Incomplete Property Sales and Lack of Evidence Prevent Benami Transaction Designation

ORDER

1. This Order disposes of the Appeal No. FPA-PBPT-988/HYD/2019 filed under Section 46(1) of the Prohibition of Benami Property Transactions Act, 1988 (PBPTA) by the Initiating Officer (IO), Assistant Commissioner of Income Tax (ACIT), Benami Prohibition Unit (BPU), Hyderabad against the Order dated 29.08.2019 (Impugned Order) under Section 26 (3) of PBPTA passed by the Ld. Adjudicating Authority in Reference No.R-1044/2018. The Impugned Order did not confirm the Provisional Attachment Order (PAO) dated 23.07.2018, under Section 24 (4) (b) (i) of the PBPTA passed by the IO of the BPU, Hyderabad.

2. Ld. Counsel for the Appellant gave the following relevant details of the case as follows: – Beneficial Owner: Sri Rachakonda Srinivas Rao Benamidar:

Interested Party: M/s ICON Constructions

Transaction Amount: Rs. 1,73,00,000/- was the total consideration paid by the alleged Benamidars to M/s ICON Constructions out of the total sale consideration of Rs. 4,26,49,000/-.

Ld. Counsel for the Appellant further informed that the aforementioned eight Benamidars, the Beneficial Owner and the Interested Party are the Respondents to the Appeal.

3. Ld. Counsel for the Appellant summarized the background of the case. The IO had received information from Anti-Corruption Bureau, Central Investigation Unit, Hyderabad (ACB) that Sh. Rachakonda Srinivas Rao acquired certain immovable properties in the name of 8 alleged Benamidars. It was also gathered that Sh. Rachakonda Srinivas Rao along with all the alleged Benamidars entered into an agreement with M/s ICON Construction. After negotiations, agreements were executed on 27.10.2016. Cash deposits and subsequent bank transfers to M/s ICON Construction took place in case of all the parties in whose name the Beneficial Owner had made the agreement to purchase the said immovable properties. The IO determined from the statements of the alleged Benamidars, recorded pursuant to Section 19 of the PBPTA, that none of them could give evidence for the source of cash deposits in their respective bank accounts which were utilized to give advance for the purchase of property from M/s ICON Constructions. The IO concluded on examination of the materials/document on record, that consideration for properties were provided by Shri Rachakonda in form of cash which was later deposited into the respective bank accounts of the alleged Benamidars and routed to the vendor as consideration. Accordingly, agreements were entered between them for purchasing the properties in the name of these Benamidars for immediate or future benefits of the Beneficial Owner (BO). Moreover, some of the Benamidars, namely Smt. Sudha Rani, B Krishna Kumari, B. Ashwinipriya, B. Gouthami Priyanka and B. Sree Hari Babu are distant relatives of Sh. Rachakonda. Subsequent conduct of Shri. Rachakonda such as collecting rent and enjoying the property corroborated that there was motive of the BO in getting the properties in the name of the Benamidars.

4. Ld. Counsel for the Appellant further submitted that the term ‘Benami Transaction’ is defined under Section 2 (9) of PBPTA, which provides that where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person. He contended that the term ‘consideration’ does not mean the entire consideration, rather, it includes part consideration as well. The term ‘Property’ includes movable property, which implies that the advance sale consideration amount paid by the Benamidars to M/s ICON Constructions cannot be excluded from the term ‘property’. Ld. Counsel further argued that a right has been created in the immovable properties comprising of commercial units on account of the advance sale consideration. Ld. Counsel gave the details of the commercial units, and the advance payment made along with the names of the Benamidars: –

5. Ld. Counsel for the Appellant also contended that the Ld.

Adjudicating Authority erred in holding that the property continued to be with M/s. ICON Constructions, without appreciating the fact that the rents were collected by Shri Kanishka, s/o. Shri Rachakonda Srinivas Rao. It was also submitted that the Ld. Adjudicating Authority failed to consider that there were huge cash deposits in the bank accounts of the Benamidars, just a few days before the transfer of the consideration by them to M/s ICON Construction. The Benamidars have failed to explain the sources of the cash deposits.

6. Ld. Counsel for the Appellant argued that the Benami Transaction covers not only the completed transactions but also an arrangement as specified under Section 2 (9) (A) of the PBPTA. The procedural part of registration of Sale Deed could not be completed because of the ACB raid. Ld. Counsel contended that the Ld. Adjudicating Authority ignored the provisions of Sections 26 (4) and (5) of the PBPTA which provides as under: -“(4) Where the Adjudicating Authority is satisfied that some part of the properties in respect of which reference has been made to him is benami property, but is not able to specifically identify such part, he shall record a finding to the best of his judgment as to which part of the properties is held benami.

(5) Where in the course of proceedings before it, the Adjudicating Authority has reason to believe that a property, other than a property referred to it by the Initiating Officer is benami property, it shall provisionally attach the property and the property shall be deemed to be a property referred to it on the date of receipt of the reference under sub-section (5) of section 24.”

