Benami Law: A Journey from perfectly legal to a Criminal Offence with Imprisonment

1. Historical Background of Benami Law - Perfectly Legal before 1988

1.1. Benami transaction in simple words implied that the real owner of the property obtained and held the property in the name of some other person whereas there was no intention of the real owner to benefit the person in whose name the transaction was made. The name of that person popularly known as benamidar was simply an alias for the person beneficially interested, known as beneficial owner. The benamidar held the ostensible title to the property standing in his name, but the beneficial ownership of the property never vested in him but in the real/beneficial owner. Historically speaking such benami transaction has been completely legal and legitimate duly sanctioned and recognized by law.

1.2. Benami transaction was not illegal because transfer of property law never required that transfer in favor of one person may not be in the name of another person (benamidar). The most important provisions giving a statutory sanction to Benami transaction were sec 81 & sec-82 of the Indian Trust Act 1882, which so provided that in case of any such transfer where the beneficial owner did not intend to transfer the beneficial interest in the person holding the title of the property, then such transferee must hold the property for the benefit of the person paying or providing the consideration. Thus the consequence of such Benami transactions was that as per Trust Act there emerged a “Resulting Trust” whereas the benamidar held the property in trust for and on behalf of the real/beneficial owner. As much as even such transfer constituting benami transaction even though for illegal purpose, still constituted a Resulting Trust and even the illegality of purpose(if the illegal object is not carried out)did not placed the real/beneficial owner out of his beneficial ownership in the property and the benamidar even in such case held the property in trust for and on behalf of the real/beneficial owner.

1.3. Further as per sec 6(h) of the Transfer of Property Act r/w sec 23 of the Indian Contract Act any transfer for an unlawful object or consideration is void, meaning thereby that again the ownership in the property on such unlawful transfer remains with the transferor i.e. real/beneficial owner.

1.4. Restrictions/Regulation of Benami Transactions: A new sec 281A was inserted in Income Tax Act 1961 through Taxation Laws (Amendment) Act 1972. So far as this amendment is concerned, it never prohibited benami transactions but only provided for, that the real/beneficial ownerwill be debarred from instituting any suit in any court to enforce any right in respect of any property held benami unless the income from such property or the property itself has been disclosed in any return of income or net wealth by the claimant or a notice in the prescribed form and containing the prescribed particulars in respect of the property has been given by the claimant to the Income-tax Officer. Thus with certain reporting requirement to the income tax department, the legality of benami transaction was kept intact.

1.5. From the above discussion it is amply clear that the benami transactions before 1988 were absolutely legal as per Indian Trust Act, Transfer of Property Act and Income Tax Act.

2. Legal Development to tackle Benami Transactions tainted with illegality and enactment of The Benami Transactions (Prohibition) Act, 1988

2.1 It is in this backdrop of aforesaid legal position that concerns were being raised in Parliament and outside as to how to tackle such benami transactions which if are fraudulent in nature and intent, e.g. to defraud creditors, to evade taxes, to hide property obtained out of corruption in public life by politicians and bureaucrats, etc. One opinion was why not to prohibit the benami transaction and declare it illegal amounting to an offence in the eyes of law.Another opinion was not to make it illegal amounting to an offence but to deprive legal rights of real/beneficial owner to discourage these benami transactions.

2.2 The matter was referred to 6th Law Commission headed by Justice P.B. Gajendragadkar,and in its its report on 7th August 1973, the Law Commission subscribed to second opinion and recommended that there should be no right to file any legal suit to recover benami property by the beneficial owner against the benamidar and likewise there should be no right of defense available to the beneficial owner against benamidar when benamidar claims the benami property. Consequently sec 81 & 82 of Indian Trust Act as well as sec 281A of the Income Tax Act were recommended to be repealed. It recommended prospective law only such that new amendments not to apply to the benami properties held at commencement of new law on benami.

