Benami Transactions Act Comes Into Effect

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The Income Tax department has notified that the Benami Transactions (Prohibition) Amendment Act, 2016 (BTP Amendment Act), will come into force from 1st November 2016.

The new law seeks to give more teeth to the authorities to curb benami transactions.

After coming into effect, the BTP Amendment Act, the existing Benami Transactions (Prohibition) Act, 1988, shall be renamed as Prohibition of Benami Property Transactions Act, 1988 (PBPT Act).

The Act defines benami transactions and also provides imprisonment upto seven years and fine for violation of the Act.

The PBPT Act prohibits recovery of the property held benami from benamidar by the real owner. Properties held benami are liable for confiscation by the government without payment of compensation.

The new law also provides for an appellate mechanism in the form of an adjudicating authority and appellate tribunal. For the purpose, the adjudicating authority referred to in section 6(1) and appellate tribunal referred to in section 25 of the Prevention of Money Laundering Act, 2002 (PMLA), have been assigned the task under PBPT Act as well.

Under the Act, in each of the principal CCIT regions, a joint/additional commissioner of income-tax, an assistant / deputy commissioner of income-tax and a tax recovery official have been notified to perform the functions and exercise the powers of the approving authority, initiating official and administrator, respectively.

Main Provisions of the Act:

Under the Act, an Authority to acquire benami properties was to be established by the Rules. The Act seeks to establish four authorities to conduct inquiries or investigations regarding benami transactions: (i) Initiating Officer, (ii) Approving Authority, (iii) Administrator and (iv) Adjudicating Authority.

If an Initiating Officer believes that a person is a benamidar, he may issue a notice to that person. The Initiating Officer may hold the property for 90 days from the date of issue of the notice, subject to permission from the Approving Authority. At the end of the notice period, the Initiating Officer may pass an order to continue the holding of the property.

If an order is passed to continue holding the property, the Initiating Officer will refer the case to the Adjudicating Authority. The Adjudicating Authority will examine all documents and evidence relating to the matter and then pass an order on whether or not to hold the property as benami.

Based on an order to confiscate the benami property, the Administrator will receive and manage the property in a manner and subject to conditions as prescribed.

The Bill also seeks to establish an Appellate Tribunal to hear appeals against any orders passed by the Adjudicating Authority. Appeals against orders of the Appellate Tribunal will lie to the high court.

Under the Act, the penalty for entering into benami transactions is imprisonment up to three years, or a fine, or both. The Act seeks to change this penalty to rigorous imprisonment of one year up to seven years, and a fine which may extend to 25% of the fair market value of the benami property.

The Act also specifies the penalty for providing false information to be rigorous imprisonment of six months up to five years, and a fine which may extend to 10% of the fair market value of the benami property.

Certain sessions courts would be designated as Special Courts for trying any offences which are punishable under the Act.

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