Law Relating to Benami Transactions & Prohibition Act, 1988

Laws relating to Benami Transactions and Prohibitions target the common practice of using Benami properties to avoid taxes. Under this act, the actual owner cannot claim or enforce any rights, interest, or actions in court over the Benami property unless they provide documents showing the property's income for tax purposes or have given prior notice to the income tax authorities about their claim.

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What is the Benami Transaction (Prohibition) Act 1988?

Key Terms by the Benami Transactions & Prohibition Laws

• • Benami: Benami means transactions where someone buys property, but it's held in another person's name.
  • Benamidar: The person in whose name the property is held but who has no actual benefit from it.
  • Beneficial Owner: The person who pays for and benefits from the property, like evading taxes or hiding money.

Types of Benami Transactions

1. Property held under a fake name.
2. The actual owner denies knowing about the property.
3. The person paying for the property is unknown or doesn't exist.

• Legal Definition: Benami transactions are when someone buys property in another's name to benefit that person. The actual owner controls and benefits from the property.
• Property: It includes all types of things you can own, like land, goods, documents proving ownership, and rights.

Objectives of Law Relating to  Benami Transaction

• The Benami Transactions (Prohibition) Act of 1988 makes Benami transactions illegal. If the property is found to be benami, no legal action can enforce rights over it.
• Courts look at several factors to determine if a transaction is benami, including where the money came from to buy the property, who controls and possesses it, the motives behind the transaction, relationships between parties, custody of documents, and how parties act after the sale.
• The person claiming a transaction is Benami and must prove it. They use evidence like financial records, documents, and testimonies showing true ownership intentions.
• The laws under the Income Tax Act 1961 and the Benami Transactions (Prohibition) Act 1988 give authorities the power to investigate and seize Benami properties.
• Courts focus on factual investigation to determine if a transaction is benami rather than relying on strict legal rules.

Factors Determining ‘Benami Transaction’

• Source of Purchase Money: Courts examine where the money used to buy the property originated. If it came from someone other than the apparent buyer, it suggests a benami transaction.
• Nature and Possession of Property: After the purchase, how the property is managed and used provides clues. If the apparent owner doesn't exercise control or benefit from the property, it may indicate a benami arrangement.
• Motive for Benami Arrangement: Courts look for reasons why the transaction might be given a Benami appearance. If there's a clear motive, such as tax evasion or hiding assets, it strengthens the case for a benami transaction.
• Relationship Between Parties: The nature of the relationship between the claimed owner (benamidar) and the real beneficiary (beneficial owner) is crucial. Family ties, business associations, or financial dependencies can reveal the true ownership intention.
• Custody of Title Deeds: The person who holds the legal documents of the property after the sale is significant. If the records are retained by someone other than the nominal buyer, it suggests the absolute ownership might lie elsewhere.
• Conduct Post-Sale: How the parties act regarding the property after the transaction matters. If the real beneficiary continues to control or benefit from the property despite being in another's name, it supports the Benami claim.

What are the Exceptions to the Benami Transaction?

• Property held by a Hindu Undivided Family (HUF) member or a coparcener, using their own money for the benefit of their family members.
• Property held by a trustee for the benefit of all beneficiaries under a trust.
• Property registered in the name of a spouse or unmarried daughter, bought with their own money unless it's proven it was purchased for someone else.

Penalty For Benami Transactions