2.3 After the 6th Law Commission aforesaid report on 7th August 1973, the Report remained with the Government idle for about 15 years. Thereafter on 19th May 1988, the Government accepted the aforesaid recommendations and promulgated an ordinance titled as “Benami Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988”. This Ordinance did not excluded past benami transactions and thus this Ordinance was a retrospective Law.

2.4 This ordinance of 19th May 1988 was severely criticized in public media was termed like a paper tiger as it did not provide for any prohibition or regulation to restrict the practice of benami transactions tainted with illegality as discussed hereinabove and provided for no punishment of such illegal and fraudulent benami transactions.

2.5 As per law the Ordinance of 19th May 1988 was required to be replaced by an Act within a period of sixweeks from the reassembly of Parliament. It is in such paucity of time amid public outcry in media that this Ordinance was referred to the 11th Law Commission,on 22nd July 1988, headed by Justice D.A. Desai. In such a short availability of deliberations due to time constraints and urgency of the matter the 11th Law Commission submitted its report in less than a month on 14th August 1988.

2.6 In this 130th Report by 11thLaw Commission dt. 14th August 1988, the Ordinance of 19th May 1988, which was essentially a civil law taking away the erstwhile legal right of the beneficial owner to enforce his right over the benami property through the process of filing suit in a civil court (without in anyway prohibiting benami transactions and thereby mutual undisputed cases of benami transaction remaining perfectly legal), took a U-turn and recommended that benami transactions should be prohibited and declared as illegal amounting an offence in the eyes law and to provide for severe imprisonment for three years.

2.7 One aspect of the benami Ordinance was that it precluded the enforcement of rights of the beneficial owner from benamidar and this provision resulted into unjust enrichment of the benamidar who for all practical purposes got the legal title to the benami property and thus this unjust enrichment got conferred on the benamidar which was apparently, unlawful and arbitrary. The Ordinance took away the legal rights from the beneficial owner but eventually and unintentionally conferred the legal title on the benamidar. The 11th Law Commission pointed out this unjust enrichment to the benamidar and recommended not to leave such benami property with the benamidar but to enact legislation for acquiring such benami property from the benamidar who had nothing to loose because he has invested nothing. The 11th Law Commission also recommended to stop any re-transfer of any benami property back to the real/beneficial owner by the benamidar. Thus whereas the Ordinance barred the enforcement of legal rights by the real/beneficial owner, the 11th Law Commission also recommended to bar voluntarily re-transfer from benamidar back to real/beneficial owner, and further the Law Commission recommended entering into a benami transaction should be made an offence punishable as per Law.

2.8 Thus in less than a month, the earlier Ordinance dt.19th May 1988, which was based on recommendation of 6th Law Commission got converted from a purely civil law to criminal law providing for the benami transaction an offence by itself liable for imprisonment upto three years, as per sec 3(3) of The Benami Transactions (Prohibition) Act, 1988, passed on 5th September 1988. Thus the Ordinance on benami law (a Civil Law) got converted into The Benami Transactions (Prohibition) Act, 1988 (a Criminal Law). Incidentally the Prevention of Corruption Act was also enacted in 1988 on 09th September 1988.

3. The Benami Transactions (Prohibition) Act, 1988 [hereinafter referred to as Benami Act,1988] - A Futile Exercise

3.1 In spite of such a hurry in getting the 130th report of the 11thLaw Commission in less than one month and enacting a law in undue haste making a benami transaction an offence punishable with imprisonment, the Act did not contain any specific provision for vesting of confiscated properties with the Central Government, no appellate provision was provided and the power of authorities administering the law were not detailed. Such legislative gaps could not have been filled by delegated legislation of rule-making authority and therefore no Rules could have been notified and thus the Benami Act of 1988 remained on paper. Even the 2nd Administrative Reforms Commission in its report of January 2007 expressed its concerns as to how even after 18 years the Benami Law of 1988 had not been operationalized.However in the meantime, a new law Prevention of Money Laundering Act, 2002 got enacted in the year 2005, dealing with confiscation of proceeds of crime and prosecution provisions therein.

