Real estate developers are seeking judicial intervention to protect them from the Benami Transactions (Prohibition) Amendment Act 2016, which was amended in 2016 to give the taxman powers to seize properties registered in another person’s name.
Because of restrictive land ceiling laws, it was commonplace for real estate developers to amass land holdings through proxies—normally through firms not directly controlled or owned but funded by way of loan or subscription to share capital. There are at least 17 land ceiling laws in 16 states of India.
Despite the Benami Transactions (Prohibition) Act being in force from 1988, nobody cared much about acquisition of land through proxies because the law had no implementing agency until now and hence was rarely applied, said a leading lawyer in Kolkata, who asked not to be named.
With the income tax department now starting to crack the whip on benami transactions, or ones in which the actual beneficiary is different from the registered owner, many real estate developers across India are looking for cover.
In the run-up to last year’s amendment, many real estate developers hurriedly “reversed” benami transactions by transferring properties back to themselves from their proxies who previously held them, according to the lawyer. But under the amended law, such ‘re-transfers’ are banned with retrospective effect.
Of the 77 sections of the amended Benami Act, only three came into force last year; the rest were made effective through the amendment from 1988.
Real estate developers claim that their acquisitions through proxies should not be treated in the same manner as any other transaction aimed at tax evasion or concealment of wealth. Proxies were used only to get past restrictive land ceiling laws, they claim.
However, Meenakshi J. Goswami, a spokesperson for the Central Board of Direct Taxes, said motivation is not important in this case and that the Income Tax department will not treat any benami transaction differently. “The law simply says if the property belongs to you, it should be registered in your name,” she added.
Under the amended law, people involved in benami transactions face up to seven years in jail and confiscation of properties without compensation.
Nandu K. Belani, a leading real estate developer from Kolkata, said the aim of the Benami Act is to curb black money. Real estate developers will be in difficulty if it is used to take on land aggregation through proxies, added Belani, who is the president of the West Bengal chapter of lobby group Confederation of Real Estate Developers’ Associations of India (Credai).
“But I am of the view that if through legal challenge we can establish the motivation for creating multiple ownership in land aggregation, the income tax department will not treat these transactions in the same manner as any other benami transaction,” said Belani.
Strong legal challenge will lead to a more pragmatic application of the Benami Act, according to Belani.
Real estate developers across India are currently in a quandary over how to deal with properties they have aggregated over the years through proxies, said the lawyer cited above. The law clearly specifies the exceptions—such as ownership through the head of a Hindu undivided family.
“Only after the income tax department starts proceedings over illegitimate land aggregation, and such action is challenged in courts, clarity will emerge if the law is to be implemented in letter and spirit completely unaltered,” the lawyer added.
For now, developers will delay launch of real estate projects to keep land aggregated through proxies under wraps until there is clarity on how land aggregation is to be treated under the amended Benami Act, according to the lawyer.
