Determination of fair market values

under Rule 11U, 11UA and 11UAA

of the Income Tax Rules, 1962

Rule 11UAA

[Determination of Fair Market Value for share other than quoted share.
11UAA. For the purposes of section 50CA, the fair market value of the share of a company
other than a quoted share, shall be determined in the manner provided in sub-clause (b) or
sub-clause (c), as the case may be, of clause (c) of sub-rule (1) of rule 11UA and for this
purpose the reference to valuation date in the rule 11U and rule 11UA shall mean the date
on which the capital asset, being share of a company other than a quoted share, referred to
in section 50CA, is transferred.]
1. Rule 11UAA inserted by the Income-tax (Twentieth Amendment) Rules, 2017, w.e.f. 1-4-2018.

Rule 11UA

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 which such valuation.
[(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:—

the fair market (A–L)

value of unquoted
(a) (PE) × (PV),
equity shares
=
 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 2[***] as per the Discounted Free Cash Flow method.]

1. Sub-clause (b) substituted by the Income-tax (Twentieth Amendment) Rules, 2017,

w.e.f. 1-4-2018. Prior to its substitution, said clause, as amended by the Income-tax
(Fifteenth Amendment) 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 (A–L)
value of
(PE) × (PV),
unquoted equity
shares =

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. Words "or an accountant" omitted by the Income-tax (Sixth Amendment) Rules, 2018, w.e.f.
24-5-2018

Rule 11U

Meaning of expressions used in determination of fair market value.

11U. For the purposes of this rule and rule 11UA,—
1
(a) [***]
(b) "balance-sheet", in relation to any company, means,—
(i) for the purposes of sub-rule (2) of rule 11UA, the balance-sheet of
such company (including the notes annexed thereto and forming part
of the accounts) as drawn up on the valuation date which has been
audited by the auditor of the company appointed under section 224 of
 the Companies Act, 1956 (1 of 1956) and where the balance-sheet on
the valuation date is not drawn up, the balance-sheet (including the
notes annexed thereto and forming part of the accounts) drawn up as
on a date immediately preceding the valuation date which has been
approved and adopted in the annual general meeting of the
shareholders of the company; and
14aa
[(ii) in any other case,—
(A) in relation to an Indian company, the balance-sheet of such
company (including the notes annexed thereto and forming
part of the accounts) as drawn up on the valuation date which
has been audited by the auditor of the company appointed
under the laws relating to companies in force; and
(B) in relation to a company, not being an Indian company, the
balance-sheet of the company (including the notes annexed
thereto and forming part of the accounts) as drawn up on the
valuation date which has been audited by the auditor of the
company, if any, appointed under the laws in force of the
country in which the company is registered or incorporated;]
(c) "merchant banker" means category I merchant banker registered with Securities 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 Sales Tax 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 property or consideration, as the case
may be, is received by the assessee.]
1. Clause (a) omitted by the Income-tax (Sixth Amendment) Rules, 2018, w.e.f. 24-5-2018.
Prior to its omission, said clause, as substituted by the Income-tax (Fifteenth
Amendment) Rules, 2012, w.e.f. 29-11-2012, read as under :
"(a) "accountant" ,—
(i) for the purposes of sub-rule (2) of rule 11UA, means a fellow of the Institute of
Chartered Accountants of India within the meaning of the Chartered Accountants
Act, 1949 (38 of 1949) who is not appointed by the company as an auditor under
section 44AB of the Act or under section 224 of the Companies Act, 1956 (1 of
1956); and
(ii) in any other case, shall have the same meaning as assigned to it in
the Explanation below sub-section (2) of section 288 of the Act;"
Compiled by Rajiv
9810288997
19.11.2020