[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 28th June, 2016
INCOME-TAX
S.O. 2226 (E). – In exercise of the powers conferred by section 9 and section 285A,
read with 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: -
-
(1) These rules may be called the Income-tax (19th Amendment), Rules,
(2) They shall come into force on the date of their publication in the Official
Gazette.
2. In the Income-tax Rules, 1962 (hereinafter referred to as the said rules), in
Part II, after sub-part H, the following sub-part shall be inserted, namely: -
“I- Determination of value of assets and apportionment of income in certain cases.
11UB. Fair market value of assets in certain cases.- (1) The fair market value of
asset, tangible or intangible, as on the specified date, held directly or indirectly by a
company or an entity registered or incorporated outside India (hereafter referred to
as “foreign company or entity”), for the purposes of clause (i) of sub-section (1) of
section 9, shall be computed in accordance with the provisions of this rule.
(2) Where the asset is a share of an Indian company listed on a recognised stock
exchange on the specified date, the fair market value of the share shall be the
observable price of such share on the stock exchange:
Provided that where the share is held as part of the shareholding which confers,
directly or indirectly, any right of management or control in relation to the aforesaid
company, the fair market value of the share shall be determined in accordance with
the following formula, namely:-
Fair market value = (A+B) /C
Where;
A= the market capitalisation of the company on the basis of observable price of its
shares quoted on the recognised stock exchange;
B= the book value of liabilities of the company as on the specified date;
C= the total number of outstanding shares:
Provided further that where, on the specified date, the share is listed on more than
one recognised stock exchange, the observable price of the share shall be computed
with reference to the recognised stock exchange which records the highest volume
of trading in the share during the period considered for determining the price.
(3) Where the asset is a share of an Indian company not listed on a recognised
stock exchange on the specified date, the fair market value of the share shall be its
fair market value on such date as determined by a merchant banker or an
accountant in accordance with any internationally accepted valuation methodology
for valuation of shares on arm’s length basis as increased by the liability, if any,
considered in such determination.
(4) Where the asset is an interest in a partnership firm or an association of
persons, its fair market value shall be determined in the following manner, namely:-
- (i) the value on the specified date of such firm or association of persons, shall
be determined by a merchant banker or an accountant in accordance with
any internationally accepted valuation methodology as increased by the
liability, if any, considered in such determination;
- (ii) the portion of the value computed in clause (i) as is equal to the amount of
its capital shall be allocated among its partners or members in the
proportion in which capital has been contributed by them and the residue of
the value shall be allocated among the partners or members in accordance
with the agreement of partnership firm or association of persons for
distribution of assets in the event of dissolution of the firm or association,
or, in the absence of any such agreement, in the proportion in which the
partners or members are entitled to share profits and the sum total of the
amount so allocated to a partner or member shall be treated as the fair
market value of the interest of that partner or member in the firm or the
association of persons, as the case may be.
(5) The fair market value of the asset other than those referred to in sub-rules (2),
(3) and (4) shall be the price it would fetch if sold in the open market on the specified
date as determined by a merchant banker or an accountant as increased by the
liability, if any, considered in such determination.
(6) The fair market value of all the assets of a foreign company or an entity shall
be determined in the following manner, namely:-
- (i) where the transfer of share of, or interest in, the foreign company or
entity is between the persons who are not connected persons, the fair market
value of all the assets owned by the foreign company or the entity as on the
specified date, for the purpose of such transfer, shall be determined in
accordance with the following formula, namely:-
Fair market value of all assets = A+B
Where;
A = Market capitalisation of the foreign company or entity computed on
the basis of the full value of consideration for transfer of the share or
interest;
B = book value of the liabilities of the company or the entity as on the
specified date as certified by a merchant banker or an accountant;
- (ii) in any other case, if, -
- (a) the share of the foreign company or entity is listed on a stock
exchange on the specified date, the fair market value of all the
assets owned by the foreign company or the entity shall be
determined in accordance with the following formula, namely:-
Fair market value of all the assets = A+B
Where;
A = Market capitalisation of the foreign company or entity computed
on the basis of the observable price of the share on the stock
exchange where the share of the foreign company or the entity is
listed;
B = book value of the liabilities of the company or the entity as on the
specified date:
Provided that where, as on the specified date, the share is listed on
more than one stock exchange, the observable price in the aforesaid
formula shall be in respect of the stock exchange which records the
highest volume of trading in the share during the period considered
for determining the price;
- (b) the share in the foreign company or entity is not listed on a stock
exchange on the specified date, the value of all the assets owned by
the foreign company or the entity shall be determined in accordance
with the following formula, namely :-
Fair market value of all the assets = A+B
Where;
A = fair market value of the foreign company or the entity as on the
specified date as determined by a merchant banker or an accountant
as per the internationally accepted valuation methodology;
B = value of liabilities of the company or the entity if any, considered
for the determination of fair market value in A.
