Benami Transactions (Prohibition) Rules 2019

This blog is written by Mr. Hussain Mehmood Asif, Senior Manager, Taxation Advisory Services. Please read this blog and provide your valued comments.

BENAMI TRANSACTION (PROHIBITION) RULES 2019

In the context of FATF restrictions and ongoing efforts of Government of Pakistan to curb Money Laundering and Terror Financing, Federal Board of Revenue issued Benami Transaction (Prohibitions) Act 2017 which has now been followed up by Benami Transactions (Prohibition) Rules 2019.

Some important references from the The Act i.e. Benami Transactions (Prohibition) Act 2017

Benami Transaction:    A Transaction or arrangement-

• Where:
  • a property is transferred / held by a person, and the consideration has been provided by another person; and
  • the property is held for the benefit of the person who has provided the consideration, (immediate or future, direct / indirect), except when the property is held in fiduciary capacity (Trustee/executor/Partner/Director/Agent etc) or by spouse, brother, sister, lineal ascendant or descendant, and the individual appear as joint owner and the consideration has been paid out of known resources of income;
• carried out in a fictitious name; or
• where the owner is not aware, or denies knowledge of ownership; or
• where the person providing the consideration is not traceable or fictitious.

Benami Property, Benamidar and Beneficial Owner

Benami property: means any property which is the subject matter of benami transaction and also includes the proceeds from such property.

Benamidar: means a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name.

Beneficial owner: means a person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar.

Act to override all other laws

The Act shall override all other laws if anything is contrary contained in other laws and offence under this Act shall be non-cognizable.

Prohibition of Benami Transactions:

• No person shall enter into any benami transaction and whoever enters into any benami transaction or holds any benami property shall be punishable.
• Any property of benami transaction shall be liable to be confiscated by the Federal Government.
• The benamidar is prohibited to retransfer the benami property to its beneficial owner, as they are deemed to be null and void.
• Where after the notice is issued under this Act, any property is transferred, such transfer shall be deemed to be null and void.

Imprisonment and penalties:

The person who enters into benami transaction and holds benami property in order to defeat the provisions of any law, to avoid payment of statutory dues, or to avoid payment to creditors, the beneficial owner, benamidar and

any other person who induces any person to enter into benami transaction shall be guilty of the offence of Benami transaction.

Penalties for Benami transactions, property and false information are as follows:

SRO 326(I)/2019:

Effective: In force at once i-e as of date of SRO (March 11, 2019).

The “Chapter” & “Section” would be of the above mentioned Act, while words & expressions, not defined in these Rules, shall have same meanings as assigned thereto in the following:

• The Trust Act, 1882
• The Succession Act, 1925
• The Partnership Act, 1932
• The Income Tax Ordinance (ITO), 2001
• The Anti money laundering Act, 2010
• The Act (benami  Transaction (Prohibition) Act, 2019)
• The Companies Act, 2017

Jurisdiction: Under the order of Board, as follows:

• Approving Authority, a Commissioner Inland Revenue (CIR)
• Initiating Officer, a Deputy Commissioner Inland Revenue (DCIR)
• Administrator, an Assistant Commissioner Inland Revenue (ACIR)

The Price shall be determined in accordance with the Section 68 of the ITO, 2001.

The Chairperson and Members of adjudicating authority will be appointed by the Federal Govt from the panel of suitable officers forwarded by the Secretary Revenue Division. The number of members has not been fixed and left to as many as deem necessary. Pay and allowances are stated in section 6.

The initiating Officer (DCIR) may attach the property provisionally in accordance with Income Tax Rules, 2002 to the extent provided in this Act

Confiscation of property under section 25(1): The copy of order passed u/s 25(1) shall be sent to Approving Authority (CIR) by adjudicating authority. Who will:

1. In case of Immovable Property: Direct an administrator (ACIR) to issue notice to the concerned authority responsible for registration/maintaining record of ownership that the property has been confiscated and arrange to place a notice at the confiscated property of the same effect.
2. In case of movable Property: Direct an administrator (ACIR) to issue notice to the concerned authority/person having custody of the property that same has been confiscated. The property may also be sold subject to conditions like if maintenance cost is higher subject to written approval of Adjudicating authority. The proceeds may be deposited in Govt Treasury, State Bank or National Bank as fixed deposit and receipt to be kept as evidence. A proviso provides the owner opportunity to do the same and provide the receipt as “security”. Another proviso provided same for transport vehicle (mode of conveyance) subject to confirmation of amount by relevant authority. For liquid assets like cash, jewellery, securities etc, the same may be deposited in a locker or fixed deposit. For shares, debentures and like instruments the same to be transferred in the name of Administrator (ACIR). For bank/financial institution, issue a direction to transfer the amounts in the account of Administrator (ACIR).

Receipt of Confiscated property:  The Administrator shall ensure proper identification of confiscated property as per particulars of order and shall keep safe it in one or more warehouses with approval of CIR.

Management of confiscated property: The Administrator (ACIR) shall in case where it is impossible to detach the property or costs are higher than the value, arrange for maintenance and custody at that place. The Administrator shall maintain a Register for recording details relating to the each i-e movable property & immovable property as set out in Form (Part-I & II).

Disposal of Confiscated property: The Administrator shall arrange for disposal of property confiscated u/s 25(3) in terms of section 26(3) as per Income Tax Rules, 2002 on direction of Federal Govt.

Appeals to Federal Appellate Tribunal: The appeal before Federal Appellate Tribunal u/s 44(1) shall be filed in the form specified in Part-III of the First Schedule within 45 days. For delay, a petition in 4 copies, duly verified and supported by documents showing the reason and cause of delay shall also accompany the appeal documents. Appeal fee is Rs. 1,000.

Rule 14 prescribes the terms and conditions of services of the chairperson and members of Federal Appellate Tribunal.

Removal of Chairperson and Members from office in certain circumstances: A reference to be filed to the Chief Justice of High Court of relevant jurisdiction by the Secretary Law & Justice Division under approval from Federal Govt for inquiry of charges irrespective of the fact that the same (Members & Chairperson) are being suspended or not. The Chief Justice will seek defense in writing, may call for explanation and personal hearing and shall submit the inquiry report to Federal Govt within 60 days.

Rule 15 prescribes the salaries and allowances of staff of Federal Appellate Tribunal equal to civil servants of Federal Govt of equivalent scale.

Reward for Whistleblower:  The provisions of Inland Revenue Reward Rules, 2016 shall apply. However, For detection and confiscation of benami property (after confiscation), reward will be paid as follows:

Hussain Mehmood Asif