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The Central Board of Direct Taxes amends the Income-tax Rules, 1962 to update definitions and formulas for determining the fair market value of unquoted equity shares. The rules apply to assessees and companies evaluating unquoted equity shares under specific income-tax provisions. The amendment defines terms such as accountant, balance-sheet, and valuation date, and specifies asset and liability computations for share valuation. Assessees determine the fair market value using a prescribed asset-liability formula or the Discounted Free Cash Flow method by a merchant banker or accountant. The rules take effect on the date of publication in the Official Gazette.
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[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART–II, SECTION 3, SUB-SECTION (ii)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 29th November, 2012. (INCOME-TAX)
S.O. 2805(E).— In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-
(A) for clauses (a) and (b), the following clauses shall respectively be substituted, namely:-
‘(a) "accountant" ,-
(b) "balance-sheet", in relation to any company, means,-
(B) for clause (j), the following clause shall be substituted, namely:- ‘(j) "valuation date" means the date on which the property or consideration, as the case may be, is received by the assessee.’.
(i) in sub-rule (1) as so renumbered, in clause (c), for sub-clause (b), the following shall be substituted, namely:- “(b) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner, namely:—
(A – L) the fair market value of unquoted equity shares = × (PV), (PE) where,
A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset;
L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:—
(i) the paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;
(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
(iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;
(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;
PE = total amount of paid up equity share capital as shown in the balance-sheet;
PV = the paid up value of such equity shares;”;
(ii) after the sub-rule (1) as so renumbered, the following sub-rule shall be inserted, namely:-
“(2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessee, namely:—
(A – L) (a) the fair market value of unquoted equity shares = × (PV), (PE) where,
A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset;
L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:—
(i) the paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;
(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
(iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund as refund under the Income- tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;
(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;
PE = total amount of paid up equity share capital as shown in the balance-sheet;
PV = the paid up value of such equity shares; or
[Notification No. 52/2012, F.No.142/19/2012-SO(TPL)]
(Rajesh Kumar Bhoot) Director
Note: The principal rules were published vide notification number S.O. 969(E), dated the 26th March, 1962 and last amended vide notification number S.O. 2365 (E), dated 04/10/2012.