(7) Where fair market value has been determined on the basis of any interim balance
sheet referred to in the first proviso to clause (ix) of the Explanation, then the fair
market value shall be appropriately modified after finalisation of the relevant financial
statement in accordance with the applicable laws and all the provisions of this rule
and rules 11UC and 114DB shall apply accordingly.
(8) For determining the fair market value of any asset located in India, being a share
of an Indian company or interest in a partnership firm or association of persons, all
the assets and business operations of the said company or partnership firm or
association of persons shall be taken into account irrespective of whether the assets
or business operations are located in India or outside.
(9) The rate of exchange for the calculation in foreign currency, of the value of
assets located in India and expressed in rupees shall be the telegraphic transfer
buying rate of such currency as on the specified date.
Explanation: For the purposes of this rule and rule 11UC, -
- (i) “accountant” means an accountant referred to in the Explanation to
sub-section (2) of section 288 and for the purposes of sub-rule (6) includes any
valuer recognised for undertaking similar valuation by the Government of the
country where the foreign company or the entity is registered or incorporated or
any of its agencies, who fulfils the following conditions, namely :-
- (a) if he is a member or partner in any entity engaged in rendering
accountancy or valuation services then,-
- (i) the entity or its affiliates has presence in more than two
countries; and
- (ii) the annual receipt of the entity in the year preceding the year in
which valuation is undertaken exceeds ten crore rupees ;
- (b) if he is pursuing the profession of accountancy individually or is a
valuer then,-
- (i) his annual receipt in the year preceding the year in which
valuation is undertaken, from the exercise of profession,
exceeds one crore rupees ; and
- (ii) he has professional experience of not less than ten years.
- (ii) “connected person” shall have the meaning as assigned to it in clause
(4) of section 102;
- (iii) "right of management or control" shall include the right to appoint majority
of the directors or to control the management or policy decision exercisable by
a person or persons acting individually or in concert, directly or indirectly,
including by virtue of shareholding or management rights or shareholders
agreements or voting agreements or in any other manner;
- (iv) “telegraphic transfer buying rate” shall have the meaning as assigned
to it in the Explanation to rule 26;
- (v) “observable price” in respect of a share quoted on a stock exchange
shall be the higher of the following:-
- (a) the average of the weekly high and low of the closing prices of the
shares quoted on the said stock exchange during the six months
period preceding the specified date; or
- (b) the average of the weekly high and low of the closing price of the
shares quoted on the said stock exchange during the two weeks
preceding the specified date;
- (vi) “book value of the liabilities” means the value of liabilities as shown in
the balance-sheet of the company or the entity as the case may be, excluding
the paid-up capital in respect of equity shares or members’ interest and the
general reserves and surplus and security premium related to the paid up
capital .
- (vii) “specified date” shall have the meaning as assigned to it in clause (d)
of Explanation 6 to clause (i) of subsection (1) of section 9;
- (viii) the terms “merchant banker” and “recognised stock exchange” shall
have the meaning as assigned to them in rule 11U;
- (ix) “balance sheet” ,-
- (a) in relation to an Indian company, means the balance-sheet of such
company (including the notes annexed thereto and forming part of the
accounts) as drawn up on the specified date which has been audited
by the auditor of the company appointed under the laws relating to
companies in force; and
- (b) in any other case, means the balance-sheet of the company or the
entity (including the notes annexed thereto and forming part of the
accounts) as drawn up on the specified date and submitted to the
relevant authority outside India under the laws in force of the country
in which the foreign company or the entity is registered or
incorporated:
Provided that where the balance-sheet as on the specified date is
not drawn up, pending finalisation of accounts, as mentioned in
clauses (a) and (b), the balance sheet shall mean an interim balance-
sheet drawn up as on the specified date and approved by the board
of directors of the company or an equivalent body in case of any other
entity:
Provided further that where the specified date is the date referred to
in sub-clause (ii) of clause (d) of Explanation 6 to clause (i) of
subsection (1) of section 9, the balance sheet means the balance
sheet as drawn up on the specified date and certified by an
accountant.
