Benami Transactions (Prohibition) amendment Act, 2016 is effective from 1^st November 2016. The objective of the Act is to prohibit a benami transaction so that the beneficial owner would be compelled to keep the property in his own name only and the legal complexities owing to the apparent ownership not being legal ownership could be avoided. The intention of the law makers is very clear. However the way few clauses are drafted, it triggers the thought process to explore possible use or abuse of the provisions of the Act. 

The term Benami Transaction is defined under section 2(9) of BTP Act, 2016.

(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 and any other person as may be notified by the Central Government for this purpose; 

(iii) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual. 

(iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or 

(B) ..........; or 

(C) ........, or 

(D) .........; 

Explanation.—............. 

There are 4 exceptions to clause (A) of section 2(9) of BTP Act. One can notice that in all the four exceptions except (ii), the requirement is that the owner should have paid for the property out of “known sources”. However clause (ii) in which the property held by a person in his fiduciary capacity which is not a benami transaction. The fiduciary capacity includes, trustee, executor, partner, director of a company, depository under the Depositories Act, 1996 and any other person as notified by Central Government. 

Hence if a person is holding a property which is purchased out of unknown source of funds by the person for whom he stands in a fiduciary capacity then the said transaction will not be considered as benami transaction. Thus the property held by a trustee which is acquired by trust out of its undisclosed and unaccounted sources of funds may not be considered as benami transaction. However the way clause (ii) is drafted it does give room for persons in fiduciary capacity to escape the provisions of BTP Act. In a way it is an escape route for trusts, companies, firms to acquire properties out of unknown sources of funds and hold the same in the name of its trustees, directors and partners respectively. This appears to be against the intentions of law makers and overall spirit of this law. 

The interesting point to note here is that, when Benami Transactions Bill 2016 was introduced, the words used were “known sources of income”. However Standing Committee on evaluation of the Bill, recommended omitting the word “income” as the family of the buyer can contribute towards consideration or a person may take a loan. Thus required care has been taken on drafting these exceptions and hence it will be little difficult to even imagine that the term “known sources” is not part of exception (ii) to section 2(9)(A) due to drafting error. 

Now the real test of such provisions of this amended Act will begin once the proceedings under this Act are initiated. However it is certain that proceedings under this law are going to give rise to lot of litigation.