Benami transactions & real estate

DOES REAL ESTATE TRANSACTION

Tantamount to

BENAMI TRANSACTION !!!!!By:

Direct Tax VerticalAsija & Associates LLPChartered Accountants

Certain Questions that come to mind in case of a Real Estate Transaction....• Mr.A buys a flat in the name of his wife Mrs. A, will it be a BENAMI

TRANSACTION ?

• Mr. B buys a land in the name of his married daughter/son, does it become a ‘BENAMI TRANSACTION’ ?

• Mr. C buys a flat in the name of his brother or lineal ascendant or descendant, will it be a ‘BENAMI TRANSACTION’ ?

• If a property is bought in fiduciary Capacity, will it be termed as a ‘BENAMI TRANSACTION’ ?

FOR ANSWERS OF THE ABOVE, PLEASE GO THROUGH OUR PRESENTATION.....

M/s Asija & Associates LLP, Chartered Accountants 2

Content of Presentation

M/s Asija & Associates LLP, Chartered Accountants

1. Prohibition of Benami Property Transactions Act, 1988 – Key points

2. When Land or Building could be treated as a Benami Property ?

3. When does Transaction of Real Estate become “Benami Transaction ” ?

4. Exceptions to the Benami Transactions pertaining to Real Estate

Transactions

5. Legal restrictions on Benami Transaction ?

6. Impact of Real Estate Benami Transaction ?

3

Prohibition of Benami Property Transactions Act, 1988 – Key points

• This Act was introduced on 5th September, 1988 (having only 9 Sections)

• The said Act has been DRASTICALLY amended with effect from 1st ofNovember, 2016. (Now having 72 Section)

• Demonetisation was declared 7 days after the said amended act was notified!!!

• The said act shall be monitored by Ministry of Finance GOI.

• The “Initiating officer” & “Approving Authority” shall be officers of Income taxDepartment.

• “Adjudicating Authority” & “Appellate Tribunal” shall be off the Prevention ofMoney-Laundering Act, 2002.


What is a “Benami Property” ?• “Benami Property” meaany PROPERTY (Real Estate) which is the subject

matter of a “ns BENAMI TRANSACTION” and also includes the proceeds

from such property. (Section 2(8)).

• “Property” means an asset of any kind, whether movable or immovable,

tangible or intangible, corporeal or incorporeal and includes any right or

interest or legal documents or instruments evidencing title to or interest in

the property and where the property is capable of conversion into some other

form, then the property in the converted form and also includes the proceeds

from the property. (Section 2(26)).

5 M/s Asija & Associates LLP, Chartered Accountants

Which Real Estate Assets be treated as a “Property” ?

• Analysis of the definition of “Property” (Section 2(26)).

Property means an asset of any kind, whether movable or immovable,thereby covering all real estate transactions.

It includes any right or interest (thus the amount paid at the time ofbooking of a flat shall be covered in Property);

legal documents or instruments evidencing title to or interest in theproperty (Thus the Power of Attorney shall also be covered under thesaid definition) ;

where the property is capable of conversion into some other form, then theproperty in the converted form and also includes the proceeds from theproperty. (when a land is sold, the proceeds from such sale is alsocovered under Property)


When does Transaction of Real Estate Become

“Benami Transaction ” ?With Effect From 01/11/2016 , Following is a Benami Transaction - Section2(9)

A. A transaction or an arrangement in respect of a property carried out ormade in a fictitious name;

Eg: Sale/ Purchase of immovable property is made to a fictitious person.

or

B. A transaction or an arrangement in respect of a property where the ownerof the property is not aware of, or, denies knowledge of, such ownership;

Eg: A property is purchased in the name of Mr A. But Mr A is unawareabout such transaction or he denies ownership of such property.



“Benami Transaction ” ?C. A transaction or an arrangement in respect of a property (say land), where

the person providing the cash is not traceable or is fictitious.

Eg: Where sale of immovable property is made, but the buyer is not traceable

or is fictitious.

Or



“Benami Transaction ” ?D. Where a property (say, land & building) is transferred to, or is held by, a

person, and consideration for such property has been provided, or paid by,

another person

And the property is held for the immediate or future benefit, direct or

indirect, of the person who has provided the such property.

(The 1st para of point D was the only considered as Benami Transaction

before amendment in act)

Eg: Mr. A transfers a property to Mr.B , and Mr. C pays the consideration for

the same, and the property is held for the future benefit of Mr.C


Exceptions to the Benami Transactions

Following transactions shall not be treated as “Benami”,

Any property held by:-

• The karta /members of the HUF for his benefit or for the benefit of members

and such amount is paid out of the known sources of the HUF.

• The person standing in ‘fiduciary capacity’ for the benefit of those for whom he

stands in this capacity and includes a trustee, executor, partner, director etc.

