Concept and Evolution of Benami Principles through Landmark Judgments

Table of Contents

1. Introduction
2. Some of Landmark Cases
3. Summing up of Important Principles Enunciated by Courts

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1. Introduction

The connotation of the term ‘benami’ was the subject matter of deliberation over a period of years by various courts as also by Text Book writers. However, some essential principles enunciated in these cases although in the past, forms the sheet anchor of various decisions rendered both under the Principal Act, 1988 as also under the PBPT Act, 1988. These principles are time tested and key to interpretation of law on benami transaction.

2. Some of Landmark Cases

(i) Sree Meenakshi Mills Ltd. v. CIT 1957 AIR 49

In this case, the main issue was taxability of income under Income-tax Act in the context of transactions effected by an assessee in the names of dummy firms and companies. While deciding the issue, the connotation of the term ‘benami’ was subject matter of deliberation. The ITAT on the basis of factual evidence came to the conclusion that sales effected by the assessee-company in the names of certain intermediaries, firms and companies were solely for the purpose of concealing the profit. These entities were found to be fictitious and actual transactions were done by the assessee-company directly with various parties and only entries were made in the books as if the goods were sold through these intermediaries. Although the case related to taxability of the transactions effected in the names of intermediaries, the issues relating to benami and sham transaction also came up for consideration. The observations of the Court were:-

• The question of benami is purely a question of fact and not a mixed question of law and fact as the same does not involve the application of any legal principle.
• It was observed that-

“In this connection, it is necessary to note that the word ‘benami’ is used to denote two classes of transactions which differ from each other in their legal character and incidents. In one sense, it signifies a transaction which is real, as for example when A sells properties to B but the sale deed mentions X as the purchaser. Here the sale itself is genuine, but the real purchaser is B, X being his benamidar. This is the class of transactions which is usually termed as benami.”

• “But the word ‘benami’ is also occasionally used, perhaps not quite accurately, to refer to a sham transaction, as for example, when A purports to sell his property to B without intending that his title should cease or pass to B. The fundamental difference between these, two classes of transactions is that whereas in the former there is an operative transfer resulting in the vesting of title in the transferee, in the latter there is none such, the transferor continuing to retain the title notwithstanding the execution of the transfer deed. It is only in the former class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B, to enquire into the question as to who paid the consideration for the transfer, X or B. But in the latter class of cases, when the question is whether the transfer is genuine or sham, the point for decision would be, not who paid the consideration but whether any consideration was paid.”

In effect, the Court held that a sham transaction cannot be held as a benami transaction.

(ii) Jayadayal Poddar (Deceased) through LRs v. State of Bihar v. Mst. Bibi Hazira and Others 1974 AIR 171

The appeal in this case arose out of a suit for possession of a house and also for damages for use and occupation the said house. This resulted in determination of two connected issues –

(a) the issue of benami and

(b) burden of proof.

It was held that in order to decide whether a particular sale is benami or not, facts of the case are required to be judged. For the purpose, no absolute formulae or acid tests, can be uniformly laid down in all situations. Yet, the Courts can take into account probabilities of the case. It led down some useful and basic guiding principles to decide whether a transaction is benami or not.

• the source from which the purchase money came;
• the nature and possession of the property after the purchase;
• motive, if any, for giving the transaction a benami colour;
• the position of the parties and the relationship, if any between the claimant and the alleged benamidar;
• the custody of the title deeds after the sale;
• the conduct of the parties concerned in dealing with the property after the sale;

The Court further observed:

“It is well settled that the burden of proving that a particular sale is benami and the apparent purchaser is not the real owner, always rests on the person asserting it to be so. This burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of Benami or establish circumstances, unerringly and reasonably raising an inference of that fact. The essence, of a benami is the intention of the party or parties concerned; and not unoften such intention is shrouded in a thick veil which cannot ‘be, easily pierced through. But such difficulties do not relieve the person asserting the transaction to be benami of any part of the serious onus that rests on him; nor justify the acceptance of mere conjectures or surmises, as a substitute for proof. The reason is that a deed is a solemn document prepared and executed after considerable deliberation and the, person expressly shown as the purchaser or transferee in the deed, starts with the initial presumption in his favour that the apparent state, of affairs is the real state of affairs. Though the question, whether a particular sale is Benami or not, is largely one of fact, and for determining this question, no absolute formulae or acid tests, uniformally applicable in all situations, can be laid down; yet in weighing the probabilities and for gathering the relevant indicia, the courts are usually guided by these circumstances.”

(iii) Thakur Bhim Singh (Dead) Through LRs v. Thakur Kan Singh [1980] 3 SCC 72

This case related to ownership of a property. The decision in the case laid down some important guiding principles to determine whether a transfer can be characterized as a benami transaction or not? Following guidelines were laid down by the Court:

• The burden of showing that a transfer is a benami transaction lies on the person who asserts that it is such a transaction;
• If it is proved that the purchase money came from a person other than the person in whose favour the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who supplied the purchase money, unless there is evidence to the contrary;
• The true character of the transaction is governed by the intention of the person who has contributed the purchase money;
• The question as to what was his intention has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motives governing their actions in bringing about the transaction and their subsequent conduct etc.;
• The Court while referring to other decisions laid emphasis on the source of purchase money and intention of the parties to the transaction in order to determine the question of benami and
• The conduct of the parties concerned in dealing with the property after the sale.

