SC ruling on retro effect of Benami Law keenly awaited

• Hundreds of individuals and businesses are awaiting a Supreme Court ruling that will decide whether the Benami law, one of the harshest statutes, can be applied retrospectively.

Benami Transactions (Prohibition) Amendment Act, 2016

Individuals who engage in benami transactions may face up to seven years in prison and a fine. False information is punishable by up to 5 years in prison and a fine. Benami properties are subject to government expropriation without compensation. The initiating officer may issue an order allowing the property to be held indefinitely, after which the case will be referred to the Adjudicating Authority, who will analyse the facts and issue a decision.

Wider Scope of the Act

A wider definition under the new Benami Act - covers not just 'transaction' but also 'arrangement' to facilitate benami deals.

• Also stiff punishments have unnerved many against whom the law has been used retrospectively.
• The tax department checks whether the 'official owner' of any property, land, cash, security or other assets is also the 'real owner'.
• Amended law can be used to confiscate the asset, demand a quarter of the market value of the asset as penalty, and even put the offenders behind bars.

Other Changes in the Benami Act

Benami deals could include transferring undisclosed cash to a benamidar who buys a property, registers it in his name, and holds it on behalf of the real owner.

• It also includes giving unaccounted cash to a clutch of investors(Invest into a company promoted by the 'beneficial owner' or the person providing the cash)
• If the lender who funded the transaction is missing, the borrower who acquired assets with the loan may come under fire.
• Tax officials can also go after proceeds of sale of a benami asset.
• The new Act draws distinction between the transactions done under old law, which are liable for lesser punishment, and transactions done after November 1, 2016.
• This aspect may not be affected even if the honourable SC holds that it is retrospective.

The Progressive Moves

The Hon'ble Supreme Court, in various judgments has clarified that a citizen cannot be put into a difficult situation by putting the clock back and applying any substantive law retrospectively.

• There has been a lot of administrative action under the Benami law post the amendments and various High Courts have taken conflicting views on this subject.
• The Supreme Court will decide the fate of these provisions and will be the final interpreter of the issue.

Exam Track

Prelims Takeaway

• Benami Transactions (Prohibition) Amendment Act, 2016
• SC ruling on Banami Act
• Punishments to offenders