CA’s Chartered Accountants not to determine FMV of unquoted equity shares received by a company without adequate consideration-CBDT Notification
Section 56(2) of the Income tax Act, 1961. creates a deeming fiction for bringing certain receipts/transactions within the scope of taxable income.
(b) Under the provisions of clause (viia) to section 56(2), where a firm or a company not being a company in which the public are substantially interested, receives from any person shares of a company not being a company in which the public are substantially interested,—
(i) if without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property shall be chargeable as income from other sources.
(ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration shall be chargeable as income from other sources.
(c) Similarly under clause (viib), where a company, not being a company in which the public are substantially interested, receives from any resident person any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable as income from other sources.
Rule 11UA provides the manner for determination of FMV for the purpose of section 56 for properties other than immovable properties while Rule 11U defines the expression used in Rule 11UA.
As per sub Rule 1 of Rule 11UA, the FMV of the unquoted equity shares other than equity shares of a company which are not listed would be arm length price and the assessee may obtain a report from a merchant banker of a chartered accountant.
Under clause (b) of sub Rule 2 of Rule 11UA, with respect to FMV of unquoted equity shares for the purpose of section 56(viib) assessee had an option of choosing value determined by a fellow chartered accountant or by a merchant banker.
Now with the CBDT Notification No. 23/2018 dated 24/05/2018 omitting clause (a) in Rule 11U and deletion of the word “or an accountant” in Rule 11UA, the chartered accountants can not determine FMV of unquoted equity shares received by a company without adequate consideration
MINISTRY OF FINANCE
(Department of Revenue)
(Central Board of Direct Taxes)
New Delhi, the 24th May, 2018
S.O. 2087(E).—In exercise of the powers conferred by sub-section (2) of section 56 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:
1. (1) These rules may be called the Income-tax (6th Amendment), Rules, 2018.
(2) They shall come into force from the date of their publication in the Official Gazette.
2. In the Income-tax Rules, 1962 (hereinafter referred to as the principal rules), in rule 11U, clause (a) shall be omitted.
3. In the principal rules, in rule 11UA, in sub-rule (2), in clause (b), the words “or an accountant” shall be omitted.
[Notification No. 23/2018/F. No.370142/5/2018-TPL]
PRAVIN RAWAL, Dir. (Tax Policy and Legislation)
Note.- The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (ii) vide notification number S.O.969(E), dated the 26th March, 1962 and last amended by the Income-tax (Fifth Amendment) Rules, 2018, vide notification number S.O. 1558 (E), dated 11th April, 2018.