3.2 Then a new Benami Transactions (Prohibition) Bill 2011 was proposed by repealing the old Benami Act,1988. Incidentally in the year 2011, India ratified United Nations Convention Against Corruption (UNCAC). Thus the benami law got effectively connected as a measure to prevent and combat corruption by prohibiting benami transactions to be a deterrence against concealment or disguise of the ownership of such property acquired from proceeds of corruption and held benami by making such property liable for confiscation under the new Benami Transactions (Prohibition) Bill 2011.

3.3 It is worth noting that so far as the property acquired out of corruption is concerned, another law i.e The Prevention of Money Laundering Act 2002(PMLA) was enacted and came into force on 01st July 2005 whereby the proceeds of corruption got included in the meaning of proceeds of crime u/s 2(u) of The Prevention of Money Laundering Act 2002,liable for confiscation with provisions for imprisonment.

3.4 Therefore there was alegitimate opinion to merge The Benami Transactions (Prohibition) Act, 1988 and The Prevention of Money Laundering Act 2002. But this view was not accepted by the Government on the premise that PMLA is restricted only to “proceeds of crime” whereas the benami law provides for a prohibition of benami properties irrespective of the nature or the source of the funds invested in the property whether legitimate or illegitimate. Thus the benami law proposed to be applied equally to both, a property acquired through proceeds of crime and a property acquired through legitimate means and hence its scope was proposed to be wider than PMLA.

3.5 It is any body’s surprise that how a perfectly legal transaction of benami travelled from the domain of perfectly lawful and legal transaction to unlawful transaction with taking away of civil rights from enforcement in civil courts, and then to an offence and then such an offence that even a property from legitimate source was proposed to be liable for confiscation whereas PMLA provides for confiscation of a property only if it is acquired out of proceeds of crime.

3.6 The Standing Committee of Finance headed by Shri Yashwant Sinha, former Finance Minister, submitted its report on Benami Transactions (Prohibition) Bill 2011 on 15th June 2012. However the Bill could not be passed and got lapsed in view of dissolution of 15th Lok Sabha.

4. Prohibition of Benami Property Transaction Act 1988 - in its new Avtar w.e.f. 1st November 2016. (hereinafter referred to as Benami Act, 2016)

4.1 In 2015, the idea of enacting a new Benami Law by repealing old Benami Law of 1988 was discarded by the present Government and rather an amendment to the old Benami Law of 1988 was proposed by the Benami Transaction Prohibition (Amendment) Bill 2015. This Amendment Bill was proposed in place of a new Benami Law such that the offences committed since 5th September 1988 can also be covered in the amended Statute. (for the period 19th May 1988 till 4th September 1988, benami transaction was not an offence as it was a period governed by the Ordinance of 19th May 1988). Any new Benami Law repealing the old Benami Law of 1988 would have excluded the offences since 1988 being covered under the old repealed law and thus would have provided unintended immunity to past offenders on account of technicalities.

4.2 The Standing Committee of Finance headed by Dr. M Veerappa Moily, former Law Minister submitted its report on Benami Transactions Prohibition (Amendment) Bill 2015 on 18th April 2016.The Benami Transactions Prohibition (Amendment) Act 2016 got enacted w.e.f. 01.11.2016 and the title of the Act was changed to“Prohibition of Benami Property Transaction Act 1988”.

5. The Benami Act, 2016- Prospective or Retrospective

5.1 Sec 1(3) provides that sec 3, 5 & 8 shall come into force at once (i.e 01.11.2016) and remaining provision of the Act shall be deemed to have come into force on 19th May 1988.

5.1.1 Sec 3 is the charging section which prohibits that no person shall enter into any benami transaction and any benami transaction entered into shall be punishable with imprisonment which may extend to 3 years and further any benami transaction on or after 01.11.2016 shall be punishable in accordance with chapter VII of the Act which provides for imprisonment upto 7 years and a fine upto 25% of the market value of the Benami Property.

