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 Legal Series Vol. IX  Issue 5  August 2016

TAX ON ACCRETED INCOME

Authors* : Dr. Manoj Fogla Dr. Sanjay Patra, ED, FMSF Sandeep Sharma, Programme

* The Authors can be contacted at [email protected]

Head, FMSF

For private circulation only

 Legal Series Vol. IX  Issue 5  August 2016

For private circulation only


CONTENTS

1.

AMENDMENTS MADE BY FINANCE ACT, 2016

01

2.

OVERVIEW OF THE AMENDMENTS

01

3.

SOME ASSETS HAVE BEEN EXEMPTED

02

4.

FUNDAMENTAL & PRIMA FACIE ISSUES ARISING OUT OF ‘ACCRETED INCOME’

04

5.

THE BACKGROUND BEHIND THIS AMENDMENT

05

6.

THE ASSUMPTION OF CONVERSION INTO COMMERCIAL ENTITY ITSELF IS QUESTIONABLE

05

7.

CONVERSION ALLOWED UNDER COMPANIES ACT 2013

06

8.

IT WILL INCREASE LITIGATIONS AND CONTROVERSIES

06

9.

CONTROVERSIES

07

TEXT OF SECTION 115TD, 115TE, 115TF OF INCOME TAX ACT, 1961

08

CBDT CIRCULAR REGARDING CANCELLATION OF REGISTRATION U/S. 12AA

12

CBDT DRAFT RULES ON VALUATION OF THE MARKET VALUE OF TRUST PROPERTIES

14

ANNEXURE-1

ANNEXURE-2

ANNEXURE-3


AMENDMENTS MADE BY FINANCE ACT, 2016 1.1.1

The Finance Act 2016 has added a new Chapter XII-EB “SPECIAL PROVISIONS RELATING TO TAX ON ACCRETED INCOME OF CERTAIN TRUSTS & INSTITUTIONS”. The amended law will have far reaching implications on the following: (i)

Cancellation of 12AA Registration

(ii)

Dissolution of Society, Trust or Company

(iii)

Conversion of a Exempt entity into a Non Exempt entity

The new sections 115TD, 115TE & 115TF provide for taxation of ‘accreted income’ (the fair market value of the assets minus liabilities) at the maximum marginal rates. Kindly see Annexure 1.1 for the provisions. 1.1.2

A very draconian amendment to the Act has been silently incorporated which will have far reaching and unmanageable repurcussions. For instance, even a relatively dormant trust having old properties may have to pay taxes on the market value of the property, if for some reason 12AA registration is cancelled.

1.1.3

The Central Board of Direct Taxes (CBDT) has issued a circular apprehending the probable misuse of the powers to tax accreted income. In this circular it has been clarified that 12AA registration cannot be withdrawn only if some commercial activity in excess of 20% of total receipt is noticed in any particular year. The said circular is provided in Annexure 1.2.

1.1.4

The Central Board of Direct Taxes (CBDT) has also issued the draft rules for the method of valuation of the market value of the properties in this regard. The said draft rules are provided in Annexure 1.3.

OVERVIEW OF THE AMENDMENTS 1.2.1

The Finance Act 2016 has added new sections 115TD, 115TE & 115TF which propose to tax the ‘accreted income’ of an organization registered under section 12AA of the Income Tax Act. The summary of the amendments is as under: -

The accreted income of an organization shall be subjected to tax at the maximum marginal rates under three circumstances: (i)

If the organization gets converted into any form which is not eligible under section 12AA

Standards & Norms, Legal Series Vol. IX, Issue 5, August 2016

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(ii)

If the organization gets merged into any entity which is not eligible under section 12AA

(iii) If the organization, in case of dissolution, fails to transfer its assets to exempt entities under section 12AA & section 10(23C) (iv), (v), (vi) & (via). -

Further under the following circumstances the entity will be deemed to be have been converted into a non exempt entity: (i)

If the registration of the organization under section 12AA is cancelled

(ii)

If the objects of the organization are amended in violation of the conditions of the registration and a fresh application under section 12AA is not made.

(iii) If the objects of organization are amended in violation of the conditions of the registration and a fresh application under section 12AA is made and rejected. -

The income of the organization for that year and the accreted income shall be subjected to tax at the maximum marginal rate. Once the tax is charged under this section, no other provision of tax shall apply.

-

The ‘accreted income’ shall be the fair market value of the assets minus liabilities on the specified date. The method of valuation of fair market value may be prescribed through appropriate rules.

-

The tax shall be payable within 14 days of (i) receipt of cancellation order (ii) end of the previous year in which object clause were modified (iii) receipt of cancellation order against any fresh application for 12AA registration (iv) date of merger (v) at the end of 12 months from the month in which dissolution has taken place.

-

In case of delay in payment of tax interest @ 1% per month shall be charged.

-

In case of non- payment of taxes the provisions of collection and recovery shall apply accordingly.

-

The total recovery of taxes, interest or penalties should not exceed the value of the assets.

