Report No. 57
4.3. Section 281A, Income-tax Act, 1961, inserted in 1972.-
So far as the recent amendment in Taxation laws is concerned,1 the effect of the amendment is not to prohibit 'benami', but to avoid its being made the basis of a suit unless compliance with the prescribed requirements is made. These requirements, broadly speaking, are intended to ensure that the taxing authorities concerned with income-tax and wealth tax acquire knowledge of the transaction alleged to the benami.
1. Taxation Laws (Amendment) Act, 1972.
4.4. The germ of such a provision is to be found in the Report of Professor Kaldor1 on Indian Tax Reform. Professor Kaldor had made the following observations:-
"As regards benami transactions, my suggestion is that the benami holder should be asked to disclose the name of the beneficial owner at the time of the registration and in the event of his failing to do so (and declaring that he is not the beneficial owner himself) he should be treated as the beneficial owner in law. This provision is clearly "intended to deter a person from entering into a benami transaction just for the purposes of tax evasion.
While it may be true that a certain amount of personal trust is involved between the benami and the real owners in all such cases, I seriously doubt whether the system could continue to exist but for the recognition of benami in common law. Even retention of the title deed would not protect the true owner in case the benami holder formally declared that he was the beneficial owner of the property; and in case the true owner protected himself further through I.O.U.s, mortgage deeds etc., this would call for (as indicated in para 93(g) (above) the same kind of disclosure.
"It has been argued that the proposal would make it more difficult to defeat mala fide transfers of property undertaken to prevent attachment of property in view of outstanding demands. I should be interested to know the number of cases in which the Revenue succeeded in breaking the benami through court action. My feeling is that the Revenue would gain far more from screening all benami transactions at the very outset than it would lose from any added difficulty in breaking the benami in the case of such fraudulent transactions."
1. Nicholas Kaldor Indian Tax Reform, (1956), pp. 58-59, paras. 104-105.
4.5. A similar recommendation was made by the Administrative Reforms Commission,1 also. Accordingly, the Government sponsored legislation through the Taxation Laws (Amendment) Bill, 1971 to discourage benami holding of property. Under the provision inserted as section 281A of the Income-tax Act, 1961, no suit shall be instituted in any court to enforce any right in respect of any property held benami unless the claimant has either disclosed the property in question or the income therefrom in connection with his wealth tax or income-tax assessments or given notice to the Income-tax Officer about the particulars of such property in the prescribed form.
1. See Direct Taxes Enquiry Committee, Final Report, (Dec 1971), p. 66, para. 2.231.