect of any offence under sections 3, 53 or 54 without the previous sanction of CBDT; Section 63 provides that no notice, summons, order, document or other proceedings to be invalidated if the same in substance and effect are in conformity with or according to the intent and purpose of the Act; Section 64 provides for protection of action taken by any Authority or by Government in good faith under this Act; Section 66 provides for the proceedings to be carried out against the legal representatives, if the person dies 29
Offences by Companies The term company is defined to mean a body corporate and also to include a firm, LLP, AOP, BOI, whether incorporated or not Section 62 provides that in case of a company, every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company, for the conduct of the business etc., shall be deemed to be guilty and thus liable to be proceeded against and punished 30
Thank You CA Bharat R. Popat Ahmedabad, Gujarat Contact Info.: 9227542100, 7984199137 (079) 26768085, 40328084 brpopat@hotmail.com 31