If as per Sec 1(3), the enforcement of Sec 3 starts from 01.11.2016 then there is absolute repugnancy in providing for two kinds of imprisonment- one upto 3 years and another upto 7 years, the later larger punishment being applicable for offences committed on or after 01.11.2016. If the entire Sec 3 comes into force from 01.11.2016 then the punishment prescribed for upto 3 years in the same section runs counter to section 1(3) of the Benami Act,2016. However the intent of law is to provide for maximum 3 year imprisonment for offences committed from 5thSeptember 1988 upto 31.10.2016 and thereafter from 01.11.2016 to provide for extended imprisonment upto 7 years.

5.1.2 Sec 5 provides for, that the benami property is liable to confiscation by the Central Government.

Now if this Sec 5 comes into force from 01.11.2016 as per Sec 1(3) then the Benami Properties from 5th September 1988 upto 31.10.2016 are not liable for confiscation because Sec 5 itself comes into force w.e.f. 01.11.2016. Obviously this cannot be the intention of the legislature but literally Sec 5 conflicts with Sec 1(3) of the Act.

5.1.3 Sec 8 provides for composition of an Adjudicating Authority which is a procedural law and thus has no issue of prospective or retrospective application and hence no legal conflict as such with sec 1(3).

5.2 Sec 1(3) of Benami Act 2016 is the exact literal verbatim reproduction of Sec 1(3) of Benami Act 1988 which at that time provided for Sec 3,5 & 8 (making benami transaction to be an offence as per 11th Law Commission Report dt 14th August 1988) to be applicable from the enactment of the Benami Act 1988 w.e.f. 5th September 1988 whereas other provisions were made effective from 19th May1988 (Date of the Benami Ordinance,1988).

This being a drafting issue should be interpreted in the light of legislative history of benami law in 1988 and thus Sec 3 & 5 prescribing the benami transaction to be an offence and benami property liable to confiscation, as per statutory rules of interpretation, are applicable retrospectively from the date of enactment of Benami Act, 1988 i.e. 5th September 1988 and Sec 8 being a procedural section regarding composition of Adjudicating Authority does not involve any issue of prospective or retrospective application.

5.3. As per literal language of Sec 1(3) of Benami Act 2016, barring Sec 3,5 & 8 the entire law is deemed to have come into force on 19.05.1988. The repugnancy of Sec 1(3) of Benami Act 2016 has already been elaborated hereinabove. If literal interpretation is followed then even the charging Sec 3 and confiscating sec 5 will not be available to be pressed for benami transactions from 5th September 1988 upto 31.10.2016. But it is evidently never the intent of the legislature which expressly intended to cover all the offences right from 1988 and thus the literal interpretation of sec 1(3) has to be avoided and discarded. As a result the question of prospective or retrospective operation of all the other provision of the Benami Act 2016 has to be judged irrespective of literal language of sec 1(3) of Benami Act 2016. Going by this rule of interpretation the Benami Act 2016 barring sec 3,5 & 8 is all prospective applicable from 01.11.2016. And therefore for benami transactions from 05.09.1988 till 31.10.2016 the substantive law as per Benami Act 1988 will apply, however, the procedural law for benami transaction upto 31.10.2016 shall be same as per Benami Act 2016.

6. Benami Act 2016 - Meaning and Scope of Benami Transaction

6.1 Benami Act 1988 provided for a very brief definition u/s 2(a) whereby benami transaction means

any transaction in which property is transferred to one person for a consideration paid or provided by another person;

however sec 4(3) of Benami Act 1988 excluded the transaction:

(a) where the person in whose name the property is held is a coparcener in a Hindu undivided family and the property is held for the benefit of the coparceners in the family; or

(b) where the person in whose name the property is held is a trustee or other person standing in a fiduciary capacity, and the property is held for the benefit of another person for whom he is a trustee or towards whom he stands in such capacity.

