Determination of fair market value

Determination of fair market value.

11UA. [(1)] 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 archaeological collections, drawings, paintings, sculptures or any work of art,—

(i)		the fair market value of archaeological 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;

¹[(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 + B + C + D – L) × (PV)/(PE), where,

A =

book value of all the assets (other than jewellery, artistic work, shares, securities and immovable property) in the balance sheet as reduced by,—

(i)		any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any; and
(ii)		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 a registered valuer;
C =		fair market value of shares and securities as determined in the manner provided in this rule;
D =		the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property;
L =		book value of liabilities shown in the balance sheet, but not including the following amounts, namely:—

(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 and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
(iv)		any amount representing provision for taxation, other than 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 in accordance with the law applicable thereto;
(v)		any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(vi)		any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;

PV =		the paid-up value of such equity shares;
PE =		total amount of paid-up equity share capital as shown in the balance sheet;]

(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.]

²[(2) Notwithstanding anything contained in sub-clause (b) or sub-clause (c), as the case may be, of clause (c) of sub-rule (1):—

(A)

the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of the Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares, as shall be determined under sub-clause (a), sub-clause (b), sub-clause (c) or sub-clause (e), at the option of the assessee, where the consideration received by the assessee is from a resident ; and under sub-clauses (a) to (e) at the option of the assessee, where the consideration received by the assessee is from a non-resident, in the following manner:—

(a)		the fair market value of unquoted equity shares =(A-L)× [PV/PE], where,
		A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure 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, namely:—

(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 and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
(iv)		any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund 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;
(v)		any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(vi)		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 the balance-sheet;
		PV = the paid up value of such equity shares; or
(b)		the fair market value of the unquoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method;
(c)		where any consideration is received by a venture capital undertaking for issue of unquoted equity shares, from a venture capital fund or a venture capital company or a specified fund, the price of the equity shares corresponding to such consideration may, at the option of such undertaking, be taken as the fair market value of the equity shares to the extent the consideration from such fair market value does not exceed the aggregate consideration that is received from a venture capital fund or a venture capital company or a specified fund:
		Provided that the consideration has been received by the undertaking from a venture capital fund or a venture capital company or a specified fund, within a period of ninety days before or after the date of issue of shares which are the subject matter of valuation.
		Explanation.—For the purposes of this clause,-

(i)		"specified fund" shall have the same meaning as assigned to it in clause (aa) of Explanation to clause (viib) of sub-section (2) of section 56;
(ii)		"venture capital company", "venture capital fund" and "venture capital undertaking" shall have the same meaning assigned to them in clause (b) of Explanation to clause (viib) of sub-section (2) of section 56.
		Illustration: If a venture capital undertaking receives a consideration of fifty thousand rupees from a venture capital company for issue of one hundred shares at the rate of five hundred rupees per share, then such an undertaking can issue one hundred shares at this rate to any other investor within a period of ninety days before or after the receipt of consideration from venture capital company.

(d)

the fair market value of the unquoted equity shares determined by a merchant banker in accordance with any of the following methods:

(i)		Comparable Company Multiple Method;
(ii)		Probability Weighted Expected Return Method;
(iii)		Option Pricing Method;
(iv)		Milestone Analysis Method;
(v)		Replacement Cost Methods;

(e)		where any consideration is received by a company for issue of unquoted equity shares, from any entity notified under clause (ii) of the first proviso to clause (viib) of sub-section (2) of section 56, the price of the equity shares corresponding to such consideration may, at the option of such company, be taken as the fair market value of the equity shares to the extent the consideration from such fair market value does not exceed the aggregate consideration that is received from the notified entity:
		Provided that the consideration has been received by the company from the entity notified under clause (ii) of the first proviso to clause (viib) of sub-section (2) of section 56, within a period of ninety days before or after the date of issue of shares which are the subject matter of valuation.

(B)

the fair market value of compulsorily convertible preference shares for the purposes of sub-clause (i) of clause (a) of the Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, as determined-

(i)		in accordance with the provisions of sub-clause (b), sub-clause (c), or sub-clause (e) of clause (A), at the option of the assessee, or based on the fair market value of unquoted equity shares determined in accordance with sub-clause (a), sub-clause (b), sub-clause (c), or sub-clause (e) of clause (A), at the option of the assessee, where such consideration is received from a resident; and
(ii)		in accordance with the provisions of sub-clauses (b) to (e) of clause (A), at the option of the assessee, or based on the fair market value of unquoted equity shares determined in accordance with sub-clauses (a) to (e) of clause (A), at the option of the assessee, where such consideration is received from a non-resident.

(3) Where the date of valuation report by the merchant banker for the purposes of sub-rule (2) is not more than ninety days prior to the date of issue of shares which are the subject matter of valuation, such date may, at the option of the assessee, be deemed to be the valuation date:

Provided that where such option is exercised under this sub-rule, the provisions of clause (j) of rule 11U shall not apply.

(4) For the purposes of clause (A) or clause (B) of sub-rule (2), where the issue price of the shares exceeds the value of shares as determined in accordance with -

(i)		sub-clause (a) or sub-clause (b) of clause (A), for consideration received from a resident, by an amount not exceeding ten per cent. of the valuation price, the issue price shall be deemed to be the fair market value of such shares;
(ii)		sub-clause (a) or sub-clause (b) or sub-clause (d) of clause (A), for consideration received from a non- resident, by an amount not exceeding ten per cent. of the valuation price, the issue price shall be deemed to be the fair market value of such shares.

Explanation.—For the purposes of this sub-rule, 'issue price' means the consideration received by the company for one share.]

1. Substituted by the IT (Twentieth Amdt.) Rules, 2017, w.e.f. 1-4-2018 and shall apply in relation to assessment year 2018-19 and subsequent years. Prior to its substitution, sub-clause (b), as substituted by the IT (Fifteenth Amdt.) Rules, 2012, w.e.f. 29-11-2012, read as under :

"(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 the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure 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, namely:—

(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 and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
(iv)		any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund 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;
(v)		any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(vi)		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 the balance-sheet;
PV =		the paid-up value of such equity shares;"

2. Substituted by the IT (Twenty-first Amdt.) Rules, 2023, w.e.f. 25-9-2023. Prior to its substitution, sub-rule (2) as inserted by the IT (Fifteenth Amdt.) Rules, 2012, w.e.f. 29-11-2012 and later on amended by the IT (Sixth Amdt.) Rules, 2018, w.e.f. 24-5-2018, read as under:

"(2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessee, namely:—

	(a)	the fair market value of unquoted equity shares =	(A–L)	× (PV),
			(PE)

where,

A =		book value of the assets in the balance sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance sheet as asset including the unamortised amount of deferred expenditure 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, namely:—

(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 and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
(iv)		any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund 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;
(v)		any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(vi)		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 the balance sheet;
PV =		the paid-up value of such equity shares; or

(b)

the fair market value of the unquoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method."