SNR-Income Tax Update
Income Tax/2021-22/02 25 May 2021
Central Board of Direct Taxes (CBDT) vide Notification No. 68 /2021, dated May 24, 2021, has notified Income-tax (16th Amendment) Rules, 2021 amending the Income-tax Rules, 1962 to insert Rule 11UAE which prescribes the formula for the computation of Fair Market Value [FMV] of capital assets for the purposes of Section 50B of the Income-tax Act, 1961 that deals with the calculation of capital gains in case of a Slump Sale.
It is pertinent to note that prior to 1st April 2021, the actual consideration of the slump sale transaction was considered as full value of consideration for computing capital gains i.e. there was no requirement of
determination of FMV of such capital assets. The Finance Act 2021 amended sub-section (2) of Section
50B to prescribe the determination of FMV of capital assets.
Now, by way of this notification, CBDT has prescribed a detailed formula for the determination of FMV of capital
assets. The provisions of newly introduced Rule 11UAE are as follows:
For the purpose of Section 50B, the FMV of the capital assets shall be higher of the following:
FMV1 Or FMV2
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 Being 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 relate 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 shown as asset including the unamortized amount of deferred expenditure which does
not represent the value of any asset;
B Being 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 Being the FMV of shares and securities as determined in the manner provided in sub-rule (1) of rule 11UA;
D Being 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 Being the 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: –
a) the paid-up capital in respect of equity shares;
b) 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;
c) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than
those set apart towards depreciation;
d) any amount representing provision for taxation, other than 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;
e) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
f) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares.
FMV2 shall be the FMV 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 Being the value of the monetary consideration received or accruing as a result of the transfer;
F Being the fair market value of non-monetary consideration received or accruing as a result of the transfer represented by 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 Being the price which the non-monetary consideration received or accruing as a result of the transfer represented by 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 Being 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 accruing as a result of the transfer is represented by the immovable property.
Further, the fair market value of the capital assets shall be determined on the date of the slump sale and for this purpose, valuation date referred to in rule 11UA shall also mean the date of the slump sale.
