Old ‘benami’ deals — where housekeepers, chauffeurs, and nondescript persons with no wherewithal act as fronts to hold land, cash, and properties for real owners — can return to haunt many.
According to a Supreme Court ruling on Friday, tax authorities can apply the law ‘retroactively’ to confiscate assets of benami transactions done before 2016 when the statute became effective, and also question succession plans used to mask benami deals.
In a benami transaction, the actual ‘beneficiary’, lying hidden, pays for an asset that’s acquired in the name of another individual or shell company serving as ‘benamidar’.
Such banned deals are severely punished: property seizure, penalty up to 25% of property’s market value, and up to seven-year imprisonment under the Prohibition of Benami Property Transactions Act, 1988.
Administered by the Income Tax (I-T) department, the amended law came into force on November 1, 2016, after an old, dormant statute was activated.
The apex court has now ruled that “the 2016 amendments, in so far as they are declaratory, procedural, curative and machinery oriented, operate retrospectively, while penal provisions creating new offences or enhancing punishment can operate only prospectively.” Thus, assets linked to pre-November 2016 deals can be confiscated, and offenders may face imprisonment up to three years under the old law instead of seven years as amended in 2016. However, people caught in old transactions would not be fined.
“With this, SC has significantly reinforced the law’s doctrinal rigour by stressing that courts must look at the real nature of transactions rather than their form, and unmask attempts to disguise prohibited arrangements. By holding that the 2016 amendments apply retrospectively for confiscation proceedings, it is expected to materially influence ongoing benami proceedings by intensifying scrutiny at the threshold stage and narrowing the room for reliance on technical or artfully drafted pleadings,” an tax expert said.
The court ruled that benami deals disguised through succession are prohibited. Common in acquiring farm lands which have ownership restrictions, benamidars draw wills and name real owners as beneficiaries in the will. The court said it cannot be a silent spectator when a claim “ostensibly founded upon a testamentary instrument” is used to “secure judicial recognition” of a prohibited transaction.
“It seems the department can now revive matters going back 2-3 decades. The message for individuals is complex: the property is exposed even if the person is not,” another tax expert said.
Interestingly, said Garg, the same bench authored the Tiger Global ruling and the tonal continuity is unmistakable: a tough, anti-avoidance posture against clever structuring. The court told the government to take over the suit properties in 8 weeks through an administrator.
The case before SC (Manjula & Others vs DA Srinivas) involved the filing of a suit seeking declaration of title and possession of properties based on a will and MoU. It was admitted that the properties were purchased by the deceased using the respondent’s funds to sidestep land reform regulations. The legal heirs contested the claim, stating it was barred under benami law.
Read more at: https://economictimes.indiatimes.com/news/india/sc-order-turns-up-tax-heat-on-old-benami-transactions/articleshow/130982241.cms?
