News: SC ruling on retro effect of Benami Law keenly awaited-04-05-2022
A plethora of transactions like cash transfers, property deals, and share issuances have come under the lens with the invocation of the Benami Transactions (Prohibition) Amendment Act, which came into effect from November 1, 2016 following the amendment of a 28-year-old ineffective law.
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 retrospecti vely.
A plethora of transactions like cash transfers, property deals, and share issuances have come under the lens with the invocation of the Benami Transactions (Prohibition) Amendment Act, which came into effect from November 1, 2016 following the amendment of a 28-year-old ineffective law.
Having completed the hearings on a petition challenging the Calcutta High Court ruling that the new law did not apply retrospectively, the apex court has recently sought final written submissions from the parties, said legal circles.
Senior advocate Abhishek Singhvi, who argued the matter, said, "I would not like to comment on the merits of a sub judice matter where judgement is reserved, and where I have myself argued the main matter. I think everybody should have patience. I can however say that it's going to be an extremely important judgement either way on the retrospective application of the Benami Act-namely, to what extent the Benami Act applies to transactions which have taken place long before any of the substantive amendments to the Benami Act were passed. It would be a matter of great importance in the judgement because the court would also decide whether the amendments to the Act are substantive or were merely clarificatory in procedure. Beyond this I will not comment yet."
A wider definition under the new Benami Act-covering not just 'transaction' but also 'arrangement' to facilitate benami deals-along with 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'; if not, it can use the amended law to confiscate the asset, demand a quarter of the market value of the asset as penalty, and even put the offenders-the real or 'beneficial owner' as well as the 'front' or the 'benamidar'-behind bars.
'Very Framework of the Act has Changed'
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; or, giving unaccounted cash to a clutch of investors who invest the money 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, however, draws distinction between the transactions done under old law, which are liable for lesser punishment, and transactions done after November 1, 2016, which attract higher punishment. This aspect may not be affected even if the honourable SC holds that it is retrospective," said senior chartered accountant Dilip Lakhani.
But, according to advocate and former ITAT member Ashwani Taneja, the very framework of the Act has changed. "There were only 9 sections in the 1988 Act whereas the Amendment Act has introduced 72 Sections, which has brought a qualitative and substantive change in the definition of Benami transaction and structure of Benami Law. New authorities have been created and new powers have been conferred upon them, such as power to make provisional attachment of the properties (even without adjudication) and finally their confiscation. Under these circumstances, it will be very harsh and unfair to apply the new law upon older transactions. 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, leading to harsher consequences."
Often like the Black Money Act (for taxing offshore assets), there are cases where the new Benami law is used where the Income Tax Act is powerless.
"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. Now, the Supreme Court will decide the fate of these provisions," said Ashish Mehta, Partner at Khaitan & Co.
