During the demonetisation drive, many people might have deposited third-party money in their own bank accounts. These deposits will certainly qualify as benami deposits under Prohibition of Benami Property Transactions Act, 1988 ('Benami Act').
As per the PMGKY or 'Pradhan Mantri Garib Kalyan Yojana' scheme, any unaccounted income in the form of cash and bank deposits could be declared. Declarants need not explain source of deposit declared under the scheme. Thus, people may tend to offer benami deposits under the PMGKY scheme as they are aware that any declaration of unaccounted income under the scheme is taxable at a lower rate of 49.9 per cent.
Now the question arises whether benami deposits can also be declared under the PMGKY scheme?
PMGKY scheme provisions do not clearly exclude declaration of benami deposits. It has only specified that declaration of deposits shall be admissible as evidence for the purpose of any proceedings under the Benami Act.
In view of the above, we can say that there is no specific bar under PMGKY for declaration of benami deposits. So, whether one can declare deposits under PGMKY and get immunity from action under the Benami Act?
Though there is no specific bar on declaration of benami deposits under PMGKY yet such declaration shall be treated as void if it is found that deposits were benami deposits.
Further, such declaration shall be treated as admissible evidence for proceedings under the Benami Act. The Income Declaration Scheme, 2016 provided for specific immunity from the Benami Act if Benami Property declared under that scheme and got retransferred in beneficial owner's name on or before September 30, 2017 and tax, penalty and surcharge are paid under that scheme. However, similar provisions were not inserted under PMGKY to grant immunity from the Benami Act. Thus, any declaration of benami deposits under PMGKY does not enjoy immunity from the Benami Act.
The objective of Benami Act is to prohibit a benami transaction so that the beneficial owner would be compelled to keep the property in his own name only and legal complexities owing to the apparent ownership not being the real ownership, could be avoided.
Benami Act provisions provide that whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years. Further, any benami property shall be liable to be confiscated by the central government.
Suppose, Ram has deposited his unaccounted money in bank account of Shyam, and Shyam declares such deposit under PMGKY. In the scenario, if it found that such deposits are benami deposits then both Ram and Shyam will be liable to prosecution which may extend to three years. Further, the government shall confiscate such benami deposit.
Thus, it is advisable that people should not resort to such practice of declaring benami deposits under PMGKY as such declarations do not enjoy any immunity from the Benami Act.
It had also come the notice of the government that people are using other persons' bank accounts to convert their black money into new denomination notes for which reward is also being given to the account holders who agree to allow their accounts to be used. This activity is reported in case of Jan Dhan accounts also.
In its press release dated November 18, 2016, the government had also clarified that such tax evasion activities can be made subject to income tax and penalty if it is established that the amount deposited in the account was not of the account holder but of somebody else. Also, the person who allows his or her account to be misused for this purpose can be prosecuted for abetment under the Income Tax Act.
(Rakesh Bhargava is director at Taxmann)
Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.
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