Does Transfer of the cryptocurrencies to the international crypto wallets of the
third parties fall under the ambit of the Benami Transactions?
A plain reading of definition of Benami Transaction makes it seem plausible that the Transfer of the cryptocurrencies to the international crypto wallets of the
third parties, for their future benefit might fall under the ambit of the Benami Transactions (Prohibition) Amendment Act, 2016 which is also be called as Prohibition of Benami Property Transactions Act, 1988 (hereinafter also referred as “Benami Act”).
What is a Benami Transaction?
A Benami Transaction includes the following Parts
- Transaction or an arrangement 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; and the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by-
- Karta or a member of an undivided Hindu family,
- a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository.......,
- any person being an individual in the name of his spouse or child,
- any person in the name of his brother or sister or lineal ascendant or descendant
A transaction or an arrangement in respect of a property carried out or made in a fictitious name or
A transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership;
A transaction or an arrangement in respect of a property where the person
providing the consideration is not traceable or is fictitious.
What is Property in Benami Act?
Under Section 1 (26) of the Benami Act, the term “property ” has been defined as under:
"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.
As you can see the definition of property given under the Benami Act is quite wide to include cryptocurrency under its ambit.
Transfer of the Cryptocurrencies
Now, let us analyze the scenario of the transfer of the cryptocurrencies to the International crypto wallets of the third parties, for their future benefit by the Indian
nationals in light of the provision of Section 1 (9) (A) of the Benami Act.
Let us take an example. Arjun, an Indian Resident, has 1 Bitcoin on Indian wallet WazirX which he purchased through a legitimate source. Now, Arjun has transferred that 1 Bitcoin to the wallet of John on Binance. John is citizen and resident of the USA. This transaction in my opinion is DOES NOT fall under the definition of Benami Transaction as it is NOT held for the future benefit of Arjun.
Let us take another example. Arjun, an Indian Resident, has 1 Bitcoin on Indian wallet WazirX which he purchased through a legitimate source. Now, Arjun has transferred that 1 Bitcoin to the wallet of his old school friend Abhay on Binance but for the future benefit of Arjun. Abhay is also citizen and resident of the USA.
From a plain reading of Section 1 (9) (A) of the Benami Act, it seems that this transaction will fall under the scope of Benami Transaction, as the Bitcoin is transferred by Arjun to Abhay, and the Bitcoin is held by Abhay in his wallet, for the immediate or future benefit of the Arjun, who has provided the consideration for such property. Such activities fulfill all the tenets of Section 1 (9) (A) of the Benami Act and also do not fall under any of the exception provided therein.
The Benami Act is an Indian statute and only extends to the territory of India, due to which the property (1 Bitcoin) cannot be attached or confiscated; however, the prosecution of the Arjun cannot be ruled out under the Benami Act though it seems farfetched. From the above analysis, it is apparent that any person who is transferring his cryptocurrency to the wallet of any other person, for his own immediate or future benefit, can fall under the trap of Benami Act.