Real Estate

Ruling on Benami Act to boost realty joint ventures

Varun Aggarwal Mumbai | Updated on July 17, 2019

The core issue was tax authorities using the amended Act to attach properties with retrospective effect NAGARA GOPAL   -  NAGARA GOPAL

Rajasthan HC has held that any retrospective implementation of law is fundamentally illegal

A Rajasthan High Court ruling on the discrepancies in the Benami Property Act Amendment 2016 is expected to not only bring relief to property owners but also enable more joint development real estate projects.

“It is a fair and reasonable judgement that’s come out from the Rajasthan High Court in Niharika Jain’s matter. It says that the 2016 Benami Amendment cannot be applied retrospectively. This judgement will bring relief to a lot of people who are being prosecuted under the 2016 Act for the offences allegedly committed before August 11, 2016,” said Abhilash Pillai, Partner, Cyril Amarchand Mangaldas.

The court case wherein investors were fighting against the retrospective implementation of the Amended Benami Act 2016 that came into effect on August 11, 2016 was a clear direction from the court that any retrospective implementation of law is fundamentally illegal, alleviating fears from investors minds of constant changes in the law.

Hiding unaccounted cash

The law was aimed at cutting down on property investments as a means to hide unaccounted cash. The increased penalties, punishments and strict implementation has so far brought down benami transactions significantly, in part also leading to a slowdown in the real estate sector.

“It was widely anticipated that post the amendment of the Benami Act, most land dealings will begin to have clear titles. This will also pave way for developers to carry out more joint developments with less litigation,” Anuj Puri, Chairman – Anarock Property Consultants, said.

The issue at the core was tax authorities using the amended act to attach properties in cases filed before the new Act came into force. That meant the government not having to pay to seize disputed properties even before the court concluded the transaction as a benami property or the one acquired using unaccounted funds.

“The court ruling has made it clear that authorities concerned will need to examine each case (of property attachment) on its own merits and keeping in view that Act is applicable prospectively. Properties which have clear titles and have not been transacted with unaccounted money or through benami ways will continue to be transacted in the usual manner,” Ramesh Nair, CEO & Country Head at JLL India, said.

But some fear that the ruling could also been seen as a loosening of the noose on benami transactions, which could be counter intuitive.

“The court needs to ensure that such select rulings don’t defeat the entire purpose of the amended Benami Property Transaction (Prohibition) Act, 2016. After all, benami property was one of the easiest ways to park unaccounted wealth, and the Act was amended in 2016 to put an end to this practice. It is imperative that all rulings resonate with the real intentions of the Act, and that it is not diluted. Such rulings should not send out a wrong signal to those who have actually been using real estate to park unaccounted funds,” Puri said.

Will the ruling be positive for the real estate industry, which is reeling under one of the worst slowdowns in recent times? Probably not.

“Stringent provisions under the new act can have an adverse impact on the real estate industry. Developers who used to buy land earlier in multiple ownership, due to land ceiling issues, are now encountering the possibility of taxman seizing such properties under the new Benami laws,” he said.

“To address this issue, the industry leaders are expected to seek exemption from the ceiling limits on the land which are meant for development projects. Otherwise, it will be another blow to an already cash strapped industry,” Pillai said.

Published on July 17, 2019

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