6.2 The Meaning and Scope of benami transaction has been extensively enlarged as per sec 2(9) of Benami Act 2016, and now benami transaction has been classified into four groups.

(A) a transaction or an arrangement -

(a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and

(b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by—

(i) a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;

(ii) a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose;

(iii) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;

(iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or

(B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or

(C) 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;

(D) a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

6.3.1 In almost all the cases presently being taken up by the Revenue, the enlarged definition of benami transaction as per sec 2(9) of the Benami Act 2016 is being invoked irrespective of the fact that most of the benami transactions being taken up by the Revenue pertains to the period before 01.11.2016. In the opinion of the author such stand of the Revenue is not commensurate as per the scheme and authority of Law.

6.3.2 The Revenue is forwarding an argument that Sec 2(9) of Benami Act 2016 is retrospective by virtue of sec 1(3) of 2016 Act which argument is not tenable as already discussed herein above. If the Revenue takes shield u/s 1(3) of the Act then sec 3 & 5 are specifically prospective as per sec 1(3) of the Act and all the cases of the Revenue in the absence of sec 3 & 5 shall be liable to be quashed. And therefore invoking sec 2(9) for enlarged meaning of benami transaction is not legal in the views of the author.

6.3.3 Another possible argument to invoke the enlarged meaning u/s 2(9) of the 2016 Act may be that sec 2(9) is a declaratory provision explaining and elaborating the meaningof benami transaction u/s 2(a) of 1988 Act and thus if sec 2(9) of 2016 Act is accepted as declaratory then the impediment of retrospective operation will not come in resorting to enlarged meaning as per sec 2(9) of the 2016 Act.

6.3.4 In view of author sec 2(9) of 2016 Act is not a declaratory provision but it is a substantive provision enlarging the scope of an offence resulting into severe consequences including confiscation of property and also prosecution which may result into severe imprisonment upto seven years along with fine. Thus amendments as per sec 2(9) having aforesaid rigorous consequences cannot be accepted as declaratory in nature and therefore sec 2(9) giving enlarged definition of benami transaction is a prospective law applicable from benami transactions entered into on or after 01.11.2016.

6.3.5 Article 20(1) of our constitution which applies to criminal penalty comes to the rescue of all the accused if sec 2(9) is invoked to ascertain a benami transaction for transactions entered into from 05.09.1988 upto 31.10.2016. Article 20(1) provides for a fundamental right thatno person can be convicted for an offence except for a violation of a law in force at the time of the commission of the act constituting an offence.

7. Attachment and Adjudication of Benami Property

7.1 The process of attachment of any alleged benami property starts with a “reason to believe” on the part of Initiating Officer (Initiating Officer happens to be designated ACIT/DCIT of Income Tax Department, e.g. in Amritsar the Initiating Officer is ACIT/DCIT of circle 1(1)-Chandigarh).

7.2 Where the Initiating Officer on the basis of material in his possession has Reason to Believe that any person is a benamidar in respect of a property he may after recording a reason in writing issue a show cause notice u/s 24(1) of the Benami Act 2016, to the alleged benamidar as to why the property should not be treated as benami property liable for provisional attachment. Copy of the show cause notice is also issued to the beneficial owner, if his identity is known.

7.3 Though there are no written provisions to provide for the “reasons to believe” and the “material in possession” of the Initiating Officer, it is an established law of natural justice and particularly in criminal law, that the Initiating officer must provide the reason to believe recorded along with the material in his possession on the basis of which he has formed his opinion in respect of the property proposed to be treated as benami.

7.4 Strictly legal, benami law being leading to criminal prosecution, the noticee (alleged benamidar/ beneficial owner) is under no obligation; rather he is incapable to reply to the show cause notice, the reasons of which and the material on the basis of which, such showcause notice happens to be issued by the Initiating Officer. This discussion pertains to a practical and administrative hassle whereas the Initiating Officer keep insisting on filing a plethora of information and documents without supplying the reasons and material relied upon. The only rescue to the Noticee is the limited time frame of 90 days within which the Initiating Officer has to conclude the proceedings deciding whether the alleged property is benami or not, and accordingly to pass or not to pass the attachment order.

