Prohibition of Benami Property Transactions Act, 1988 Presented - - PowerPoint PPT Presentation

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Prohibition of Benami Property Transactions Act, 1988

Presented before the members of Ahmedabad Branch

• f WIRC of ICAI

On November 24, 2017 at Rajkot

By CA Bharat R. Popat

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

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• Erstwhile

“Benami transactions (Prohibition) Act, 1988” containing only 9 sections has been completely revamped in the form

• f

“Prohibition

• f

Benami Properties Transactions Act, 1988”, with 72 sections, with effect from 1st November, 2016

• The earlier law was only a paper tiger and a defective

legislation, which was never implemented in real sense

• Need for continuing with the 1988 Act, instead of

repealing the same and bringing in a new Act by itself

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

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• 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 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.”

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

Though the notified date of this Act is 1st 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

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Effective date of implementation of new Benami Law

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• Movable and immovable properties
• Tangible and intangible properties
• Corporeal and incorporeal properties
• Right,

interest, legal documents

• r

instruments evidencing title to or interest in any such properties

• Converted form of the property
• Proceeds from the property

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‘Property’ to include the following:

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• 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

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Meaning of the term ‘Beneficiary owner’

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• 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

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‘Benamidar’

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

Categories of Benami Transactions

Benami transactions can be divided into four categories: Category-1 Transaction or arrangement where the consideration is provided by a person other than the transferee or the person in whose name the property is held

8 CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

The exceptions to category-1

• f

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.

9 CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

Category-2

Where the transaction or an arrangement in respect of a property is carried out in fictitious name

10 CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

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

11 CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

Category-4

A transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious

12 CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

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 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 ii Stamp duty on such transaction or arrangement has been paid and iii The contract has been registered

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Explanation to section 4(9)

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

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.

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Section 53A of Transfer of Property Act, 1882

14 CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

Authorities under the Act

• The

designated

• fficers
• f

the Income-tax Department have been entrusted the roles

• f

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

15 CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• 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)

• At present, two such BPUs are notified, one in Ahmedabad

while the other one in Surat. They control the entire State of Gujarat and the Union territories of Daman and Diu; and Dadra and Nagar Haveli

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Administrative set up of the Authorities

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• In exercise of the powers conferred under section 71 of

the Act, Central Government has notified

• n

8th 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

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Adjudication and Appellate Jurisdiction under the Benami Law

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

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

• f

Civil Procedure, 1908 and shall have powers to regulate their own procedures, albeit guided by the principles

• f 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

18 CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

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

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Certain Officers to assist an inquiry etc.

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

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

• f

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

20 CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

Time-line - 2

Section Event Time-line 24(1)/ 24(2) Issuance

• f

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 Within 90 days from above 24(5) IO to draw a statement of case and refer the same to the Adjudicating Authority 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

21 CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

Time-line - 3

Section Event Time-line 26(3) Order to be passed by Adjudicating Authority Within 1 year from the end of the month in which reference under section 24(5) was received 27(1) Confiscation and vesting of benami property by the Adjudicating Authority After giving an opportunity of being heard to the person concerned, when an order under section 26(3) is passed 46(1) Appeal before the Appellate Tribunal (AT) Within 45 days from the date of

• rder 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

• ne year from the last date of the

month in which the appeal was filed, as far as possible

22 CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• 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

• ccupying

the position

• f

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),

• f

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

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Strategic provisions of the Act - 1

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• 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

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Strategic provisions of the Act - 2

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

Powers of requiring mandatory filing of information

• Section

59

• f

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

• r 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

25 CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• 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

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Certain adverse consequence of Benami transactions entered into before 1st Nov, 2016

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• 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
• f

retransfer

• f

property by the Benamidar (subject to what is stated at section 27(2)

• f the Act)

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Certain adverse consequence of Benami transactions entered on or after 1st Nov, 2016

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• 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

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Miscellaneous

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• 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

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Offences by Companies

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

When there is an unexplained cash credit appearing in the books of account of any assessee, which is subjected to addition under section 68

• f

the Act, can the underlying asset (bank balance or anything that may have been acquired with the help

• f

such fund) be treated as benami property?

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Poser-1

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

If there is an unregistered Development Agreement between the land owner and the Builder and if the Builder has been given physical possession of the land, will the land become a benami property? If yes, what will be the consequences of the same?

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Poser-2

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

In cases of surveys and searches or even in regular Income tax assessments (without there being such action), what will be the fate of unaccounted and/or unexplained assets which may have been subjected to addition under the deeming fictions created under sections 69, 69A, 69B etc. of the Income-tax Act? Can these be treated as Benami properties?

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Poser-3

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• “A”, a non farmer, has given certain fund to “B”, a farmer,

which is reflected under the group “Loans and Advances” in his

• books. “B” utilized this fund for acquiring an agricultural land,

which is then converted into Non Agricultural one. After conversion, “A” purchases the land from “B”, after adjusting the advance so given against the consideration;

• What will be the implication of the above under the Benami

Law?

• Will there be any difference if the land is directly sold by “B” to

a third party and returns the loan, with or without interest or compensation, to “A”?

• Will execution of Registered Banakhat at initial stage make

any difference?

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Poser-4

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

• “A” has made investment of his unaccounted income in

various products like Insurance policies, shares of various companies, fixed deposits with Banks, mutual funds, vehicles etc. These are not reflected in his regular books

• f account.
• What will be fate of these assets? Can he escape the

mischief of Benami law by admitting the same as having been acquired from his own sources?

• If yes, what will be the implication of this under the

Income tax Act?

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Poser-5

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar

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Thank You

CA Bharat R. Popat Ahmedabad Contact Info.: 9227542100, 7984199137 (079) 26768085, 40328084 brpopat@hotmail.com

CA Bharat R. Popat, Partner of B.R. Popat & Co., Ahmedabad and Bhavnagar