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 Rule 1 of Section 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
