What is the meaning of the Benami transaction?

Ans. A Benami transaction means the following transactions or arrangements:

(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.

However, a transaction or an arrangement which satisfies conditions (A) and (B) above is not treated as benami when the property is held by:

I. A Karta, or a member of a HUF, as the case may be, and the property is held for his benefit or the 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 HUF;

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 descendent 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.

Examples

Mr. A buys a house in the name of his sister-in-law Mrs. B. Payment has been made by A. He and his family live in that house. Even if B is a rich lady, the transaction is benami. B is the Benamidar, and A is the beneficial owner. [Illustration from “Keep away from Benami Transaction" leaflet issued by the Income Tax Department].

It would, however, not be a benami transaction if it can be proved that consider­ation was paid out of HUF funds and the property was purchased for the benefit of the HUF family [Exception (i) to Section 2(9)(A)]. It would also not be a benami transaction if it can be proved that the sister-in-law B was in a fiduciary relationship vis-a-vis Mr. A [Excep­tion (ii) to Section 2(9)(A)]

Mr. P wants to take a liquor license from the government. He pays the money in the name of employee Mr. K, and the contract is awarded to Mr.K, but Mr. P is deriving benefit from the liquor license. The transaction is a benami transaction. Mr. K is the benamidar. Mr. P is the beneficial owner and profits from such liquor business shall be the benami property. [Illustration from “Keep away from Benami Transaction" leaflet issued by the Income Tax Department].

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

Example: Fixed deposits kept in the name of fictitious persons is a benami transaction/benami property[Illustration from “Keep away from Benami Transaction" leaflet issued by the Income Tax Department].

(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;

Example: Cash kept in a bank locker in the name of his employee/relative who denies knowledge is a benami property [Illustration from the leaflet “Keep away from Benami Transaction" issued by the Income-Tax Department].

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