Shah Rukh Khan (SRK)’s Alibaug farmhouse has been attached under Section 24 of the Prohibition of
Benami Property Transactions Act (PBPT). While the colour of a
benami asset is not always ‘black’, it can still land you in trouble. This is the reason for you to know the provisions of the
Benami Act so that you do not make the blunder of creating a
benami asset intentionally or inadvertently. (Read our
October 2017 cover story on the subject)
The first violation by SRK is simply to not have had his name on the property, which was paid for by him. Buying property in the name of relatives without your name figuring anywhere is a no-no. The property was purchased through Deja Vu Farms Pvt Ltd whose directors include SRK’s father-in-law, mother-in-law and sister-in-law.
The second violation is the misuse of the land. Deja Vu Farms Pvt Ltd was incorporated on 29 December 2004 with interests in crops, gardening and horticulture. SRK gave unsecured loan of Rs8.5 crore to Deja Vu Farms for purchase of agricultural land for farming in Alibaug, but subsequently converted the land into a farmhouse for personal use. It is a benami transaction under Section 2 (9) of the Act. A pool and helipad are made on this plot. Deja vu Farms has not shown any income from farming activity.
The third violation is transfer of agricultural land to a non-agriculturist without the permission of the collector or state government. The way around in this case seems to be having a person who is an agriculturist as a director of the farm only to be replaced by a family member subsequently. There are alleged violations of Coastal Regulatory Zone (CRZ) rules. A swimming pool constructed on the plot led to the serving of notices for violating CRZ rules.
The Benami Transactions (Prohibition) Act, 1988, was comprehensively amended through Benami Transactions (Prohibition) Amended Act, 2016 that came into force in November 2016. Indians with benami assets will have a lot to worry about, with the amended Act having got its teeth, which were lacking in the original legislation. Those having benami property to hide their unaccounted money will be in trouble as will be those who happened to inadvertently create benami property, even with legitimate money.
A transaction is termed benami if an asset is held by one person but has been provided, or paid for, by another person. Such an asset can be movable, immovable, tangible, intangible, any right or interest, legal documents, gold, financial securities and any other financial assets. So, benami definition is not just for physical property, but it is also applicable for any financial asset.
For example, you may pay for a property in the name of your sister or put your money in a bank account of your brother. In both cases, your name is not there as the owner of the property or financial account or as a joint account-holder. It is a benami transaction because your money is used to create an asset without your name. There could be various reasons why you may have done such arrangement. It could be to evade taxes by utilising the low tax bracket of your family member. Or it could be that you have taken a loan and want to keep your assets away from creditors who can attach the asset, if you default on the loan repayment. In an attempt to evade taxes or finding ways to safeguard your asset, you are creating trouble for yourself by turning your legitimate finances into a benami asset. Why would you take any risk for your ‘white’ money?
Benami assets are liable for confiscation by the government. The guilty are punishable with rigorous imprisonment of not less than one year which may be extended to seven years depending on the severity of the offence. The guilty can also be charged with a fine which may extend to 25% of the fair market value of the benami asset. A person could also face rigorous imprisonment for six months up to five years for knowingly giving false information and will have to pay a fine of up to 10% of the market value of the asset.
The Benami Transactions (Prohibition) Amended Act, 2016, defines a benami property/asset as:
- APerson holding the property or the person on whose name the property has been transferred has not paid the money or the price of the property in question is paid by someone else;
- A transaction carried out under a fictitious name;
- Where the person in whose name the property is registered denies any knowledge of ownership; or
- Where the person paying for a transaction or property-related arrangement is either not traceable or found to be fictitious.
