CBDT notifies rule for computation of FMV of Capital Assets for section 50B Notification No. 68/2021, dated 24-05-2021
The Finance Act, 2021, has amended Section 50B to provide that in case of slump sale, the Fair Market Value (FMV) of undertaking or division transferred shall be deemed as the full value of the consideration received or accruing as a result of the transfer of such capital asset. The CBDT was empowered to prescribe how the FMV of such undertaking or division is to be determined.
In exercise of such power, CBDT has inserted a new Rule 11UAE. Rule 11UAE provides that the higher of the following on the date of slump sale shall be deemed to be its FMV:
(a) Fair Market Value of the capital assets transferred by way of slump sale; or
The impact of recent extension and all previous extensions on various due dates of the Income-tax Act compliances are enumerated in this article.
(b) Fair Market Value of the consideration received or accruing due to transfer by way of slump sale.
Determination of FMV of capital assets transferred
FMV of the capital assets transferred by way of slump sale shall be computed as per the following formula:
FMV of capital assets = A+B+C+D – L
A = Book value of all assets (other than jewellery, artistic work, shares, securities, and immovable property) appears in the books of account of the undertaking or the division transferred by way of slump sale. However, the following shall be reduced from such book value of assets if it relates to such undertaking or the division:
(a) Income-tax paid as reduced by the amount of Income-tax refund claimed; and
(b) 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, based on the valuation report obtained from a registered valuer;
C = Fair Market Value of shares and securities determined in accordance with Rule 11UA;
D = The value adopted or assessed or assessable by any authority of the Government for payment of stamp duty in respect of the immovable property;
L = Book value of liabilities as appearing in the books of accounts of the undertaking or the division transferred by way of slump sale. However, the following shall be reduced from such book value if it relates to such undertaking or division:
(a) Paid-up capital in respect of equity shares;
(b) Amount set aside for payment of dividend on preference shares and equity shares if such dividends have not been declared (before the date of transfer) at a general body meeting of the company;
(c) Reserves and surplus (even if the resulting figure is negative) other than those set apart towards depreciation;
(d) Excess provision for tax (including deferred tax liability)
(e) Provisions for unascertained liabilities;
(f) Contingent Liabilities other than arrears of dividends payable in respect of cumulative preference shares
Determination of FMV of Consideration received or accrued
FMV of the consideration received or accruing as a result of a transfer by way of slump sale determined in accordance with the formula-:
FMV of consideration = A+B+C+D
A = Monetary consideration received or accruing as a result of the transfer;
B = FMV of the property referred to in Rule 11UA(1), i.e., property other than immovable property, determined in the manner provided therein;
C = The price which property, other than immovable property, which is not covered in point B above, would fetch if sold in the open market based on the valuation report obtained from a registered valuer, in respect of the property;
D = The value adopted or assessed or assessable by any government’s authority for payment of stamp duty in respect of the immovable property.