7. Ld. Counsel for the Appellants therefore prayed to set aside the Impugned Order.

8. Ld. Counsels for the Respondents submitted that the reference dated 31.07.2018 u/s 24(5) of the PBPTA, made by the IO is bad in law and misconceived on facts and law. Moreover, PBPTA is not applicable to this case as the agreement of sale for the purchase of the impugned properties was executed on 27.10.2016 with all future benefits accruing to them only upon completion of construction and transfer of title. The agreements to sale were not finally executed and converted in the form of sale, till date. Since the amended PBPTA came into force only from 1^st November 2016, hence, there is no scope for retrospective application of the punitive law. Ld. Counsels also contended that the Benamidars Respondents directly entered in an Agreement of Sale with M/s ICON Constructions to purchase the properties for which they paid the requisite considerations from their own sources through proper and valid banking channels. Ld. Counsel for Shri Rachakonda, the BO, submitted that the alleged Benamidars entered into direct agreement to sale with M/s ICON Constructions to purchase the impugned properties for an agreed consideration and separate agreements have been signed by each of the parties involved therein. The Ld. Counsels for the Benamidars submitted that the Benamidars arranged for the amounts through their own sources and paid the same directly to M/s ICON Constructions from his/her respective bank account. Ld. Counsel for M/s ICON Constructions further submitted that mere agreement to sell does not confer title on property. Since the alleged Benamidars have not paid the entire sale consideration, titles do not transfer to the said purchasers. Section 54 of the Transfer of Property Act, 1882 states that the Agreement to Sale neither creates any title nor any interest in the immovable property, which is also a settled law by the Hon’ble Supreme Court of India in several cases.

9. Ld. Counsels for the Respondents reiterated the views of the Ld. Adjudicating Authority that the said Reference is silent about conversion of Agreement to Sale into actual sale and registration of sale deed. Moreover, payment of substantial amount of Rs. 300 lakhs were still remaining to be done. Thus, the Benamidars are not the owners of the properties and the properties continue to be with M/s ICON Constructions. Therefore, the essential condition regarding the benami transaction was not fulfilled in as much as the alleged benami properties were not transferred to the named Benamidars. The condition regarding the transfer was not fulfilled. Ld. Counsels submitted that the Ld. Adjudicating Authority has further stated that on one hand there is nothing to show that the property was held for the immediate or future benefit of the Beneficial Owner, and on the other hand, it was shown that the rental income was received by M/s ICON Constructions. Ld. Counsels therefore pleaded that the Appeal may be dismissed.

10. We have considered the rival submissions and the material on record. It is an admitted fact that only partial payments have been made by the alleged Benamidars to the interested party M/s ICON Constructions. These partial payments were made on signing of Agreement of Sale. Section 54 of the Transfer of Property Act, 1882 is reproduced below: –

Section 54. “Sale” defined. —

“Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.

Sale how made. —

Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument.

In the case of tangible immoveable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property.

Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property.

Contract for sale. —

A contract for the sale of immoveable property is a contract that a sale of such property shall take place on terms settled between the parties.

It does not, of itself, create any interest in or charge on such property It is therefore obvious that the contract of Agreement to Sale does not bestow any interest in or charge of such property. Ld. Adjudicating Authority has therefore correctly held that the impugned properties had not yet been transferred from M/s ICON Constructions to the alleged Benamidars.

11. We find that in several judgments the Hon’ble Supreme Court has held that an Agreement to Sale does not create an interest or charge in favor of the proposed vendee in the suit property. In the Judgment dated 25.08.2004 the Hon’ble Supreme Court in the matter of Rambhau Namdeo Gajre versus Narayan Bapuji Dhotra (dead) through LRS. [(2004) 8 SCC 614] stated the aforementioned in the following paragraphs:-

“13. The agreement to sell does not create an interest of the proposed vendee in the suit property. As per Section 54 of the Act, the title in immovable property valued at more than Rs 100 can be conveyed only by executing a registered sale deed. Section 54 specifically provides that a contract for sale of immovable property is a contract evidencing the fact that the sale of such property shall take place on the terms settled between the parties, but does not, of itself, create any interest in or charge on such property. It is not disputed before us that the suit land sought to be conveyed is of the value of more than Rs 100. Therefore, unless there was a registered document of sale in favour of Pishorrilal (the proposed transferee) the title of the suit land continued to vest in Narayan Bapuji Dhotra (original plaintiff) and remain in his ownership. This point was examined in detail by this Court in State of U.P. v. District Judge [(1997) 1 SCC 496] and it was held thus : (SCC pp. 499500, para 7)

