Benami Transactions

In the context of property, Benami means use and benefit by the person other than the person who is fictitiously and without substance, in form, reflected as the owner.

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By Anthony Williams

In 1961, when President John F. Kennedy was embarrassed by the failed attempt to invade Cuba, he made this famous comment “There’s an old saying that victory has a hundred fathers and defeat is an orphan”. This may be true in many cases but it’s not true for the creation of Pakistan. For as Stanley Wolpert writes in the preface of his book “Jinnah of Pakistan” about Quaid-e-Azam that “Few individuals significantly alter the course of history. Fewer still modify the map of the world. Hardly anyone can be credited with creating a nation-state. Muhammad Ali Jinnah did all three.”It is a tragedy that the new generation of Pakistan knows about the founder of their country only through text books, a few websites and television programs.

These limited resources do not tell the complete picture of a very intelligent, shrewd and resilient lawyer, politician and statesman who altered the map of South Asia through his sheer indomitable will against all odds.It is almost a standard statement in Pakistani text books that Muhammad Ali Jinnah was a great man but after reading Stanley Wolpert’s “Jinnah of Pakistan” one can get a better understanding of why Jinnah can beand should be regarded as such a great leader. Physically a frail man, he alone gave courage, hope, strength and voice to millions of Muslims of South Asia who were dismissed as second class citizens in United India before partition in 1947.

It takes this much effort and pain to make history remember your name, just as it does of Mr. Jinnah. So if you are striving hard to stay benami (without name & recognition of your deeds), don’t try because history has already forgotten you. The purpose of this article is to introduce the concept and structure of the law titled “Benami Transactions (Prohibition) Act 2017” implemented in Pakistan on February 14th, 2017[Sweet]. On November 7th, 2018 Director General (DG) NAB Lahore Saleem Shahzad, appeared on several TV channels disclosing information including the alleged facts that Khawja Saad Rafique is the owner of Paragon Housing Scheme and is holding most of these properties in benami(no name/fictitious name) through benami transactions.

What is Benami? Benami is a Persian/Urdu language word which means anything ‘without name’. In the context of property, this means use and benefit by the person other than the person who is fictitiously and without substance, in form, reflected as the owner. Benamitransaction, as per Benami Transactions (Prohibition) Act 2017, means:(A) a transaction or arrangement-(a) where a property is transferred to, or is held by a person and the consideration for such property has been provided, or paid by, another person; and (b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by-(i) a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, agent or legal advisor, and any other person as may be notified by the Federal Government for this purpose; or (ii) any person being an individual in the name of his spouse or in the name of any child or in the name of his brother and sister or lineal ascendant or descendant and the individual appearing as joint owner in any document of such individual and the consideration for such property has been provided or paid out of known resources of income of the individual; or (B) a transaction or arrangement in respect of a property carried out or made in the fictitious name; or (C) a transaction or arrangement in respect of a property where the owner of the property is not aware of, or denies knowledge of, such ownership; or (D) a transaction or arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious. Why would anyone be willing to pay for a property and hold/register it in the name of another person? Benami transactions in Pakistan are generally undertaken to park untaxed money.

Accordingly, in such cases, the immediate and future, direct and indirect benefit of the property acquired from untaxed money lies with a person other than the person reflected as owner, whereas the consideration for the acquisition of the property is paid out of untaxed money by the person holding beneficial rights other than the person who is reflected as having ostensible right in the property. ‘Benami’ also includes cases where owner in form is fictitious. In countries like Pakistan where tax compliance is not adequate, benami transactions are used to park untaxed money in the form of benami real estates, bank accounts, stocks & shares and other forms of assets. This law has been introduced to provide the right to the Government to identify benami transactions and to ‘confiscate’ the properties held in benami. This is a step to abolish parking space for money generated from untaxed income. In the absence of benami laws, there could be actions against the income that is not taxed, including charge over properties; however, there was no direct right of the State to confiscate the properties held in benami. This step was essential as otherwise the huge quantum of properties created out of untaxed money are held in benami and there was no direct State’s right to confiscate such assets.

This law will assist in Government’s efforts to curb tax evasion and in addition the Honourable Finance Minister Asad Umar could use this law effectively to generate funds for financing of five million homes program in the next five years. It is important to note that under the ‘transfer of property’ laws, transfer of property in ‘benami’ is not illegal. This new law now makes it illegal, hence the word “Prohibition” in the title, to hold or carry out benami transactions.The objective of this law is to:(a)  Prohibit holding property in benami;(b) Restrict the right to transfer benami properties;(c) Provide mechanism to confiscate benami properties by the Government through Special Authority, namely:-(i) the Initiating Officer; (ii) the Approving Authority; (iii) the Administrator; and (iv) the Adjudicating Authority and (d) Provide right of appeal through the Federal Appellate Tribunal against the confiscation orders of the Adjudicating Authority.

The best part of this law is the introduction of the concept of “Beneficial Owner” into the legal system of Pakistan, which has been defined in this law as “beneficial owner” means a person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar. This concept is the soul of this law, as can be seen in this short illustration, if Mr. B, being a servant of Mr. A, acquires a house which is registered in the name of Mr. B and the consideration is paid by Mr. A. This transaction will not qualify to be calledas benami unless it is proved (by the government) that the house is for immediate or future benefit directly or indirectly of Mr. A and not Mr. B. The second condition is essential to prove a benami transaction.

Anthony Williams is CEO of Tax Dosti and has been teaching & practising tax laws of Pakistan for the past 20 years.