11UC. Determination of Income attributable to assets in India.- (1) The income
from transfer outside India of a share of, or interest in, a company or an entity
referred to in clause (i) of sub-section (1) of section 9, attributable to assets located
in India, shall be determined in accordance with the following formula, namely: –
A x $\frac{B}{C}$
Where;
A = Income from the transfer of the share of, or interest in, the company or the entity
computed in accordance with the provisions of the Act, as if, such share or interest is
located in India;
B = Fair Market Value of assets located in India as on the specified date, from which
the share or interest referred to in A derives its value substantially, computed in
accordance with rule 11UB;
C = Fair Market Value of all the assets of the company or the entity as on the
specified date, computed in accordance with rule 11UB:
Provided that if the transferor of the share of, or interest in, the company or the entity
fails to provide the information required for the application of the aforesaid formula
then the income from the transfer of such share or interest attributable to the assets
located in India shall be determined in such manner as the Assessing Officer may
deem suitable.
(2) The transferor of the share of, or interest in, a company or an entity that
derives its value substantially from assets located in India, shall obtain and furnish
along with the return of income a report in Form No. 3CT duly signed and verified by
an accountant providing the basis of the apportionment in accordance with the
formula and certifying that the income attributable to assets located in India has been
correctly computed.”.
- In the said rules, after rule 114DA, following rule shall be inserted, namely: -
“114DB. Information or documents to be furnished under section 285A.-(1)
Every Indian concern referred to in section 285A shall, for the purposes of the said
section, maintain and furnish the information and documents in accordance with this
rule.
(2) The information shall be furnished in Form No. 49D electronically under digital
signature to the Assessing Officer having jurisdiction over the Indian concern within a
period of ninety days from the end of the financial year in which any transfer of the
share of, or interest in, a company or entity incorporated outside India (hereafter
referred to as “foreign company or entity”) referred to in Explanation 5 to clause (i) of
sub-section (1) of section 9 has taken place:
Provided that where the transaction in respect of the share or the interest has the
effect of directly or indirectly transferring the rights of management or control in
relation to the Indian concern, the information shall be furnished in the said Form
within ninety days of the transaction.
(3) The Indian concern shall maintain the following alongwith its english translation, if
the documents originally prepared are in foreign languages and produce the same
when called upon to do so by any income-tax authority in the course of any
proceeding to substantiate the information furnished under sub-rule (2), namely: -
- (i) details of the immediate holding company or entity, intermediate
holding company or companies or entity or entities and ultimate
holding company or entity of the Indian concern;
- (ii) details of other entities in India of the group of which the Indian
concern is a constituent;
- (iii) the holding structure of the shares of, or the interest in, the foreign
company or entity before and after the transfer;
- (iv) any transfer contract or agreement entered into in respect of the share
of, or interest in, any foreign company or entity that holds any asset in
India through, or in, the Indian concern;
- (v) financial and accounting statements of the foreign company or entity
which directly or indirectly holds the assets in India through, or in, the
Indian concern for two years prior to the date of transfer of the share
or interest ;
- (vi) information relating to the decision or implementation process of the
overall arrangement of the transfer;
- (vii) information in respect of the foreign company or entity and its
subsidiaries, relating to, -
- (a) the business operation;
- (b) personnel;
- (c) finance and properties;
- (d) internal and external audit or the valuation report, if any,
forming basis of the consideration in respect of share, or the
interest;
- (viii) the asset valuation report and other supporting evidence to determine
the place of location of the share or interest being transferred;
- (ix) the details of payment of tax outside India, which relates to the transfer
of the share or interest;
- (x) the valuation report in respect of Indian asset and total assets duly
certified by a merchant banker or accountant with supporting evidence;
- (xi) documents which are issued in connection with the transactions under
the accounting practice followed.
(4) Where there are more than one Indian concerns that are constituent entities of a
group, the information may be furnished by any one Indian concern, if, -
- (i) the group has designated such Indian concern to furnish information on
behalf of all other Indian concerns that are constituent of the group, and
- (ii) the information regarding the designated Indian concern has been
conveyed in writing on behalf of the group to the Assessing officer:
Provided that nothing contained in this sub-rule shall have effect if the
designated Indian concern fails to furnish the information in accordance
with the provisions of this rule.
(5) The Principal Director General of Income-tax (Systems) or Director General
Income-tax (Systems), as the case may be, shall specify the procedure for
electronically filing of Form No. 49D and shall also be responsible for evolving and
implementing appropriate security, archival and retrieval policies in relation to the
information so furnished under this rule.
(6) The information and documents specified in sub-rule (3) shall be kept and
maintained for a period of eight years from the end of relevant assessment year.
Explanation: For the purposes of this rule,-
- (i) “constituent entity” shall have the meaning as assigned to it in clause (d)
of sub-section (9) of section 286;
