Cash Routed Through Bank Account Can Be Treated as Benami Property: Key Tax Compliance Lesson

Introduction

Cash transactions continue to be closely examined under income tax and benami law. One important point discussed by the expert is that even cash can be treated as property under the Benami Act.

The key issue is simple: if a person gives cash to another person, that person deposits it in his bank account, and then returns the money through banking channel, can it still be treated as benami property?

As discussed, the answer can be yes.

Main Discussion

In the case discussed, the taxpayer had given cash to another person during demonetisation. That person deposited the cash in his bank account and returned the money to the taxpayer through banking channel.

The taxpayer had also shown the amount under the Pradhan Mantri Garib Kalyan Yojana and paid tax on it. However, the expert discussion makes it clear that payment of tax under the scheme does not automatically protect the taxpayer from proceedings under the Benami Act.

The important point is that cash can also be considered property under the Benami Act.

The relevant statutory language is:

“property” means assets of any kind, whether movable or immovable, tangible or intangible, corporeal or incorporeal and includes any right or interest or legal documents or instruments evidencing title to or interest in the property and where the property is capable of conversion into some other form, then the property in the converted form and also includes the proceeds from the property;

In simple terms, property is not limited to land, building or immovable assets. It can also cover movable assets. Since cash is a movable asset, it can fall within the meaning of property.

The expert discussion further explains that even if the cash comes back to the taxpayer through banking channel, the transaction may still be covered under the Benami Act. The reason is that the money was first held or routed through another person’s account.

The Delhi Bench decision discussed in the video held that merely receiving the money back through banking channel does not reduce the seriousness of the transaction under the Benami Act.

The act of giving cash to another person, getting it deposited in that person’s bank account, and then receiving it back through banking channel can still attract benami consequences.

Another important point is that if tax has already been paid under Pradhan Mantri Garib Kalyan Yojana, the entire amount may not necessarily be recovered again in the same manner. As discussed, the balance amount may still be recoverable as benami property.

Therefore, the compliance risk does not end only because the taxpayer has paid tax on the amount.

Practical Impact

This decision is important for taxpayers, professionals and businesses because it gives a clear warning on cash routing transactions.

A person should not assume that a transaction becomes clean only because money is finally received through banking channel. If the original cash belongs to one person but is deposited in another person’s account, the tax department may examine the real nature of the transaction.

For example, suppose a taxpayer gives cash to a friend or associate. The friend deposits it in his bank account and sends the amount back by RTGS, NEFT or any other banking mode.

On paper, the taxpayer may say that the money came through bank. But the department may still ask why the cash was routed through another person’s account in the first place.

As per the expert discussion, such a transaction may be treated as benami, and the balance amount may be recovered under the Benami Act.

The practical lesson is that taxpayers should avoid using another person’s bank account for depositing or converting cash. Proper disclosure, documentation and tax payment are important, but they may not cure the benami nature of the transaction if the arrangement itself falls within the Act.

Conclusion

The key takeaway from this discussion is that cash can also be treated as property under the Benami Act.

If cash is given to another person, deposited in that person’s bank account, and returned through banking channel, the transaction may still be considered benami.

Taxpayers should be very careful while dealing with cash transactions, especially where another person’s account is used. Payment of tax under a scheme may not automatically protect the taxpayer from benami consequences.

key takeaways

• Cash can be considered property under the Benami Act.
• Routing cash through another person’s bank account can create serious compliance risk.
• Receiving money back through banking channel does not automatically make the transaction safe.
• Tax paid under Pradhan Mantri Garib Kalyan Yojana may not fully protect the taxpayer from benami proceedings.
• The balance amount may still be recoverable as benami property.
• Taxpayers should avoid using benamidars or name-lenders for cash deposits or banking entries.
• Proper tax compliance should be done before entering into any high-risk cash transaction.

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