New ruling on Benami law may unearth old deals
Jan 2, 2024
Synopsis
Even if a benami transaction had happened long before November 2016, when the new, amended statute came into force, the parties would face the wrath of the law today if the property or asset in question is still being 'held', according to a recent ruling.
If somebody is 'holding' a Benami property subsequent to the amendment, it would come in the sweep of benami transaction(s).
A single word, largely overlooked, in the tough 'Benami' law can exhume old ghosts. The past sins can come back to haunt a 'benamidar' and its partner in crime if an old deal, which may have been cut years ago, is still alive.
Even if a benami transaction had happened long before November 2016, when the new, amended statute came into force, the parties would face the wrath of the law today if the property or asset in question is still being 'held', according to a recent ruling.
"If somebody is 'holding' a Benami property subsequent to the amendment, it would come in the sweep of benami transaction(s)," said the appellate tribunal on disputes on benami matters.
The ruling may rattle many who were under the belief that old deals would not come under glare following the apex court verdict that the law would not have retrospective effect.
"This is a significant ruling and the interpretation of the word "held" in the definition of "benami transactions" as adopted by the Appellate Tribunal will be tested at the higher courts as well. This interpretation, if upheld, could have wide ramifications," said Ashish Mehta, partner at the law firm Khaitan & Co.
A benami deal is a transaction or an arrangement where a property or assets like stocks is "transferred" to or is "held" by a person but the consideration of such property has been provided or paid by another person. In other words, the holder of the asset (the front) is not its true beneficial owner.
For the Tribunal the word "transferred" is as significant as "held". "The Tribunal cannot miss any word used in the statute...We cannot ignore the word "held" for giving proper interpretation of the definition of benami transaction...the two expression words, "transfer" and "held" under the amended provision need to read in conjunction," said the bench a fortnight ago while ruling against an appeal pertaining to a matter where purchase of shares by two companies, their generation of funds for carrying out the transaction, and the links between the buyers and the promoter of the investee company came under the scanner of the revenue authorities.
The Benami Transactions (Prohibition) Amendment Act came into effect from November 1, 2016, following amendment of a 28-year-old dormant law. While the enactment sparked a raft of notices and attachment of properties, many who were pulled up escaped the scrutiny of the law after the apex court in August 2022 declared the retrospective use of the benami law as unconstitutional.
The present tribunal ruling, however, may open a Pandora's Box by making it clear that existence of a transaction, reflected in holding of an asset post November 2016, would be construed as continuance of the offence under the law.
The matter involved transfer of shares of Bhageria Industries in favour of two companies -- Prism Scan Express and Futurage Corporate Care. While in quashing the appeals of Bhageria, Prism and Futurage, the Tribunal observed that "funds in the companies were not matching with the credentials of the directors", the thrust of the ruling, which may set a precedent, rests in fact that the companies which purchased the shares were holding them not only on the date of amendment of the law in 2016 but even at the time of survey by the I-T Department for 2018-19.
[The Economic Times]
