Benami Transactions Act, 1988 As Amended By Benami Transactions (Prohibition) Amendment Act, 2016, Can Be Applied Retrospectively: Madras High Court

The Madras High Court recently opined that in respect of the benami transactions entered into prior to the Benami Transactions (Prohibition) Amendment Act, 2016, coming into force on 01.11.2016, the provisional attachment under Section 24 was valid and in accordance with law.

Justice SM Subramaniam thus said:

"In the present case, investigations and search were conducted prior to the amendment Act. The alleged benami transactions were also occurred prior to the amendment. But, the provisional attachment under Section 24 was made after the amendment, which is certainly permissible under Section 1 Sub-Section (3) of the Act."

The Court held that Section 1 Sub-Section (3) clarified that the other provisions of the amended Act shall be deemed to have come into force on the May 19, 1988.

Accordingly, the Court went on to dismiss the plea filed under Article 226 while noting that the petitioner was trying to prolong the proceedings and protract the issues on flimsy grounds.

Background:

The petitioner was the Managing Director, Tamil Nadu Warehousing Corporation since 2014. A search warrant was issued in the name of R. Sabitharani, the petitioner's spouse to search her residence in Issa Pallavaram, Chennai, wherein the petitioner lived with her. The search conducted on November 23 and 24, 2016 resulted in gold items and Rs.7,28,300/- in cash being found.

The petitioner's spouse, who was working as the Chief Technical Officer (C.T.O.) in Central Bank of India since 1985, admitted that the aforesaid cash and items of gold belongs to her.

The Income Tax search team conducted an enquiry and Prohibitory Orders dated 24.11.2016 were issued to the petitioner's spouse by the Deputy Director (Investigation Wing), Income Tax Department which were subsequently lifted on 18.01.2017.

Under these circumstances, the Deputy Commissioner of Income tax passed the impugned order, dated 12.05.2017, arraying the petitioner as a beneficial owner of a property that was allegedly attached provisionally without any justification much less legal evidence of a definite nature. The impugned order was passed under Section 24(4)(a)(i) of the Benami Transactions (Prohibition) Amendment Act, 2016.

This order has been challenged in view of the fact that the third respondent passed the order without issuing any notice or giving any opportunity to the petitioner.

Submissions made by Petitioner:

The petitioners submitted that the amended Act came into force from 01.11.2016. and it was thus applicable only to the Benami transactions entered into on or after the date of commencement as provided under Section 3(3) of the Act.

The impugned order also showed that the transaction alleged to be Benami transaction was entered into on 28.10.2016 and therefore, the impugned order passed by the respondent lacked jurisdiction.

They further contended that the proceedings under the Amendment Act, 2016 were required to be independent proceedings. Thus, an adverse finding of the respondent as against the petitioner based on the statements recorded under Section 131 of the Income Tax Act by Income Tax Officers in a different context was unsustainable.

The impugned orders were allegedly passed after relying on the sworn statement of one B. Ayyappan, Managing Director of M/s.Kathir Kaman Jewellers (P) Ltd, Chennai. 

Submissions of the Respondents:

It was argued that the amendment Act of the year, 2016, more specifically, Section 1 Sub-Section (3) categorically states that "the provisions of Sections 3, 5 and 8 shall came into force at once and the remaining provisions of the Act shall be deemed to have come into force on 19 May, 1988.

"Therefore, the intention of the Legislature is to ensure that the pre-amendment Act is in force for all purposes and the amendments are carried on, in order to make the legislation more effective. When Section 1 Sub-Section (3) clarifies the said position that except Sections 3, 5 and 8 and the remaining provisions of the Act shall be deemed to have come into force on 19 th day of May 1988, when the original Act namely the prohibition of Benami Property Transactions Act, 1988 came into force, then, the very ground raised by the petitioner in this regard is unsustainable"

Also, the impugned order was only a provisional attachment made under Section 24(4)(a)(i) of the Benami Transactions (Prohibition)  Amendment Act 2016 and after the provisional attachment, the notice to show-cause under Section 26(1) was issued to the petitioner, who is the beneficial owner.

Therefore, the respondent stated that the procedures as contemplated under the provisions of the Act were scrupulously followed.

"Instead of facing the adjudication, the petitioner is making an attempt to prolong the issue for the purpose of escaping from the clutches of law. Thus, the Writ Petition is unnecessary and to be rejected", submitted the respondent.

Court's Findings:

Since the provisional attachment was made after the amendment act came into force, the reference made by the petitioner regarding Sub-Section (3) to Section 3 did not have any application in respect of the facts and circumstances of the case on hand.

"A provisional attachment of property shall be made in order to prevent the persons from encumbering the property during the process of adjudication and after passing the provisional attachment, if the proceedings are to be continued, then, an adjudication under Section 25 and thereafter Section 26(1), show-cause notice is to be issued."

Thus, for all purposes, the Court found that the proceedings under the Act had just commenced and the petitioner has to respond to the show cause notice by submitting his explanations/objections along with the documents and evidences and thereafter, the authorities were bound to adjudicate the matter in the manner provided and take appropriate decision.

The petitioner had misconstrued the provisions based on certain incorrect interpretations, said the Court. The petitioner has approached this Court at the initial stage and the adjudication is yet to be completed, it added.

"....the petitioner is at liberty to submit his objections/defence statements, evidences and documents, if any, within a period of three weeks from the date of receipt of copy of this order and on receipt of such objections etc., the respondents are bound to continue the proceedings and complete the same by following the procedures as contemplated as expeditiously as possible, since the matter is pending for a long time and the petitioner is directed to co-operate for the completion of proceedings instead of making an attempt to prolong and protract the issues on flimsy grounds."

Counsel for the Petitioner : Advocate A Iruthayaraj
Counsel For Respondents : Special Public Prosecutor M Sheela [For Income Tax] Assisted by Prarthana M and Aswini G.
                                            Senior Counsel B. Kumar assisted by Kanimozhimathi

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