Rights Accrued under Benami Transactions (Prohibition) Act, 1988 were not taken away by the 2016 Amendment: Calcutta HC [Read Judgment]

Benami Transactions - Balance Sheet - Calcutta High Court - Taxscan

In a recent case, the Calcutta High Court held that the rights which had accrued to the appellant could not, in the absence of an express provision be extinguished by the amending Act of 2016.

The Ganpati Dealcom Pvt. Ltd., the appellant has purchased the property. The sellers were diverse individuals. Prior to the purchase of this property six individuals appeared to have been allotted shares in the appellant. Each of the others was allotted 200 to 300shares.On 29th August 2017 the respondent authority invoked Section 24(1) of the Act after its amendment. They issued a notice to the appellant alleging that the said property was Benami under Section 2(8) of the said Act of1988, as amended. It also alleged a violation of Section 2(9)(D) thereof. It said that the consideration for this transaction was provided by “non-traceable fictitious entities having no real business”, rendering the transaction Benami. The appellant replied to this show cause notice stating that the property had been acquired by the fund of the company and not from fictitious persons.

The appellant submitted in the light of judgments in cases R. Rajagopal Reddy (Dead) By LRS. and Ors. Vs. Padmini Chandrasekharan (Dead) by LRS. in (1995) 2 SCC 630 and Commissioner of Income Tax (Central)- I, New Delhi vs. Vatika Township Private Limited in (2015) 1 SCC 1, that the amending Act had no retrospective effect for an alleged Benami transaction made in 2011. A show-cause notice could not have been issued under the 1988 Act as amended. The show-cause notice was issued under Section 24(1) of the 1988 Act, as amended. It asked the appellant to show cause as to why the subject immovable property was not a Benami property under Section 2(8) of the 1988 Act. There was no Section 2(8) in the original 1988 Act. Therefore, the reference was unmistakable to the Act as amended in 2016. The substantive rights which had accrued to the appellant under the 1988 Act were not taken away by the 2016 amendment. The said show cause notice was bad in law and liable to be set aside. It was said that the rules were not framed under the 1988 Act making it inoperative. Or, in other words, the government had deliberately not given effect to this Act. The 2016 amendment contained detailed machinery for the enforcement of the provisions of the 1988 Act as amended in 2016.

The respondent argued that the amendments of 2016 had a retrospective effect because the concept of Benami property and Benami transaction remained the same on the amendment. The amending Act merely provided machinery for the implementation of the Parent Act. They also argued that the proceedings emanating from the show-cause notice were yet to be finally adjudicated upon. The appellant should be directed to participate in those proceedings. If they find themselves aggrieved by any order to be passed they are free to approach the appellate authority.

While allowing the petition, the division bench comprising of Justice I. P. Mukerji and Justice Md. Nizamuddin held that the omission on the part of the government to frame rules under Section 8 of the 1988 Act rendered it wholly inoperative. Assuming that the appellant had entered into a Benami transaction in 2011, no action could be taken by the Central government, in the absence of enabling procedural rules. It is well within the right of the appellant to contend that the Central government had waived its rights. It could also contend that no criminal action could be initiated on the ground of limitation. Now, these rights which had accrued to the appellant could not, in the absence of an express provision be extinguished by the amending Act of 2016. The show-cause notice issued by the respondents is a nullity, the said notices are quashed and set aside.

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