You all must have heard about people buying Benami Property, so as not to come under the scanner of tax authorities. In recent times, there have been cases in High Courts where the question arose-Should a property purchased by a husband in the name of his wife from a known source of income be categorized as benami property.
In a recent ruling by Delhi High Court, it was announced that any person holding property in his wife’s name, bought from his own finances, can not be termed as benami property. The decision came after the trial court had ruled that a person can not claim ownership of a property registered in his wife’s name since it would be looked at as benami property. Considering that it was the husband who had used all his money to purchase the property and the source of these funds was known and legal, the Delhi HC gave the verdict.
Setting aside a verdict given by the trial court terming such property as benami, the HC called the incident unfortunate and a ‘serious and fundamental mistake’ on the part of the trial court. The trial court, however, was not aware of the amendments made in 2016 in The Benami Transactions (Prohibition) Act, which has now been renamed as Prohibition of Benami Property Act, 1988. Further, it was also observed that the case falls under the purview of Section 2(9)(A)(b) which states that a transaction can not be termed as benami if a person purchases an asset in his spouse’s or children’s name.
This Benami Act, which has been in the statute book for over 28 years, could not be made operational due to some intrinsic flaws. Amendments to the Act were made in 2016 with the aim of providing effective ruling for the prohibition of benami transactions, and the said Act was renamed, as mentioned above. Under the amended law, specified authorities are empowered to attach benami properties which can be eventually seized provisionally. Moreover, if a competent court finds the person guilty of the offence of benami transaction, he/she shall be imprisoned for a period of one to seven years and shall also be liable to pay a fine up to 25% of the fair market value of the property.
In addition to the above-mentioned case, the following can not be classified as benami transactions:
- A Hindu Undivided Family (HUF) member holds the property for his/her benefit or the other members of his/her family, which is purchased with a non-circuitous source of income.
- A person holding property in fiduciary (like trustee and beneficiary) capacity. This includes being an executor, trustee, partner, director of a firm, or a depository/depository agent under the Depositories Act, of 1996.
- An individual who has registered a property in his/her brother/sister’s name or lineal descendent and the payment for the purchase of such property has been made through a known source of income of the individual.
A similar type of case came into Calcutta HC. In this case, in which a son at the center of a family assets dispute, claimed his late father had purchased a benami property in his wife’s name. Here, the HC ruled that the son had failed to prove his charge. The burden of showing that a transfer is a benami transaction always lies on the person who asserts it. In this case, the father had bought and registered the property in 1969 in the name of his wife, who was a homemaker, with no source of income. He died in 1999, going by succession, his wife, son, and daughter inherited a third of the property each. In 2011 son moved out, but he wanted the property to be split between him, his mother, and his sister, a proposal the other two rejected. The son then moved the court alleging a benami transaction. To complicate matters, the mother, exasperated by his son’s conduct, gifted her share of the property to her daughter before she passed away in 2019. In the end, it was the son who lost the case, as he failed to give proof that it was Benami property.
So the law is very clear in this matter when a husband buys property in the name of his wife from his legal income, that property can not be termed as benami.
Waiting for your views on this blog.
Anil Malik
Mumbai, India
12th June 2023