FEBRUARY 23, 2024

By Ms Bharathi Krishnaprasad, Associate Director and Ms Janane G, Principal Associate, Lakshmikumaran & Sridharan, Attorneys

A significant ruling of the Delhi Appellate Tribunal in the case of Prism Scan Express Pvt. Limited could be a wakeup call to all those who were under the belief that their old trades would not come under the glare of Benami Law, taking shelter of the decision of the Apex Court in the case of Ganpati Dealcom Pvt Ltd v. UoI 2020 SCC Online SC 1064 which held that the Benami Transactions (Prohibition) Amendment Act, 2016 shall not apply retrospectively.

The intent behind formulating the Benami Transactions Prohibition Act was to prohibit such transactions where a person used to purchase properties in the name of another person for various reasons such as tax avoidance, hiding of accumulated personal wealth, parking of unaccounted money etc. Since these transactions became largely prevalent, the Government introduced the Benami Transactions Prohibition Act, 1988 ('Old Act ') to prohibit Benami Transactions and also to acquire properties acquired through such properties. However, since no clear-cut rules or regulations regarding powers of an authority to prosecute or confiscate were ever brought out, the Act became ineffective.

Hence, amendments were needed to effectuate the Act and the Government thus introduced the Benami Transactions Prohibition (Amendment) Act, 2016, ('Amendment Act 2016') which came into force from 1 November 2016 with certain amendments to prosecution and confiscation procedures under the Benami law. These amendments became a subject matter of litigation on the question of its retrospective application as authorities under the Amendment Act 2016, upon its introduction, invoked the provisions extensively to prosecute and confiscate benamidars and their properties for transaction that took place during periods prior to coming into effect of the said Act. This issue was finally settled by the Apex Court in the Ganpati Dealcom ( supra )to hold that the amendments cannot be applied retrospectively as they are punitive in nature and thus, directed all the concerned authorities to quash proceedings initiated for transactions that occurred prior to 2016.

Subsequent to the decision of the Apex Court, a position emerged that transactions undertaken prior to 2016 would not attract the rigors of the amended Benami Law. However, the recent ruling of the Appellate Tribunal in the case of Prism Scan Express Pvt Limited v. DCIT [2023] 157 taxmann.com 623 has rekindled this debate.

Brief background of the case

Appeals were filed under Section 46 of the Benami Prohibition Act challenging the provisional attachment Order of the Appellant's demat and bank accounts. It was the case of the authorities that based on a survey conducted under Section 133A of the Income Tax Act, 1961 in the premises of one M/s Bhageria Industries Limited ('BIL') in the year 2018, it was found out that there had been purchase of shares of BIL by benamidars, M/s Prism Scan Express Pvt Ltd and Futurage Corporate Care Pvt. Ltd. ('Appellants') in the year 2013. Therefore, a show cause notice under Section 24(1) of the Act was issued. The Authorities further attached the DEMAT accounts of the Appellants by invoking powers under Section 24(3). This attachment Order was subject to challenge before the Tribunal.

It was argued by the Appellant that since the alleged purchase of shares took place in the year 2013 itself, invoking provisions of the Benami law as amended in 2016 for confiscation or initiating criminal action is not valid as the said law is to be applied only prospectively as laid down in Ganpati Dealcom case. The Appellants hence prayed for a direction to quash the proceedings initiated.

Tribunal findings

The Tribunal analysed the definition of the term 'Benami Transaction' as provided under Section 2(9)(A) of the Amended Act 2016 which is reproduced hereunder.

Section 2. Definitions. - In this Act, unless the context otherwise requires , (9) 'benami transaction 'means,-

(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 (22 of 1996) and any other person as may be notified by the Central Government for this purpose ;…

The Tribunal noted that the definition to the term 'benami transaction', post amendment in 2016, not only refers to a case where property is transferred to a person, but also includes a case where the property is 'held' by a person, consideration in respect of which was paid by another person. The Court interpreted the word 'held' to hold that, even if the property was transferred to a benamidar before 2016, the same can still be regarded as a 'benami transaction' if such property is continued to be held by the benamidar post 2016.

The Tribunal while referring to the ratio laid down by the Supreme Court judgement in Ganpati Dealcom, however noted that the word 'held' as provided in the definition of benami transaction is also of great significance and should, therefore, be accorded its proper interpretation. In the present facts, the transaction of purchase of shares of BIL by the Appellants took place as early as 2013 and the same were 'held' by the Appellants at the time of survey conducted by the Authorities in the year 2018.

Conclusion

This case is the first of its kind where the term 'held' as appearing in the definition of the term 'benami transaction' is being interpreted by a Court. It is also pertinent to note that the Ganapti Dealcom decision did not discuss the implication of usage of the term 'held'. The latest Tribunal ruling has opened a pandora's box and may lead to fresh wave of proceedings involving attachments/ confiscations and criminal prosecution in respect of alleged benami properties, which are continued to be held post 2016, even if the underlying transfer took place prior to the amendment in 2016.

[The views expressed are strictly personal.]