Determination of fair market value of the property

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)

New Delhi, the 8th April, 2010

NOTIFICATION

[INCOME-TAX]

S.O……(E) .- In exercise of the powers conferred by 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. Short title and commencement. - (1) These rules may be called

Income-tax (Second Amendment) Rules, 2010.

(2) They shall come into force from the 1st day of October, 2009.

2. Insertion of new rules. - In the Income-tax Rules, 1962, after the sub-part

G, the following shall be inserted, namely:-

‘H. - Determination of fair market value of the property

other than immovable property

11U. Meaning of expressions used in determination of fair market value. - For the

proposes of this rule and rule 11UA,-

(a) “accountant” shall have the same meaning as assigned in the

Explanation to section 288 of the Act;

(b) “balance-sheet”, in relation to any company, means the balance-sheet

of such company (including the notes annexed thereto and forming part

of the accounts) as drawn up on the valuation date;

(c) “merchant banker” means category I merchant banker registered with

Security and Exchange Board of India established under section 3 of the

Securities and Exchange Board of India Act, 1992 (15 of 1992);

(d) “quoted shares or securities” in relation to share or securities means a

share or security quoted on any recognized stock exchange with

regularity from time to time, where the quotations of such shares or

securities are based on current transaction made in the ordinary course of

business;

(e) “recognized stock exchange” shall have the same meaning as assigned

to it in clause (f) of section 2 of the Securities Contracts (Regulation) Act,

1956 (42 of 1956);

(f) “registered dealer” means a dealer who is registered under Central Saletax

Act, 1956 or General Sales-tax Law for the time being in force in any

State including value added tax laws;

(g) “registered valuer” shall have the same meaning as assigned to it in

section 34AB of the Wealth Tax Act, 1957(27 of 1957) read with rule 8A of

wealth-tax Rules, 1957;

(h) “securities” shall have the same meaning as assigned to it in clause (h) of

section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(i) “unquoted shares and securities”, in relation to shares or securities, means

shares and securities which is not a quoted shares or securities;

(j) “valuation date” means the date on which the respective property is

received by the assessee.

11UA. Determination of Fair Market Value. - For the purposes of section 56 of the

Act, the fair market value of a property, other than immovable property, shall

be determined in the following manner, namely,-

(a) valuation of Jewellery.-

(i) the fair market value of jewellery shall be estimated to be the

price which such jewellery would fetch if sold in the open

market on the valuation date;

(ii) in case the jewellery is received by the way of purchase on

the valuation date, from a registered dealer, the invoice

value of the jewellery shall be the fair market value;

(iii) In case the jewellery is received by any other mode and the

value of the jewellery exceeds rupees fifty thousand, then

assessee may obtain the report of registered valuer in respect

of the price it would fetch if sold in the open market on the

valuation date;

(b) valuation of archeological collections, drawings, paintings, sculptures

or any work of art.-

(i) the fair market value of archeological collections, drawings,

paintings, sculptures or any work of art (hereinafter referred as

artistic work) shall be estimated to be price which it would

fetch if sold in the open market on the valuation date;

(ii) in case the artistic work is received by the way of purchase

on the valuation date, from a registered dealer, the invoice

value of the artistic work shall be the fair market value;

(iii) in case the artistic work is received by any other mode and

the value of the artistic work exceeds rupees fifty thousand,

then assessee may obtain the report of registered valuer in

respect of the price it would fetch if sold in the open market

on the valuation date;

(c) valuation of shares and securities.-

(a) the fair market value of quoted shares and securities shall be

determined in the following manner, namely;-

(i) if the quoted shares and securities are received by way

of transaction carried out through any recognized

stock exchange, the fair market value of such shares

and securities shall be the transaction value as

recorded in such stock exchange;

(ii) if such quoted shares and securities are received by

way of transaction carried out other than through any

recognized stock exchange, the fair market value of

such shares and securities shall be,-

(a) the lowest price of such shares and securities

quoted on any recognized stock exchange on the

valuation date, and

(b) the lowest price of such shares and securities on any

recognized stock exchange on a date immediately

preceding the valuation date when such shares and

securities were traded on such stock exchange, in

cases where on the valuation date there is no

trading in such shares and securities on any

recognized stock exchange;

(b) the fair market value of unquoted equity shares shall be the

value, on the valuation date, of such unquoted equity shares as

determined in the following manner namely;-

The fair market value of unquoted equity shares = (A-L) * (PV)

(PE)

Where, A= Book value of the assets in Balance Sheet as

reduced by any amount paid as advance tax

under the Income-tax Act and any amount

shown in the balance sheet including the debit

balance of the profit and loss account or the

profit and loss appropriation account which does

not represent the value of any asset.

L= Book value of liabilities shown in the Balance

Sheet but not including the following amounts:-

(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, by whatever name called, other

than those set apart towards depreciation;

(iv) credit balance of the profit and loss account;

(v) any amount representing provision for

taxation, other than amount paid as advance

tax under the Income-tax Act, to the extent of

the excess over the tax payable with reference

to the book profits in accordance with the law

applicable thereto;

(vi) any amount representing provisions made for

meeting liabilities, other than ascertained

liabilities;

(vii) 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 Balance Sheet.

PV = the paid up value of such equity shares.

(c) the fair market value of unquoted shares and securities other

than equity shares in a company which are not listed in any

recognized stock exchange shall be estimated to be price it would

fetch if sold in the open market on the valuation date and the

assessee may obtain a report from a merchant banker or an

accountant in respect of such valuation.’.

Notification No 23/2010

[F.No.142/21/2009-SO (TPL)

(Ashish Kumar)

Director (Tax Policy and Legislation)

Note. The principal rules were published, vide, Notification No. S.O. 969(E), dated

the 26th March 1962 and last amended by Income-tax (First Amendment) Rules,

2010 vide Notification S.O. No. 424 (E) dated 18th February, 2010.