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.
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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.
-
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 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;
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- (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