• A person being an individual in the name of his spouse or in the name of any

child of such individual and the consideration for such property has been

provided or paid out of the known sources of the individualM/s Asija & Associates LLP, Chartered Accountants 10

Exceptions to the Benami Transactions

• Any property held by, any person in the name of his brother or sister or lineal

ascendant or descendant, where the names of brother or sister or lineal

ascendant or descendent and the individual appear as joint-owners in any

document, and the consideration for such property has been provided or

paid out of the known sources of the individual.


Exceptions to the Benami Transactions• 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 (4 of 1882), if, under any law for the time

being in force,

i. consideration for such property has been provided by the person to

whom possession of property has been allowed but the person who has

granted possession thereof continues to hold ownership of such

property;

ii. Stamp duty on such transaction or arrangement has been paid; and

iii. the contract has been registered;M/s Asija & Associates LLP, Chartered Accountants 12

Legal restrictions on Benami TransactionBefore we discuss the Legal restrictions on Benami Transaction, let us

understand the meaning of

• “Benamidar"

It means a person or a fictitious person, as the case may be, in whose

name the benami property is transferred or held and includes a person

who lends his name. (Section 2(12)

• “Beneficial owner"

It means a person, whether his identity is known or not, for whose benefit

the benami property is held by a benamidar;


Legal restrictions on Benami Transaction

• Prohibition on re-transfer of property by benamidar.

No person, being a benamidar shall re-transfer the benami property heldby him to the beneficial owner or any other person acting on his behalf.

Where any property is re-transferred in contravention of the provisions ofsub-section (1), the transaction of such property shall be deemed to benull and void.

The above provision shall not apply to a transfer made in accordance withthe provisions of section 190 of the Finance Act, 2016.

• Prohibition of the right to recover property held benami.

No suit, claim or action to enforce any right in respect of any property heldbenami against the benamidar shall lie by or on behalf of the Beneficialowner.


Impact of Real Estate Benami Transaction• Any person found guilty of offence under this act shall bear following

consequences:

100% of the benami property will be confiscated. (Section 5)

Rigorous imprisonment for a term ranging from 1 year to 7 years

Levy of fine amounting to at most 25% of fair market value of the benamiproperty (Section 53)

• Any person who gives false information:

Shall be punishable with rigorous imprisonment for a term ranging from 6months to 5 years

Levy of fine amounting to at most 10% of fair market value of the benamiproperty.

• No prosecution shall be instituted without the previous sanction of the Board.M/s Asija & Associates LLP, Chartered Accountants 15

Certain Haunting FAQ’s....• Where the beneficial owner and the benamidar are joint owners and the

considerations are partly paid by the beneficial owner, will, the entire

property be treated as a ‘BENAMI Property’? Or in some proportion ?

• If we want to gift a property to some relative, thus after transfer, the said

property shall NOT be in joint name, but will be ONLY in the name of its

relative will it be a “BENAMI Property” ?

• If the property is brought partial from known source and partially from

unknown source, will the entire property be treated as a “BENAMI Property”?

Or in some proportion?M/s Asija & Associates LLP, Chartered Accountants 16

• A property is acquired in the name of Mr. X but the consideration is paid by

Mr. Y.

Mr. Y claims that the said property is NOT for his future benefit but is for the

future benefit of Mr. X only, thus should not be treated as a Benami

Transaction.

But the Income Tax Department Claims that it is future benefit of Mr. Y,

thus it should be Treated as Benami Property

Now the Question is the Onus to prove, that the said property is for the

future benefit of whom, lies on the assessee or on the Income Tax

Department ?

Certain Haunting FAQ’s....


For a detailed discussion and professional advisory pertaining to the applicability and compliance of the said provision of law by your entity .

Fix an Appointment with our Direct Tax VerticalEmail @ [email protected]

CA Vasudha JainAsso. Director

([email protected])

CA Ashish KapoorPartner In Charge

([email protected])

Asija & Associates LLPChartered Accountants

Ph. no. : 0522- 4004652, 2205072M/s Asija & Associates LLP, Chartered Accountants 18

• This presentation has been prepared by our firm to provide a gist of theapplicable law pertaining to the deposition of unaccounted cash leading toimposition of provisions of Prohibition of Benami Property Transactions Act,1988 (Modified by Benami Transaction (prohibition) Amendment Act, 2016,applicable from 01/11/2016

• For detailed insight and for better understanding of the various provision ofthe said law, the said presentation should be read along with relatedprovision of Income Tax Act, 1961. and Prohibition of Benami PropertyTransactions Act, 1988

• Neither our firm nor any partner or employee or article of our firm shallresponsible for any decision taken on the basis of the said presentation andwithout obtaining our professional guidance or consultation on the matter forwhich reliance was made on this presentation.”

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Benami transactions & real estate