Immunity to proxy play

Indifference to legislation prohibiting benami transaction means the country is missing on revenue worth crores
Wednesday, June 15, 2011

The controversy related to black money is turning out to be a major embarrasment for the UPA government. However, while Baba Ramdev raises cudgels against the money stashed in foreign banks, nobody seems to care about the  undeclared wealth which exists right here in Indian territory. According to a World Bank study, in 2006-07 black money in India amounted to Rs 15 lakh crores, almost one-fourth of the country’s GDP.

Even though the incumbent ministers convey helplessness in dealing with this issue, there is no escaping the fact that it’s the lack of willpower both from the side of politicians as well as bureaucrats which is robbing the country of its well deserved earnings.

The Benami Transactions (Prohibition) Act, 1988, which proscribes illegal property transaction, is yet to be properly implemented. This means benami transactions are rising unabated, the latest instance being of Adarsh Society, Mumbai, where around 35 flats are reported to be owned in benami names.

The Benami transaction (Prohibition) Bill was passed in 1988 but the Act is not enforceable because the rules and regulations were never made. Bureaucrats usually justify this lacuna by claiming that the law has certain loopholes whereas the fact is making rules and regulations could have dealt with any drawbacks.

The Benami transaction (Prohibition) Bill was passed in 1988 but the Act is not enforceable because the rules and regulations were never made

What is benami transaction?

The law defines benami purchases as “property purchases in false name of another person, who does not pay the consideration but merely lends his name, while the real title vests in another person who actually purchased the property and he is the beneficial owner.” "property" means property of any kind, whether movable or immovable, tangible or intangible, and includes any right or interest in such property.

Benami transactions mainly take place in the immovable property market. A person with lots of black money uses the real estate market since it also earns him good investment. On an average, in real estate transactions across the country more than half the money involved can be black money. For instance, in Chandigarh, the capital of Punjab and Haryana, current market price of a square yard is around Rs 1 lakh but while registering the property with the local registrar of lands, people quote only one-third of the market prices, which is equal to the government stipulated land price for the purposes of collecting stamp duty on the land transactions. The rest of the transaction is in black money. Now, to cover up a number of such transactions involving black money the actual buyer of the property gets the bought properties registered in the name of somebody else.

How the efforts were wasted

The Parliament has repeatedly tried to check the benami transactions. In 1976, it amended the Income Tax (IT) Act, 1961, by adding section 281A, barring the institution of suit in relation to benami properties. But after the ineffectiveness of this amendment was recognised, the Parliament totally prohibited benami transactions. Section 82 of Indian Trusts Act and Section 281A of the Income Tax Act were also repealed to stop the abuse and fraud through benami transaction of property.

The Benami Transactions (Prohibition) Act was formulated to limit the use of black money in the property transactions. It had stipulated strict penalties comprising both imprisonment and fines. But, the strictest punishment against the Benami property owners was the acquisition of the property.

While the Parliament accorded salient features to the Act, the Union Ministry of Finance was to fill in the details. The ministry was entrusted with the responsibility to define the authority competent to acquire the benami properties and to make rules and regulation(s) regarding the procedure to be followed for the acquisition. However, nothing moved beyond that and without the rules and regulations the legislation has become meaningless.

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