CBDT inserts Rule 11UAE for computation of FMV of capital assets on slump sale

CBDT inserts Rule 11UAE for computation of FMV of capital assets on slump sale

Notification No.68/2021/F. No.370142/16 /2021-TPL

 

The Central Board of Direct Taxes (CBDT) vide notification dated 24th May 2021 apprises Income Tax (16th Amendment) Rules, 2021. Accordingly, After Rule 11UAD in Income Tax Rules, 1962, a new provision i.e, Rule 11UAE for computation of Fair Market Value (FMV) of capital assets for the purpose of Section 50B of Income Tax Act was inserted.

 

Therefore, for the purpose of Section 50B (2)(ii) of the Income Tax Act, the Fair Market Value of capital assets shall be FMV1 determined under sub-rule (2) or FMV2 determined under sub-rule (3), whichever is higher.

 

How to determine FMV1?

The FMV1 shall be the fair market value of the capital assets transferred by way of slump sale determined in accordance with the formula –

A+B+C+D = L, where,

 

A= book value of all the assets (other than jewelry, artistic work, shares, securities, and immovable property) as appearing in the books of accounts of the undertaking or the division transferred by way of slump sale as reduced by the following amount which relates to such undertaking or the division, —

(i) any amount of income-tax paid if any, less the amount of income-tax refund claimed if any; and

(ii) any amount is shown as an asset including the unamortized amount of deferred expenditure which does not represent the value of any asset; 

 

B = the price which the jewelry and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer;

 

C = fair market value of shares and securities as determined in the manner provided in sub-rule (1) of rule 11UA;

 

D = the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property;

 

L= book value of liabilities as appearing in the books of accounts of the undertaking or the division transferred by way of slump sale, but not including the following amounts which relate to such undertaking or division, 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 the amount of income-tax paid, if any, less the amount of income-tax claimed as refund, if any, 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.

 

How to determine FMV2?

FMV2 shall be the fair market value of the consideration received or accruing as a result of a transfer by way of slump sale determined in accordance with the formula

E+F+G+H, where,

E = value of the monetary consideration received or accrued as a result of the transfer;

 

F = fair market value of non-monetary consideration received or accruing as a result of the transfer represented by the property referred to in sub-rule (1) of rule 11UA determined in the manner provided in sub-rule (1) of rule 11UA for the property covered in that sub-rule;

 

G = the price which the non-monetary consideration received or accruing as a result of the transfer represented by the property, other than immovable property, which is not referred to in sub-rule (1) of rule 11UA would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer, in respect of the property;

 

H = the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property in case the non-monetary consideration received or accrued as a result of the transfer is represented by the immovable property.

 

It was also notified that the fair market value of the capital assets under sub-rule (2) and sub-rule (3) shall be determined on the date of slump sale and for this purpose valuation date referred to in rule 11UA shall also mean the date of slump sale. 

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