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Supreme Court strikes down one provision of the Benami Transaction Act of 1988

The Supreme Court has struck down one of the provisions of the Benami Transactions (Prohibition) Act of 1988 today. The Act provides for the punishment of a maximum jail term of three years or a fine or both for those indulging in ‘benami’ transactions.

In an order today,the Supreme Court of India on Tuesday ruled that the Benami law can only be applied prospectively and not retrospectively and held that the section 3(2) of the Benami Law  is “unconstitutional”.

The bench of Chief Justice N V Ramana and Justice C T Ravikumar and Justice Hima Kohli said.”We hold section 3(2) of the Benami Transactions (Prohibition) Act, 1988 as unconstitutional

There were a large number of businesses which have been awaiting for the Benami transactions(Prohibition) Amendement since it came to effect on on November 1, 2016.

Section 3 of the Act, is the one, which has been held by the court as “unconstitutional”

The verdict came due to the appeal by the centre to challenging the judgement of the Calcutta High Court in which it was held that the amendment made in the 1988 Act in 2016 would be applicable with prospective effect. The 1988 Act was made to prohibit ‘benami’ transactions and the right to recover property that is held to be ‘benami’.

The High Court order held that the 2016 Amendment Act was prospective in nature. The copy of the judgment is awaited.

The new Act which has come expands the definition of the transactions classified as benami while imposing strict penalties which are very likely to put many firms and individuals under the scanner as it had been used retrospectively.

The tax department had issued thousands of notices for cash transfers, property deals for earlier periods under the law.

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