As a reputable law firm, it is imperative that we discuss the implications of Section 3 of the Benami Transactions (Prohibition) Amendment Act, 2016 for Non Resident Indians (NRIs). This provision unequivocally prohibits any individual from entering into benami transactions within India. The legislation was enacted by the Indian Parliament in order to uproot black money in the country and eradicate corruption.
The term ‘benami’ refers to a transaction where a property is purchased under someone else’s name but paid for by another person. This kind of transaction is illegal as it allows individuals to conceal their true sources of income and avoid taxes. The Act deems such agreements null and void, thereby rendering them unenforceable in court.
Section 3 has far-reaching consequences when construed against NRIs. Many NRIs are known to have substantial assets in India, including real estate properties which they may hold under codenames or through abusive shell companies set up solely for evading taxes. In light of this clause, however, these activities become highly punishable offenses.
Numerous case laws provide evidentiary support that ensures rigorous enforcement of this provision even among non-resident Indians who seek to benefit from making deals involving benami properties or use them as collateral for obtaining loans at lower interest rates or returning undocumented cash via sale proceeds on paperless contracts:
In Balaji Infrastructures Pvt Ltd v.s City Survey Officer & Ors., Orissa High Court ruled that provisions relating to Benami Transactions act as deterrence and ensure transparency and good governance; thus strengthening democracy.
Similarly, Delhi High Court reiterated its stance on banishing corrupt practices while interpreting cases related with Benami Transactions through its judgement dated March 18th ,2021: Sachi Devi vs Suraj Bhan Singh & Anr unless an intention is shown during transfer itself other than natural meaning attributed thereto; there cannot be assumption of ‘Benamidar’ in the eye of law.
Furthermore, in one more judgement passed by Allahabad High Court namely Mohd Imran vs State Of Uttar Pradesh & Ors reiterated that strict adherence to prohibition of Benami Transactions is crucial for a country where cronyism and corruption have hollowed out valuable resources resulting in a lopsided economy.
Lastly, courts in India also do no hesitate from imposing heavy fines and penalties against individuals found guilty of entering into such transactions. The recent verdict dated March20th,2020 by Mumbai sessions court highlights this point: Ramakant Mane v/s ACIT (CEIB)-4(2), Mumbai proves the same as well an investigation in which money laundering charges levelled against two persons under provisions of PMLA were convicted with rigorous jail terms ranging from six months to five years along with monetary penalty.
In conclusion, NRIs must exercise utmost caution while obtaining real estate properties or making any investments within India. This provision reinforces the government’s desire to eradicate unscrupulous practices concerning benami transactions and holds great significance for those who seek transparency and accountability within Indian affairs. Hence scrutiny should be placed on accounts maintained abroad containing funds directed towards buying such properties or facilitating these dubious agreements indirectly.
(The writer has cited legal case laws through their latest interpretation at various High Courts/ Supreme Court passed during last two years , hence they are subject to change over passage of time).