2025 (9) TMI 1176 - AT - Benami Property

Tribunal overturns benami finding: insufficient evidence; allotment and transfers bona fide; stamp duty not consideration

Shri Paturi Srihari and M/s. Yellow Stone Estates Pvt. Ltd. Versus The Initiating Officer, (BPU), Hyderabad

The AT allowed the appeals and set aside the impugned orders, holding there was insufficient evidence of a benami transaction. The tribunal found initial ... Benami transaction - Provisional Attachment Order - beneficial owner - alleged that the appellant admitted to have paid stamp duty for both the transactions i.e. registration of property in the name of Smt. Ch. Sirisha and its transfer in his name by way of a gift - treated as payment of consideration for acquisition of the property, for purposes of establishing a benami transaction - Applicability of provisions of Income Tax Act of the Prohibition of Benami Property Transactions Act, 1988 (the Act of 1988) - whether the payment on allotment of plot of land in the year 1988 was made by the appellant or he was in any manner in picture - HELD THAT:- The facts on record shows payment of Development Charges by Smt. Ch. Sirisha on transfer of the plot which was allotted to Smt. B. Sirisha as a Member of the Society and it has not been taken to be the benami transaction at the time of initial allotment, as admitted by the counsel for the respondents and in fact the Act of 1988 came later. The subsequent transfer of plot from Smt. B. Sirisha to Smt. Ch. Sirisha was out of love and affection being a case of transfer of plot to sister’s daughter. The payment of stamp duty has been taken to be the consideration paid by the appellant. The stamp duty goes to the revenue and not to the seller to take it to be the consideration. In fact, it is nothing but erroneous conclusion drawn by the respondents to somehow book the property for benami transaction. The IO then goes on the sale of property to M/s Yellow Stone where transaction for transfer of the property took place through another company M/s Avexa Corporation in order to safeguard the interest of the company due to the pending litigation. The perusal of the document would show that due to disputes pertaining to the property and pending litigation, M/s Yellow Stone made an agreement for sale on a condition to safeguard the interest of the company. The condition was put for keeping the amount with M/s Avexa Corporation so that it may not be considered to be payment of full consideration by M/s Yellow Stone till the litigation of the boundary. The other paras quoted above shows that based on the assumption, the IO has taken it to be a case of benami transaction whereas the IO was required to investigate and prove that in fact it is a case of benami transaction. There is nothing on record to prove that at the time of initial allotment of plot of land in the year 1988 and its transfer in the year 1991, the appellant had paid any consideration to the Society for allotment of land in the name of Smt. Ch. Sirishri to make out a case of benami transaction. The Adjudicating Authority has taken note that initially the plot was allotted to Smt. B. Sirisha by the Society on a nominal payment of few lakhs of rupees and membership and plot was transferred to Smt. Ch. Sirisha in the year 1991 but due to litigation, it remained unregistered for about 30 years. Smt. Ch. Sirisha held the property for a long time without having registration of plot in her name. Even, when the property was transferred from Smt. B. Sirisha to Smt. Ch. Sirisha, transaction of sale consideration is not shown to be at the instance of the appellant. A benami transaction cannot be made out on imagination. The case made out by the respondents is based on the theory that the payment of stamp duty is to be considered as consideration to make out a case of benami transaction as given in Para 17.3 of the impugned order. The registration charges so as the stamp duty cannot be taken to be the payment of consideration of the property to the seller, rather registration and stamp duty charges goes to the Government and otherwise there was bona fide transfer of the property to M/s Yellow Stone thereafter. It is also a fact that the registration of the documents, etc. was pursuant to the interim order passed by the Andhra Pradesh High Court in Writ Petition No. 16087/2007 preferred by Smt. Ch. Sirisha. However, the respondent ignored the interim order also and long litigation in regard to the property in question. Even, onwards sale after gift cannot be considered to be of a sale of benami property. Thus, we are unable to accept the reasoning given in the impugned orders, rather we cause interference in the impugned orders and are set aside. Appeals are allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the impugned transactions concerning the immovable property constitute a 'benami transaction' within the meaning of the Prohibition of Benami Property Transactions Act, 1988 (the Act of 1988), thereby justifying provisional attachment and confirmation of attachment by the Adjudicating Authority. 2. Whether payment of stamp duty and registration charges by the asserted beneficial owner can be treated as payment of consideration for acquisition of the property, for purposes of establishing a benami transaction. 3. Whether the Initiating Officer (IO) discharged the investigative burden required to justify provisional attachment under the Act of 1988, including proper verification of alleged payments, relationships and transactional chronology. 4. Whether a subsequent purchaser who acquired title and paid consideration (and/or made protective arrangements because of pending litigation) can be treated as a bona fide purchaser, such that prior attachment or characterization as benami ought not to affect their title. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether the transactions are benami under the Act of 1988 Legal framework: The Act of 1988 prohibits benami transactions and empowers an IO to provisionally attach properties where material suggests property held by a benamidar for the benefit of a beneficial owner; the Adjudicating Authority may confirm attachment on evidence of benami characteristics. Precedent treatment: The Tribunal relied on statutory standards requiring positive proof/adequate investigation to demonstrate that property was held in name of one person for benefit of another; mere suspicion or conjecture is insufficient. Interpretation and reasoning: The Tribunal examined chronology - allotment in 1988 to original allottee, transfer to another family member in 1991 with payment of development charges and long possession, registration following court proceedings in 2020, and a gift deed executed three days after sale deed registration. The IO's findings relied heavily on inference and assumed motives (e.g., delayed registration kept to facilitate