7.5 However the initiating Officer has authority to provisionally attach the alleged benami property simultaneously with show cause notice if he is of the opinionthat the person in possession of alleged benami property may alienate the property (practically in almost all the cases the Initiating Officer does have such opinion and accordingly passes provisional attachment order u/s 24(3) along with show cause notice u/s 24(1) itself)

7.6 Strictly legal, sec 24 of Benami Act 2016 provides for attachment and adjudication process which is initiated on the basis of material in his possession. Sec 24, in substance is not meant to collect fresh information and documents (though it may be a supplementary function incidental to and resulting from adjudication process) but sec 24 is meant to confront the alleged benamidar/ beneficial owner with the relied upon material and reasons of the Initiating Officer and provide a legal opportunity of being heard to them before deciding whether to attach or not the alleged benami property.Sec 24 is not meant for doing roving and fishing enquiries.

7.7 In contradiction to adjudication process u/s 24, so far as the investigation and inquiry to collect information of possible benami properties are concerned, the Revenue has got wide powers u/s 19,20,21,22 & 23 of the Benami Act 2016. These provisions are like powers available with Investigation Wing of Income Tax Department while on the contrary provisions of sec 24 onwards are like powers of assessment/adjudication procedures in Income Tax Department.

7.8 Because Benami Act 2016 holds any benami transaction to be an offence like a criminal law and provides for prosecution with severe imprisonment upto 7 years and hefty fine upto 25% of the market value of the property, the protection of Article 20(3) which is a fundamental right available to any accused must be available to the alleged benamidar/beneficial owner. Article 20(3) says that no person accused of any offence shall be compelled to be a witness against himself. To be a witness within the meaning of Article 20(3) includes not only the oral witness but documentary evidence also. However, it is subject to a legal scrutiny that whether the stage at sec 24 proceedings will constitute the Noticee to have been alleged as accused or not, to take shield under Article 20(3) of the Constitution.

7.9 After hearing the benamidar/ beneficial owner the Initiating Officer shall pass the provisional attachment order u/s 24(4)with the approval of Approving Authority, who happens to be JCIT/Addl. CIT and forward the case to Adjudicating Authority within 15 days of provisional attachment order u/s 24(4) of the Act (however if he is satisfied with the reply, the Initiating Officer will drop the proceedings u/s 24(1), practically it is very unlikely to convince the Initiating Officer).

7.10 The Adjudicating Authority shall issue the notices u/s 26 of the Act, to the benamidar/ beneficial owner giving not less than a time period of 30 days to reply and shall also supply the relied upon documents by the Initiating Officer while passing the provisional attachment order u/s 24(4) of the Act.

7.11 This Stage before Adjudicating Authority u/s 26 of the Act is the most crucial stage and the best opportunity to the benamidar/ beneficial owner to compile and submit all the legal and factual grounds along with all the documentary evidences and rebut all the inferences, conclusions and relied upon documents by the Initiating Officer. This reply/written submission in response to Notice u/s 26 must be compiled with all care and diligence to include all grounds, arguments, counter claims, rebuttals and evidences such that there is no need for any further additional evidence to be pleaded at any later stage.

7.12 The Initiating Officer will submit a Rejoinderto the reply filed by benamidar and beneficial owner in response to notice u/s 26 of the Act. Thereafter, all the parties i.e Initiating Officer (or his legal representative) and benamidar/beneficial owner (or their legal representative) are given opportunity of oral hearing and arguments before the Adjudicating Authority and thereafter the Adjudicating Authority decides u/s 26(3) and pass an order (a) holding the property not to be a benami property and revoking the attachment order or (b) holding the property to be a benami property and confirming the attachment order.