(iv) Smt P. Leelavathi (D) by Lrs v. V. Shankarnarayana (D), Civil Appeal No. 1099 of 2008 Order dt.9-4-2019 (SC)

Facts of this case were that Smt P. Leelavathi (Plaintiff), daughter of late Sri G. Venkata Rao had filed a civil suit in the Trial Court against her brothers (Defendants) for partition and for recovery of one-fourth share from the suit properties. These properties comprised of immovable properties and movable properties like deposits in banks and investment in shares held in the names of defendants. Her contention was that her father was a man of substantial means and had purchased these properties out of his sources. These properties were acquired benami in the names of her brothers. Therefore, she was entitled to one-fourth share in all the properties. The contentions raised by the plaintiff that the properties owned by the defendants were benami properties was repelled by the Trial Court. In the first round of appeal before the High Court, the plaintiff was successful and it was held that the properties in the names of defendants were benami properties. Thus, the plaintiff was entitled to one-fourth share in the said property. In this background the short question for consideration by Supreme Court was whether in the facts and circumstances of the case and merely because some financial assistance has been given by the father to the sons to purchase the properties, can the transactions be said to benami in nature? The Court laid down the following principles:-

• Merely because some financial assistance was given by someone to acquire a property, that would not make the transaction a benami transaction.
• Providing some money for acquisition of a property cannot be the sole determining factor. The Court has to strictly evaluate the attendant facts and circumstances of the case and go beyond the source of fund to decide whether a transaction benami or not. It was held that consideration cannot be sole criterion although the same may be one of the essential ingredients of benami transaction.
• It was observed that the factum of benami should be proved beyond doubt.
• The burden of proof that the apparent purchaser is not the real owner lies on the person asserting so. He should adduce legal evidence of a definite character which would prove the benami nature of the transaction. In the alternative, if the evidence adduced by the plaintiff is based on circumstantial evidence, the same should be unerring and reasonable to proof the nature of transaction to arrive at any inference. The Court relied on the tests laid down in Jayadayal Poddar’s case.
• It was observed that intention of the parties is key to decide the nature of transaction. In the case before the Court, the father provided financial assistance to both the plaintiff and defendants for various purposes in acquiring properties by them. In a case of such type, the intention has to be proved beyond doubt.
• It was observed that the intention behind a benami transaction is shrouded in a thick veil. Such a veil although cannot be pierced so easily, the same would not relieve the party who wishes the court to believe that the transaction is benami, from discharge of onus.

With all the above observations, the Court dismissed the case of the plaintiff.

(v) In Mangathai Ammal (Dead) through LRs v. Rajeswari (Civil Appeal Number 4805 of 2019 Order dt. 9.5.2019)

The main contention of the plaintiff was that suit properties were ancestral properties. Her late husband had inherited the same being legal heir for his share along with others. The suit was resisted by Defendant No. 1 (namely Mrs. Mangathai Ammal) on the ground that suit properties were her self-acquired properties. Therefore, the plaintiffs have no right of inheritance in it. The Trial Court decided in favour of the Plaintiffs with a finding that the Plaintiffs are entitled to share in suit properties the same being ancestral properties and as the Plaintiffs are legal heirs. The High Court confirmed the order of the Trial Court giving rise to appeal before Supreme Court. In this factual background, the issue of benami came up for consideration before the Apex Court. The Court followed the decision in the case of Jaydayal Poddar v. Bibi Hazra (Mst.) (1974) 1 SCC 3:

• It was held that the burden of proving that a particular sale is benami and the apparent purchaser is not the real owner, rests on the person asserting to be so.
• The Court also followed the principles enunciated in the case of Thakur Bhim Singh v. Thakur Kan Singh (1980) 3 SCC 72.
• The Court expressed the view that the payment of part sale consideration cannot be the sole criteria to hold the sale/transaction as benami. The intention of the person who contributed the purchase money is determinative of the nature of transaction. The intention of the person, who contributed the purchase money, has to be gathered and decided on the basis of the surrounding circumstances; the relationship of the parties; the motives governing their actions in bringing about the transaction and their subsequent conduct etc.
• Another crucial finding related to the issue of retrospectivity. The Court following the principle enunciated in the case of Binapani Paul v. Pratima Ghosh 2007 6 SCC 100 as under:

“It is required to be noted that the benami transaction came to be amended in the year 2016. As per Section 3 of the Benami Transaction (Prohibition) Act, 1988, there was a presumption that the transaction made in the name of the wife and children is for their benefit. By Benami Amendment Act, 2016, Section 3(2) of the Benami Transaction Act, 1988 the statutory presumption, which was rebuttable, has been omitted. It is the case on behalf of the respondents that therefore in view of omission of Section 3(2) of the Benami Transaction Act, the plea of statutory transaction that the purchase made in the name of wife or children is for their benefit would not be available in the present case. Aforesaid cannot be accepted. As held by this Court in the case of Binapani Paul (Supra) the Benami Transaction (Prohibition) Act would not be applicable retrospectively.”

A reading of this decision would show that the issue of retrospectivity was not the subject matter of dispute before the Court. The opinion expressed by the Court appears to be an obiter dicta. It did not lay down the principle that the PBPT Act, 1988 is prospective. Hence, reliance placed on this decision that the PBPT Act, 1988 is prospective may not be correct at this stage till final decision by the Apex Court is pronounced.

3. Summing up of Important Principles Enunciated by Courts

Following are some of the important principles laid down in various decisions as discussed above:—

• The question of benami is a question of fact.
• Various tests laid down by Courts have to be appreciated cumulatively. A single test will not characterize a transaction as benami.
• Providing some money or financial assistance in a property transaction is not determinative of judging whether a transaction is benami or not.
• Evidences should take into account documentary, oral and circumstantial evidence. Circumstantial evidence should be prima facie unerring. It should not base on suspicion and surmise.
• Burden of proof lies on the person who asserts that the transaction is benami.
• Intention or motive of the parties to the transaction is an important factor.