“7. Having given our anxious consideration to the rival contentions we find that the High Court with respect had patently erred in taking the view that because of Section 53-A of the Transfer of Property Act the proposed transferees of the land had acquired an interest in the lands which would result in exclusion of these lands from the computation of the holding of the tenure-holder transferor on the appointed day. It is obvious that an agreement to sell creates no interest in land. As per Section 54 of the Transfer of Property Act, the property in the land gets conveyed only by registered sale deed. It is not in dispute that the lands sought to be covered were having value of more than Rs 100. Therefore, unless there was a registered document of sale in favour of the proposed transferee agreement-holders, the title of the lands would not get divested from the vendor and would remain in his ownership. There is no dispute on this aspect. However, strong reliance was placed by learned counsel for Respondent 3 on Section 53-A of the Transfer of Property Act. We fail to appreciate how that section can at all be relevant against the third party like the appellant State. That section provides for a shield of protection to the proposed transferee to remain in possession against the original owner who has agreed to sell these lands to the transferee if the proposed transferee satisfies other conditions of Section 53-A. That protection is available as a shield only against the transferor, the proposed vendor, and would disentitle him from disturbing the possession of the proposed transferees who are put in possession pursuant to such an agreement. But that has nothing to do with the ownership of the proposed transferor who remains full owner of the said lands till they are legally conveyed by sale deed to the proposed transferees. Such a right to protect possession against the proposed vendor cannot be pressed in service against a third party like the appellant State when it seeks to enforce the provisions of the Act against the tenure-holder, proposed transferor of these lands.” (emphasis supplied)

There was no agreement between the appellant and the respondent in connection with the suit land. The doctrine of part-performance could have been availed of by Pishorrilal against his proposed vendor subject, of course, to the fulfilment of the conditions mentioned above. It could not be availed of by the appellant against the respondent with whom he has no privity of contract. The appellant has been put in possession of the suit land on the basis of an agreement of sale not by the respondent but by Pishorrilal, therefore, the privity of contract is between Pishorrilal and the appellant and not between the appellant and the respondent. The doctrine of partperformance as contemplated in Section 53-A can be availed of by the proposed transferee against his transferor or any person claiming under him and not against a third person with whom he does not have a privity of contract.”

12. In the Judgment dated 22.08.1995, the Hon’ble Supreme Court in the matter of Namdeo versus Collector, East Neemar, Khandwa & Ors. [(1995) 5 SCC 598] held that an agreement of sale does not convey any right, title or interest. The relevant paragraph is reproduced below: –

“6. The further contention is that there was an agreement of sale by Devi Prasad with the appellant in the year 1969 and that sale deed was executed in 1974, it dates back to the date of agreement and, therefore, the Act is inapplicable. We find no force in the contention. An agreement of sale does not convey any right, title or interest. It would create only an enforceable right in a court of law and parties could act thereon. The right, title and interest in the land of Devi Prasad stood extinguished only on execution and registration of the sale deed and admittedly it was done in 1974. Therefore, the sale deeds are within the prohibited period.”

13. Reference to Sections 26 (4) and 26 (5) of the PBPTA clearly shows that the Sub-Sections are applicable during the proceedings of Adjudication of Benami Property. The Sub-Sections cannot help to bring about corrective at the stage of the Appeal against the Impugned Order. On perusal of the Impugned Order, it is obvious that the Ld. Adjudicating Authority has not held the impugned property as Benami as the title therein was yet to be transferred to the alleged Benamidars in view of sale having not been completed due to partial payments made by the alleged Benamidars. In fact, there is nothing on record which could have let the Ld. Adjudicating Authority to provisionally attach any other property for which it could have carried reason to believe to hold that as Benami Property.

14. We note that out of the total sale consideration of Rs.471.54 Lakhs for all the impugned properties only Rs.173.00 Lakhs was paid by the 8 alleged Benamidars. The interested party M/s ICON Constructions has also maintained that none of the Benamidars acquired any rights, interest and title to the impugned properties. Therefore M/s ICON Constructions continue to remain owner and in possession of the impugned properties. M/s ICON Constructions maintained that they had rented the commercial units to tenants for which they received the rental income. In view of this, the applicability of Section 2 (9) (A) is doubtful as neither the impugned properties were transferred to the alleged Benamidars nor the impugned properties were held by the alleged Benamidars.

15. Even if we accept that there were cash infusions into the bank accounts of the alleged Benamidars, there is no evidence on record as to show that such infusions were made by the Beneficial Owner. In this regard the following has been the finding of the Ld. Adjudicating Authority: –

“The Ld. IO invokes Section 2(9) but fails miserably to show what and how any consideration has been paid/provided by the alleged beneficial owner used for the purpose of acquiring the impugned property. No nexus with D-9[alleged BO] has been established for the payment of advances made by the Defendant (D-1 to D-8)[alleged Benamidars] directly to the builder (D-10) [Interested party] pursuant to the Agreement to Sale.

The onus of proving unequivocally and with positive incontrovertible evidence that the impugned property is owned/held by D-1/D-4, D-2/D-5, D-3/D-8& D-6/D-7 [alleged Benamidars] and paid for from consideration provided by D-9 [alleged BO] and the Ld. IO has not been able to marshall any evidence to this effect despite all the resources and powers at his command”.

16. In view of the aforementioned discussions, we find that neither the properties which have been provisionally attached are Benami nor the transactions which have occurred with respect to the impugned properties are Benami. We are therefore unable to interfere with the Impugned Order.

17. We dismiss the Appeal No. FPA-PBPT-988/HYD/2019 being without merit and dispose of the Applications accordingly.