The tax office has been rampantly invoking the law ‘retrospectively’ to slap notice, confiscate property, and initiate prosecution. It justified the actions on the grounds that the prime intention of the original Benami Act of 1988 was to make benami transaction an offence and clamp down on unjust gains and tax evasion.
Now, responding to a bunch of writ petitions — which challenged the retrospective application of the harsh law — the Rajasthan High Court has ruled that Benami Amendment Act, 2016 cannot have retrospective effect.
Under the amended law which came into effect from November 1, 2016, tax officers going after benami deals check whether the official owner — on whose name a property, land, or any asset is registered — is also the real owner. If not, the tax office can use the amended law to confiscate property, demand a penalty equivalent to a quarter of the market value of the asset, and take steps to put the offenders — the real owner as well as the front or ‘benamidar’ — behind bars.
“Hopefully, this will end the ambiguity on retrospective use of the law. The petitions were heard as these were related to the root of the implementation of the law… now, the assesse cannot be penalised for doing an act at a time when the statute was not in force and thus will not face punitive action for old transactions,” said senior chartered accountant Dilip Lakhani.
Counsel for the tax department argued before the court that the amended law simply “clarified and amplified” the underlying intention to curb corruption which was also the aim of Benami Act of 1988. According to the department, the terms used in the principal and the amended Acts are two sides of the same coin.
‘Acted without Jurisdiction’
‘Confiscation’ of benami assets as used in the amended Act is no different from ‘acquisition without compensation’ which was part of the old Act, the department said.
“The judgment, however, does not discuss the effect of Section 1(3) of the original Act of 1988 which remains un-amended in the present Act. It says the provisions of this Act shall be deemed to have to come into force on May 19, 1988. Similarly, there is no discussion on Section 2(9)(A)(a) which talks about property “held” by a person even though it was acquired earlier. The question is can the tax officer invoke the law retrospectively under these sections,” Ashwani Taneja, a chartered accountant and former member of Income Tax Appellate Tribunal.
For more than two decades, the old benami law was largely ineffective in the absence of rules which were notified only in 2016.
In the search and seizure carried out by the I-T department on various premises belonging to the petitioners, several “incriminating documents” were found which indicated benami land deals. Subsequently, showcause notices were issued under the amended Benami Act because consideration was actually paid by the petitioners with which the land was purchased in the name of different persons. After provisional attachment orders were initiated, the petitioners said the tax officers acted without jurisdiction as the Benami Transaction (Prohibition) Amendment Act, 2016, came into effect on November 1, 2016 and the alleged benami transactions took place prior to that date.
Ruling that the high courts has power in appropriate cases to prohibit executive authority from acting without jurisdiction, the court said that “unless a contrary intention is reflected, a legislation is presumed and intended to be prospective”. “For in the normal course of human behaviour, one is entitled to arrange his affairs keeping in view the laws for the time being in force and such arrangement of affairs should not be dislodged by retrospective application of law.”