Revenue Must Ask Beneficial Owner For Reply While Issuing Notice To Benamidar U/S.24 Of Prohibition Of Benami Property Transaction Act: Karnataka High Court

The Petitioner had approached the High Court seeking a direction to quash the impugned Order passed by the Initiating Officer, Deputy Commissioner of Income Tax.

The Single Bench of Justice Suraj Govindaraj stated, “ I am of the considered opinion that Section 2A recognises the right of the beneficial owner to reply to the notice under sub-Section (1) of Section 24 of the Act. But there is nothing in the impugned notice calling upon the beneficial owner to reply to the impugned notice. It would be required for the revenue while issuing a notice under sub-Section (1) of Section 24 of the Act to the Benaminar, mark a copy thereof under subSection (2) of Section 24 of the Act and call upon the beneficial owner to reply to the same by way of furnishing explanation or submission by specifically stating so in the said notice.”

Advocate Gangadhar J.M. represented the Petitioner, while Advocate M. Thirumalesh represented the Respondent.

Factual Background

A notice had been issued to a Benamidar contending that the Benamidar was holding the property of the petitioner as a beneficial owner under Section 24(1) of the Prohibition of Benami Property Transaction Act, 1988 . The Benamidar having replied to the notice, orders were passed which were challenged before the High Court by the petitioner-beneficial owner.

Arguments

It was the case of the Petitioner that though the notice issued to the Benamidar was marked to the beneficial owner, there was no mention made in the said notice that the beneficial owner was required to reply to the said notice, It was thus submitted that the rights of the petitioner had been impinged upon, the principles of natural justice had been violated, orders had been passed without affording an opportunity to the petitioner to reply to the show cause notice.

Reasoning

Referring to the provisions of the Act, the Bench explained, that in terms of sub-Section (2) of Section 24 of the Act, where a notice under sub-section (1) specifies any property as being held by a Benamidar, a copy of the notice is required to be issued to the beneficial owner if his identity is known; that would mean that if the identity is not known, there is no requirement to forward a copy to the beneficial owner. But where identity is known, it would be required to be marked to the beneficial owner.

The Bench also noted that Sub-Section 2A has been inserted by way of Amendment Act No.15 of 2024 which provides that the Benamidar to whom a notice has been issued under sub-Section (1) or the beneficial owner to whom a copy of such notice has been issued under sub-Section (2), shall furnish the explanation or submission, if any, within the period specified in the said notice or such period as may be extended by the Initiating Officer not exceeding 3 months from the end of the month in which the said notice was issued.

The Bench stated,“Though sub-Section 2A of Section 24 of the Act is clear that the beneficial owner could furnish the explanation or submission once a notice is marked to the beneficiary owner, what would be required to be seen is whether the beneficial owner has been called upon to reply to the notice under sub-Section (1) of Section 24 of the Act.

On a perusal of the impugned order, the Bench noticed that in the impugned notices there were references made to the beneficial owner and a copy was marked to the beneficial owner. There was nothing in the notice calling upon the beneficial owner to reply to the said notice.

Thus, allowing the writ petition, the Bench quashed the impugned order.

Cause Title: Shri Nara Suryanarayana Reddy v. Initiating Officer (Neutral Citation: 2025:KHC-D:13506)

Appearance

Petitioner: Advocate Gangadhar J.M.

Respondent: Advocates M. Thirumalesh, D. Roopa

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