Clipped from: https://economictimes.indiatimes.com/news/economy/policy/taxman-has-a-benami-key-to-exhume-deals-assumed-long-done-and-dusted/articleshow/99996382.cms
Indian tax officials, looking into suspected benami deals, are pressing wealthy individuals about transactions that occurred long before the Benami Transactions (Prohibition) Amendment Act came into force in November 2016. Ironically, even though India’s Supreme Court ruled in August last year that the law couldn’t be applied retrospectively, tax officials still have powers to call for information about legacy deals that could be subsequently used to invoke harsher legislation under the Prevention of Money Laundering Act. Although the department is currently focusing on properties and assets held by benamidars, an investigation could reveal questionable cash payments to loan operators and the like.
Old deals – sharp, shady as well as kosher – are coming under the lens, unsettling many who had overlooked a provision of the Benami law: even though the Supreme Court had ruled last August that the statute cannot be applied retrospectively, tax officials still retain the powers to call for information on deals that were cut long before the law came into force.
The fear that has now gripped many is that the information fished out by the department can be later used to invoke harsher laws like the Prevention of Money Laundering Act (PMLA) under which there is no limitation period.
With the department’s focus on properties and assets it thinks continue to be held by the ‘benamidar’ (the front of the real owner), an inquiry into old transactions could lay bare past cash exchanges and the role of loan entry operators which used to facilitate benami purchases.
The tax office probes a property or stock acquisition as ‘benami’ where it suspects that the ‘official owner’, on whose name an asset is registered, is not the real owner.
Powers to dig up old details
The Benami Transactions (Prohibition) Amendment Act came into effect on November 1, 2016, following the amendment of a 28-year-old ineffective law. Last August, the apex court ruled that the law cannot be invoked retrospectively.
Lawyers and tax practitioners are tracking how the department’s information-gathering exercise plays out.
According to advocate and former Income Tax Appellate Tribunal member Ashwani Taneja, “Notices seeking past information have been sought under the Benami Act. Though undoubtedly Section 19 of the Act gives the widest powers to the initiating officer of the Benami prohibition unit to make any enquiry as is needed by him, if we read the judgement of the Supreme Court, we notice that the apex court has struck down all the proceedings which were initiated on transactions done before October 25, 2016. Therefore, under these circumstances, the law has to be read in the context and light of the Supreme Court judgement. Anything done in a manner which is contrary to the declaration made by the Supreme Court may amount to contempt of its judgement. Therefore making open-ended and fishing enquiries on transactions which were completed before October 25, 2016, will be contrary to the law as of date. The law contained in the Act has already been read down by the Supreme Court and therefore it cannot be enforced accordingly.”
What exactly are tax officials looking into? For instance, an asset where the real owner had lent money to a ‘Benamidar’ long ago, but the property continues to be held by the benamidar even though the loan remains unpaid. Even if a loan is repaid, it could bring to the fore the part played by ‘entry operators’, who dealt in cash and acted as a go-between a benamidar and real owner.
Hasher than income tax law
How far back can the taxman go in snooping around a suspected Benami transaction?
“Typically, the requirement to preserve books of accounts under tax laws or company law is for eight years or not beyond 10 years which is the maximum period for reopening cases under the Income Tax Act. However, Section 67 of the Benami Act, which has an overriding effect, says that the provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force,” said Siddharth Banwat, a chartered accountant with a leading firm in Mumbai.
Many, said Banwat, are taken aback by the notices calling for past information (since incorporation) as against the widely shared view following the Supreme Court ruling that the Benami Act cannot be applied to transactions retrospectively. However, there’s little that holds back revenue authorities from using this information to use other laws.
“The department has sent notices to many individuals. These notices inquire about the source of income from which such properties were acquired. The department, which has the power to ask for old information, is verifying whether the owner is a beneficial owner or holding on behalf of someone else. Now, the information sought is relating to years before the law came into existence. That’s because the properties are still owned by them,” said Rajesh Shah, partner at Jayantilal Thakkar & Co, an accountancy firm.
The department can even look into cases where a Benami property bought before 2016 was later sold and the proceeds were used to purchase a second property after the law came into force. Here, it could be driven by the argument that the second property is linked to the Benami asset.