Rule 11UAE of the Income Tax Rules,1962 (herein referred to as “Rule”) was notified by the CBDT as on 24th May,2021 for the computation the fair market value (FMV) of capital assets the purpose of clause (ii) of sub-section (2) of section 50B. It prescribes two methods for calculation of FMV under sub-rule (2) for FMV1 and sub-rule (3) for FMV2. The higher value amongst FMV1 and FMV2 is to be taken as the fair market value of capital assets transferred by the way of slump sale.
FMV1 can be summarised as sum total of assets less liabilities. Herein, the assets have to be taken at book value or FMV as the case may be and liabilities shall be reduced by the capital items (including certain provisions) and is limited to only liabilities pertaining to such undertaking.
FMV2 is computed by aggregating the sums of consideration received or accruing as a result of the transfer and the fair market value of capital assets of the entity.
Both FMV1 and FMV2 should be determined on the date of slump sale.
The CBDT vide Notification No.68/2021/F. No.370142/16 /2021-TPL has prescribed the following formulas to compute FMV1 & FMV2:
FMV1 = A+B+C+D-L, where,
| A = book value of all assets (other than jewellery, artistic work, shares, securities and immovable property) as appearing in the books of account reduced by the following amount, – |
| Any amount of income tax paid, if any, less the amount of income tax refund claimed, if any; and |
| Any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; |
| B = the price which the jewellery and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from the registered valuer; |
| C = fair market value of shares and securities as per sub-rule (1) of rule 11UA; |
| D = the value adopted or assessed by any authority of the Government for the purpose of payment of the stamp duty in respect of the immovable property; |
| L = book value of liabilities as appearing in the book of accounts, but not including the following amounts, namely: – |
| the paid-up capital in respect of equity shares; |
| the amount set apart for the 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; |
| reserves and surplus, even if the resulting figure is negative, other than those set apart towards depreciation; |
| 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; |
| any amount representing provision made for meeting liabilities, other than ascertained liabilities; |
| any amount representing contingent liabilities other than arrear of dividends payable in respect of cumulative preference shares. |
FMV2 =E+F+G+H, where,
| E = value of monetary consideration received or accruing as a result of transfer; |
| F = fair market value of non-monetary consideration received or accruing as a result of transfer represented by property referred to in sub-rule (1) of rule 11UA; |
| G = the price which the non-monetary consideration received or accruing as a result of 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 open market on the basis of the valuation report obtained from the registered valuer; |
| H = the value adopted or assessed by any authority of the Government for the purpose of payment of the stamp duty in respect of the immovable property in case the non-monetary consideration received or accruing as a result of transfer is represented by the immovable property. |
