What the Appellate Tribunal held on treatment of cash transactions as Benami transactions

What the Appellate Tribunal held on treatment of cash transactions as Benami transactions

Meera Emmanuel

A cash transaction would become an illegal benami transaction only if there is an element of lending a name, the Appellate Tribunal for SAFEMA, FEMA, PMLA, NDPS, PBPT Act (Appellate Tribunal) ruled.

The ruling came in a case initiated under the Benami Property Transactions Act (‘Benami Act’), 1988 alleging creation of benami cash to thwart the goals of demonetization.

As noted in the Appellate Tribunal’s order,

“… every cash transaction cannot be termed as ‘benami’ transaction. As per Section 2(9) A of the Act, the following twin conditions need to be satisfied-

1) the property being held by a person who has not provided the consideration,

2) the property is held by that person for the immediate or future benefit, direct or indirect of the person who has provided the said consideration.

Further, if the person accused of being a benamidar (i.e. the false owner under the Benami Act) no longer holds the property under scrutiny, his legitimate property cannot be attached to extract the value of the alleged benami property. No such jurisdiction is conferred upon the authorities under the Benami Act, although such provisions find a place under the Prevention of Money Laundering Act, 2002.

Chairman of the appellate tribunal, Manmohan Singh made these observations while setting aside Benami Act proceedings filed against a group of persons employed in two Engineering colleges.

Some of the employees had been given their salaries in advance, upon request, by the Chairman manning the two trusts in charge of the colleges. Two other employees had been given a substantial amount to organise certain activities for the college students.

However, the disbursement of this money was made in November 2016, shortly after demonetization was announced. This led the Income Tax (IT) authorities to suspect that the Chairman had forced his employees to accept the said amounts in old currency in order the evade responsibility for his undisclosed assets. It was theorised that, in doing so, the Chairman could later have his money reimbursed by his employees in new currency.

After demonetization, the IT department conducted a raid in the two engineering colleges in November 2016. Following this raid, the appellants were accused of holding benami property, in view of the money paid to them by the Chairman around this time. The Initiating Officer’s (IO) actions were endorsed by the adjudicatory authority as well.

However, the Appellate Tribunal faulted the IO for having proceeded against the appellant-employees by attaching their bank savings. This was despite the fact that no benami property (money) was deposited in the bank accounts seized by the IO.

On the IT Department’s instructions, the alleged benami property/money was eventually returned by the appellants to the college management or given over to the IT Department. In effect, none of the appellants eventually held any money paid by the Chairman, i.e. there was no element of lending their name for the Chairman’s property.

In such circumstances, the tribunal emphasised that the appellants’ legitimate property (i.e. their bank savings) cannot be attached instead of benami property under the Benami Act. Terming such substituted attachment as a double attachment and an illegal usurpation of property, the Appellate Tribunal reiterated that no such power has been conferred in the Benami Act.

“… there is no jurisdiction to attach a legitimate property in lieu of ‘benami’ property like the provisions of Section 2 (u) of the PMLA, 2002 ‘the value of any such property’. The said expressed provision in the definition is absent from this Act. The nature of this Act mandates pertaining to property-centric, the attachment can only be qua the ‘benami’ property and not any property in lieu of value of any property. In the present case, all the appellants have already returned the amount to the employers. They have not kept any amount. They were not aware about the consequences. The advance salary was taken due to donafide manner. [sic]”

Therefore, the Appellate Tribunal set aside the IO’s orders passed in March 2017, which had attached the appellants’ bank accounts under Section 24 of the Benami Act. The tribunal concluded that such an order was “contrary to law and facts as it takes to a property, which does not exist at all…

The tribunal went on to emphasise that the authority ought to be more careful in such sensitive matters and that ordinary citizens who are not involved in Benami transactions cannot be harassed in this manner.

In the passing, the Appellate Tribunal also dismissed the IO’s theory that the alleged benami transactions were carried out in order to thwart the effect of demonetization on facts. It went on to observe that,

The impugned order is unsustainable as it punishes the appellants for wanting to defeat the purpose of demonetization, which has no direct nexus with the Act and is beyond the purview of the Act.

Advocate Anirudh Bakhru appeared for the appellants, briefed by Advocate Sudhir Chandra. SPP Anish Dhingra appeared for the IO in the case.

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