Benami, the word 'benami' issued to denote two classes of transactions which differ from each other in their legal character and incidents. In one sense, it signifies a transaction which is real, as for example, when A sells properties to B but the sale deed mentions X as the purchaser. Here the sale itself is genuine, but the real purchaser is B, X being his benamidar. This is the class of transactions which is usually termed as benami. But the word 'benami' is also occasionally used, perhaps not quite accurately, to refer to a sham transaction, as for example, when A purports to sell his property to B without intending that his title should cease or pass to B. The fundamental difference between these two classes of transactions is that whereas in the former there is an operative transfer resulting in the vesting of title in the transferee, in the latter there is none such, the transferor continuing to retain the title notwithstanding the execution of the transfer deed. It is only in the former class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B, to enquire into the question as to who paid the consideration for the transfer, X or B. But in the latter class of cases, when the question is whether the transfer is genuine or sham, the point for decision would be, not who paid the consideration but whether any consideration was paid, Sree Meenakshi Mills v. CIT, (1956) SCR 691: AIR 1957 SC 49.
The genesis of the concept of benami is that consideration for a transfer must flow from one person and the transfer is taken in the name of the other person and the consideration so flowing for the transfer was not intended to be a gift in favour of the person in whose name the transfer is taken. S. 82 of Indian Trusts Act, 1882. Syed Abdul Khader v. Rami Reddy, (1979) 2 SCC 601: AIR 1979 SC 553.