a gift, failure to construct, non-appearance of alleged benamidars) rather than direct evidence that the name-holders never enjoyed or paid for the property or that the beneficial owner funded acquisition. The Tribunal found no material proving that the appellant paid consideration at the time of initial allotment or at transfer to the named holder; many IO observations ignored litigation history and legitimate reasons (e.g., boundary dispute, High Court interim relief) for registry delays and conduct. Ratio vs. Obiter: Ratio - Benami characterization requires concrete proof of consideration flow and benefit; speculative inferences about motives, absence of construction, or non-appearance do not suffice. Obiter - Criticism of IO's ancillary remarks (e.g., on penal interest, role as development authority) as irrelevant or erroneous. Conclusions: The Tribunal concluded the Adjudicating Authority erred in confirming attachment: available materials do not establish a benami transaction on the balance of probabilities. The impugned orders confirming PAO were set aside. Issue 2: Whether stamp duty/registration charges constitute payment of consideration Legal framework: Consideration for purchase ordinarily denotes payment to vendor for transfer of proprietary interest; stamp duty and registration charges are payments to revenue/State for formalization of transfer. Precedent treatment: The Adjudicating Authority and IO treated stamp duty as indicative of consideration; the Tribunal rejected conflation of revenue payments with vendor consideration absent evidence that such payments were passed to the seller as purchase price. Interpretation and reasoning: The Tribunal emphasized that stamp duty accrues to the Government and cannot, by itself, prove that the person paying it provided consideration to the seller. The IO's reliance on stamp duty payment to infer beneficial ownership or to attribute acquisition funding to the appellant was held to be legally unsound and insufficient to make out benami transaction. Ratio vs. Obiter: Ratio - Payment of stamp duty/registration charges, standing alone, does not constitute proof of payment of consideration to seller for purposes of proving a benami transaction. Obiter - Reference to differing treatment of stamp duty under income tax law is inapposite to the Act of 1988. Conclusions: The Tribunal held that the IO/Adjudicating Authority's use of stamp duty as surrogate for consideration was erroneous and cannot sustain a finding of benami transaction. Issue 3: Adequacy of IO's investigation and burden of proof for provisional attachment Legal framework: Provisional attachment under the Act must be based on material suggesting benami transaction; the IO must investigate and verify alleged payments, relationships, addresses and documentary assertions before referring for adjudication. Precedent treatment: The Tribunal applied the standard that suspicion or conjecture without verification does not justify attachment; investigative deficiencies undermine the legality of PAO and its confirmation. Interpretation and reasoning: The Tribunal identified multiple investigative gaps and erroneous inferences: failure to verify alleged payment dates, treating non-appearance of alleged benamidars as proof of benami design, reliance on improper comparisons (e.g., roles of Society bylaws, penal interest) and failure to account for litigation and interim court orders that explain delayed registration and non-construction. The IO's narrative contained speculative assertions regarding diversion of sale proceeds, related-company transactions, and motives which were not substantiated by reliable evidence. The Tribunal found some IO conclusions demonstrated lack of knowledge of applicable law (e.g., conflating stamp duty treatment under Income Tax Act with benami law), and that the IO did not adequately investigate to prove requisite elements of benami transaction. Ratio vs. Obiter: Ratio - Provisional attachment must be supported by a reasonably complete and law-aware investigation; failure to verify key facts and reliance on speculation renders attachment unsustainable. Obiter - Suggestion that personal costs might be justified against an IO for harassment - commentary reflecting the Tribunal's view of investigative conduct rather than essential ratio. Conclusions: The Tribunal held the IO did not discharge the necessary investigative burden; the provisional attachment and its confirmation were unjustified and set aside. Issue 4: Status of subsequent purchaser and bona fide acquisition amid pending litigation/protective arrangements Legal framework: A bona fide purchaser for value without notice may be protected against prior equitable defects; transactions entered into to protect commercial interests during litigation (e.g., escrow or protective custody of sale proceeds) may be legitimate arrangements and not indicative of benami dealings. Precedent treatment: The Tribunal treated the purchaser's protective mechanisms (keeping funds with a related company pending litigation) as legitimate commercial safeguards and noted absence of evidence that purchaser colluded to create a benami facade. Interpretation and reasoning: The Tribunal accepted that due to boundary litigation and interim court orders, purchasers might place consideration in escrow or related accounts to protect interests, and that such arrangements do not automatically imply the transferor was a mere benamidar or that the purchaser was complicit. The IO's suspicion about related companies and diversion of funds lacked corroboration and could not overturn bona fide purchase characterization. Ratio vs. Obiter: Ratio - A subsequent purchaser who negotiated and provided consideration under protective terms because of known litigation cannot be treated as complicit in a benami scheme absent clear evidence of mala fides. Obiter - Observations on corporate relationships and common shareholders were assessed as speculative without documentary proof. Conclusions: The Tribunal concluded that the purchaser's acquisition was bona fide on the record before it and that subsequent sale/escrow arrangements do not convert lawful transactions into benami dealings. Cross-references and final disposition Interplay of Issues: Issues concerning stamp duty as evidence (Issue 2) and adequacy of investigation (Issue 3) were pivotal to rejecting the benami characterization (Issue 1) and to upholding bona fide acquisition by the purchaser (Issue 4). The Tribunal's corrective reasoning on evidentiary standards and improper inference-making permeates its conclusions. Disposition: The Tribunal set aside the Adjudicating Authority's confirmation of provisional attachment and allowed the appeals, holding there was insufficient material to sustain a finding of benami transaction or to justify interference with bona fide purchaser rights.