f. no. 370142/21/2016 tpl draft rules for prescribing the method of valuation of fair market value in respect of the trust or the institution chapter xii eb of the income tax act 1961

F. No. 370142/21/2016-TPL F. No. 370142/21/2016-TPL Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes ******* New Delhi, dated 24th October, 2016 Subject: Draft Rules for prescribing the method of valuation of fair market value in respect of the trust or the institution-Chapter XII-EB of the Income-tax Act, 1961- reg. The Finance Act, 2016, inter alia, inserted a new Chapter XII-EB consisting of sections 115TD, 115TE and 115TF in the Income-tax Act, 1961 (the Act). This chapter contains specific provisions relating to levy of additional income-tax where the charitable institution exempt under the Act ceases to exist as charitable organization or converts into a non-charitable organization. 2. Sub-section (2) of newly inserted section 115TD provides that the accreted income for the purposes of sub-section (1) thereof means the amount by which the aggregate fair market value of the total assets of the trust or the institution, as on the specified date, exceeds the total liability of such trust or institution computed in accordance with the method of valuation as may be prescribed. Therefore, the method of valuation of fair market value in respect of the trust or the institution as on the specified date for determination of accreted income needs to be prescribed in the rules. 3. Accordingly, it is proposed to insert rule 17CB in the Income-tax Rules, 1962. The draft rule 17CB, on which comments and suggestion of stakeholders and general public may be sent electronically by 31st October, 2016 at the email address, dirtpl1@nic.in in this regard, are as under: “17CB. Method of valuation for the purposes of sub-section (2) of section 115TD. (1) For the purpose of sub-section (2) of section 115TD of the Act, the aggregate fair market value of the total assets of the trust or institution, shall be the aggregate of the fair market value of all the assets in the balance sheet as reduced by- (i) 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 Act, and (ii) any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset. (2) For the purpose of sub-rule (1), the fair market value of an asset shall be determined in the following manner, namely:— (i) Valuation of shares and securities,— (a) the fair market value of quoted share and securities shall be the following,— I. the average of the lowest and highest price of such shares and securities quoted on a recognised stock exchange as on the specified date ; or II. where on the specified date, there is no trading in such shares and securities on a recognised stock exchange; the average of the lowest and highest F. No. 370142/21/2016-TPL price of such shares and securities on a recognised stock exchange on a date immediately preceding the specified date when such shares and securities were traded on a recognised stock exchange, (b) the fair market value of unquoted equity shares shall be the value, on the specified date of such unquoted equity shares as determined in accordance with the following formula, namely:— Fair market value = (A+B - L) × (PV), (PE) where, A = book value of all the assets in the balance sheet (other than bullion, jewellery, precious stone, artistic work, shares, securities, and immovable property) as reduced by- (i) 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 Act; and (ii) 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; B = fair market value of bullion, jewellery, precious stone, artistic work, shares, securities and immovable property as determined in the manner provided in this rule; 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; 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 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 share; (c) The fair market value of shares and securities other than equity shares shall be estimated to be price it would fetch if sold in the open market on the specified date on the basis of valuation report from a merchant banker or an accountant in respect of such valuation; F. No. 370142/21/2016-TPL (ii) The fair market value of an immovable property shall be higher of the following: (a) price that the property shall ordinarily fetch if sold in the open market on the specified date on the basis of the valuation report from a registered valuer, and (b) stamp duty value as on the specified date, (iii) The fair market value of a business undertaking, held by trust or institution, shall be its net assets:- (A + B-L) Which shall be determined mutatis mutandis applying the manner provided in sub-clause (b) of clause (i) of sub-rule (2). (iv) The fair market value of any asset, other than those referred to in clauses (i), (ii) and (iii) above, shall be the price that the asset shall ordinarily fetch if sold in the open market on the specified date on the basis of valuation report obtained from a registered valuer: Provided that in case no valuer is registered for valuation of such assets, the valuation report shall be obtained from a valuer who is a member of any one of the professional valuer bodies viz. Institution of Valuers, institution of Surveyors (Valuation Branch), institution of Govt. Approved Valuers, Practicing Valuers Association of India, The Indian Institution of Valuers, Centre for Valuation Studies, Research and Training, Royal institute of Chartered Surveyors, India Chapter, American Society of Appraisers, USA, Appraisal institute USA or a valuer who is appointed by any public sector banks or public sector undertakings for valuation purposes. (3) For the purpose of sub-section (2) of section 115 TD of the Act, the total liability of the trust or institution shall be book values of liabilities in the balance sheet on the specified date but not including the following amounts , namely:— (i) Capital fund or accumulated funds or corpus, by whatever name called, of the trust or institution, (ii) Reserve or surpluses or excess of income over expenditure, by whatever name called, (iii) any amount representing contingent liability (iv) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (v) 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 income in accordance with the law applicable thereto. Explanation— For the purposes of this rule,— (a) "accountant" shall mean a fellow of the Institute of Chartered Accountants of India within the meaning of the Chartered Accountants Act, 1949 (38 of 1949) who is not appointed by the trust or institution as an auditor; (b) "balance-sheet” in relation to any trust or institution, shall mean the balance- sheet of such trust or institution (including the notes annexed thereto and forming