SAFEMA Tribunal Clarifies Fiduciary Capacity under the Benami Act

Introduction

In the case of DCIT (BPU-1), Mumbai v. Jiten Pujari[i]*, *the Appellate Tribunal, under Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (‘SAFEMA’), New Delhi (‘Tribunal’) addressed a significant issue involving the alleged holding of Rs. 9.94 crores across multiple bank lockers by employees of M/s Trigon Hotels and Resource Private Limited (‘Trigon Hotels’). The Tribunal had to assess whether the holdings were held in a benami capacity under the Prohibition of Benami Property Transactions Act, 1988 (‘Benami Act’) or fell under an exception due to the fiduciary relationship claimed by the beneficial owners.

Brief Facts

• A search and survey were conducted on Trigon Hotels in July 2020 under ss. 132/133A of the Income-tax Act, 1961. During the search, cash amounting to Rs. 9.94 crores was discovered in four separate bank lockers held in the names of Jiten Pujari, Venkatesh Shenoy, and Siya Ram Pandey, employees of the alleged beneficial owners.

• The sworn statements recorded from these individuals revealed that the cash belonged to two alleged beneficial owners, Ratan Kant Sharma and Shiv Shankar Sharma. These beneficial owners did not disown the cash and claimed it was kept in the lockers by their employees for safe custody.

• Based on the sworn statements, the revenue department considered the cash to be part of a benami transaction and ordered the funds attached. However, the Adjudicating Authority (‘AA’) ruled against the attachment, holding that the cash was being held by the employees in a fiduciary capacity on behalf of their employers, falling under one of the exceptions to the definition of a benami transaction under s. 2(9)(A)(ii) of the Benami Act.

• Dissatisfied with the AA’s refusal to confirm the attachment, the revenue department appealed before the Tribunal, arguing that the employees lacked the qualifications under the above-mentioned exception.

Held

• The Tribunal dismissed the revenue’s appeal and upheld the AA's decision, confirming that the cash found in the lockers was not part of a benami transaction but held in a fiduciary capacity by the employees (‘alleged benamidars’) on behalf of their employers.

• The Tribunal determined that the alleged benamidars were acting in a fiduciary capacity for the safe custody of cash on behalf of their employers, Ratan Kant Sharma and Shiv Shankar Sharma. Since the beneficial owners and the employees acknowledged the cash did not claim ownership, the situation fits within the exception provided under s. 2(9)(A)(ii).

• The Tribunal relied on RBI v. Jayantilal N. Mistry (Supreme Court)[ii]*, *in which the Supreme Court outlined the scope of fiduciary relationships, including principles like the ‘No Conflict’ and ‘No Profit’ rules, which were deemed relevant to determining whether the funds were held for safekeeping without personal interest or gain.

• The Tribunal also relied on Sri Marcel Martins v. M. Printer & Ors (Supreme Court)[iii]*, *where fiduciary capacity was extended to situations where trust and good faith are central to the relationship. This case was referenced to affirm that the employees’ role in safeguarding the cash on their employers' behalf met the fiduciary capacity criteria.

• The Tribunal noted that none of the employees claimed ownership of the cash, and the beneficial owners did not disown the funds. Instead, the beneficial owners explicitly acknowledged the cash as theirs, stored for safekeeping with their employees.

• The Tribunal further pointed out that the income tax assessments added the discovered amount to the income of the beneficial owners, reinforcing the fact that the funds belonged to them and were not hidden under a benami structure.

Our Analysis

The Tribunal’s decision in this case highlights the importance of distinguishing between actual benami transactions and legitimate fiduciary relationships. S. 2(9)(A)(ii) of the Benami Act provides an exception for property or assets held by individuals in a fiduciary capacity for the benefit of others. In this case, the Tribunal determined that the alleged benamidars were merely acting as custodians of the cash, holding it on behalf of their employers, Ratan Kant Sharma and Shiv Shankar Sharma.

The Tribunal’s interpretation followed the precedents of the Supreme Court, which explored the fiduciary duty to avoid conflicts, profit motives, and undue influence in relationships built on trust. It was careful to note that not all fiduciary relationships are exempt from scrutiny under the Benami Act. The fiduciary capacity must be genuine and cannot be used to shield illegal transactions or activities designed to conceal true ownership. The Tribunal made it clear that if there had been any evidence of the employees claiming ownership or using the funds for personal gain, the outcome may have been different. 

End Notes

[i] [2024] 166 taxmann.com 627 (SAFEMA - New Delhi).

[ii] (2016) 3 SCC 525.

[iii] (2012) 5 SCC 342.

Authored by Priyavansh Kaushik, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.