7.13 Any person including the Initiating Officer aggrieved by an order of the Adjudicating Authority may prefer an appeal u/s 46 of the Act to the Appellate Tribunal against the order passed by the Adjudicating Authority u/s 26(3), within a period of 45 days from the date of the order.

8. Confiscation of Property and Prosecution

8.1 Confiscation u/s 27 of the Act: Subject to the order passed by Appellate Tribunal u/s 46 of the Act, where an order is passed by the Adjudicating Authority u/s 26(3) holding such property to be a benami property, the Adjudicating Authority shall, after giving a opportunity of being heard, make an order confiscating the property held to be a benami property.

8.2 Prosecution u/s 53 of the Act: Where a person enters into a benami transaction in order

� to defeat the provisions of any law or
� to avoid payment of statutory dues or
� to avoid payment to creditors

the beneficial owner, benamidar and any other person who abets or induces any person to enter into a benami transaction, shall be guilty of the offence of benami transaction.

8.3 No prosecution shall be instituted without previous sanction of CBDT.

8.4 There is a marked difference between confiscation provisions u/s 27 and prosecution provision u/s 53 of the Act. Whereas prosecution u/s 53 does require toprove unlawful and illegal intention (mens-rea), the confiscation provisions u/s 27 does not provide for any such pre-condition of mens-rea.

8.5 It means that the confiscation proceedings are civil proceedings in nature and it is not criminal confiscation in the nature of criminal penalty but only a civil confiscation taking over the unlawful property from the benamidar in which he has never invested anything and to which he has no legitimate title whatsoever.

8.6 But from the point of view of the beneficial owner, in the opinion of the author, it is very much a punitive action in the nature of criminal penalty for an offence u/s 3 of the Act. Such severe punishment confiscating the property to which the legitimate and legal beneficial title vest in the beneficial owner, no confiscation of his property can be legally undertaken without proving illegality of source and mens-rea on the part of beneficial owner. This area of litigation whether confiscation of property is a civil confiscation or punitive confiscation, awaits legal scrutiny of higher courts and involves constitutional issues regarding depriving someone of his legitimate property, without any conviction as per procedure established by law.

9. Conclusion-Multiple overlapping Statutes

9.1 Post 1988, the law has changed manifold. So far as unexplained assets, unexplained investments and unexplained expenditure is concerned, sec 68 & 69 r/w sec 115BBE of the Income Tax Act, have severe provisions of imposing income tax at an effective rate of 75% coupled with penalty of 10% u/s 271AAC of the Income Tax Act, coupled with prosecution provisions also. So any benami property without explaining its source is already subject to heavy tax burden in present Income Tax Law.

9.2 So far as any benami property acquired by any illegal and illegitimate source is concerned e.g. money collected from corruption etc., such illegitimate property is already covered within the meaning of Prevention of Money Laundering Act and is already subject to confiscation and prosecution in Money Laundering Law, being covered within the meaning of the proceeds of crime.

9.3 If current Income Tax Law takes care of civil consequences of any benami property and Money Laundering Law takes care of illegitimate and illegal benami property, then how another parallel law providing for confiscation of benmai property irrespective of its legitimate and tax paid source coupled with prosecution provisions with seven year imprisonment is justified, is anybody’s imagination.

9.4 It seems that innocent benami transactions which were always legal and acceptable in Law for ages together, were attempted to be discouraged by taking away legal right of recovery of benami property by beneficial owner through the process of court, by way of Ordinance of 19th May 1988, then Law was changed to a criminal offence and new Law was enacted in haste within four months on 5th September 1988 but without any administrative machinery and thus without any punitive consequences, and then again the Law has been enacted in undue haste in 2016 now resulting into multiple civil & criminal consequences under multiple laws operating simultaneously and overlapping with each other over same & similar domain. The pendulum has taken a full turn and has shifted from one side to another side and now is proving a tool of immense harassment in the hands of administrative authority, which happens to be our beloved Income Tax Department, well experienced in such administration.

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CA Vipin Garg 
on 13 September 2018
Published in Income Tax
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