SOME ASSETS HAVE BEEN EXEMPTED 1.3.1

The sub section 2 exempts certain assets. The provision is reproduced as under: “(2) The accreted income for the purposes of sub-section (1) means the amount by which the aggregate fair market value of the total assets of the trust or


02


the institution, as on the specified date, exceeds the total liability of such trust or institution computed in accordance with the method of valuation as may be prescribed: Provided that so much of the accreted income as is attributable to the following asset and liability, if any, related to such asset shall be ignored for the purposes of subsection (1), namely:— (i)

any asset which is established to have been directly acquired by the trust or institution out of its income of the nature referred to in clause (1) of section 10;

(ii) any asset acquired by the trust or institution during the period beginning from the date of its creation or establishment and ending on the date from which the registration under section 12AA became efective, if the trust or institution has not been allowed any benefit of sections 11 and 12 during the said period: Provided further that where due to the first proviso to sub section (2) of section 12A, the benefit of sections 11 and 12 have been allowed to the trust or the institution in respect of any previous year or years beginning prior to the date from which the registration under section 12AA is effective, then, for the purposes of clause (ii) of the first proviso, the registration shall be deemed to have become effective from the first day of the earliest previous year: Provided also that while computing the accreted income in respect of a case referred to in clause (c) of sub-section (1), assets and liabilities, if any, related to such asset, which have been transferred to any other trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, within the period specified in the said clause, shall be ignored.”

1.3.1

As per the above provisions the following assets shall be excluded from accreted income: -

The assets created out of agricultural income.

-

Assets created out of the income during the period prior to the effective date 12AA registration.

-

However under the current law 12AA benefits are provided to all open assesments even prior to the effective date of 12AA registration. In such cases the assets, created during such prior period where section 11 exemptions were claimed, will not be exempted.

-

Assets to the extent transfered to exempted institutions under section 12AA or


03


to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or subclause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, within the period specified in the said clause, shall be ignored.

FUNDAMENTAL & PRIMA FACIE ISSUES ARISING OUT OF ‘ACCRETED INCOME’ 1.4.1

The following fundamental & prima facie issues have been noticed: (i)

It is important to underline the fact that the mandate of Income Tax Act is confined to taxing ‘income’ only. It cannot tax assets held as legal obligations. A charitable organization may hold assets as legal obligations which are not reflected as liabilities and such obligations cannot be taxed and therefore the terms of transfer of assets cannot be ignored.

(ii)

This provision applies only to organizations registered under section 12AA, therefore all organizations registered under section 10(23C)(iv), (v), (vi) & (via) shall not be covered under this provision. Such provision probably is in violation of Article 14 of the Constitution since differential treatment is proposed for organization registered under section 12AA and others registered under section 10(23C)(iv), (v), (vi) & (via).

(iii)

This amendment will have retrospective implications in some cases. For example a charitable organization in existence since independence having created all its assets prior to 01.04.1973 out of voluntary contribution should not be subjected to this provision as voluntary contribution was an exempted income prior to 01.04.1973. In other words, prior to 01.04.1973 voluntary contribution was not considered as income at all, even without 12A registration.

(iv)

As per this provision, the entire corpus and capital assets shall be subjected to tax, which is against the Judicial precedence where it has been held that corpus donation would be an exempted income even for organizations not registered under section 12AA.

(v)

There is a presumption that if an organization has not paid any taxes in the past, then all its accreted income is subject to tax. There are many provisions under which charitable organizations are required to pay taxes. For example: a)

Anonymous under section 115BBC

b)

Business activity under section 11(4A)


04


c)

Tax for violation in investment beyond section 11(5)

d)

Tax for forfeiture of exemption under section 13(8)

e)

Tax for forfeiture of exemption for providing benefit to Trustees and Board Members under section 13(1), (2), (3) etc.

Any asset created out of the above incomes will result in double taxation. (vi)

The corpus of an organization is normally funded through tax money of the founders and therefore such contributions are always exempted. The amendment will make all such corpuses subject to tax.

THE BACKGROUND BEHIND THIS AMENDMENT 1.5.1

One possible reason for such amendment could be the litigation between the Income Tax Department and Escorts Heart Institute and Research Centre (EHIRC). EHIRC had transferred its assets to Fortis Healthcare of Rs. 585 crore by converting the charitable organization into a Commercial Company. The matter is still sub judice.

1.5.2

The law pertaining to conversion of charitable organization into commercial organization is very obscure in our country. There was an apprehension that the properties of charitable organizations might be usurped by unscrupulous promoters through its conversion into a commercial organization. Under the prevailing law, on conversion at most the income of past few years could be taxed. The assessing officer is empowered to reopen the assessments of few years only. The amendments attempt to address such anomalies in a confused manner.

THE ASSUMPTION OF CONVERSION INTO COMMERCIAL ENTITY ITSELF IS QUESTIONABLE 1.6.1

This amendment will open up a Pandora’s Box with regard to the nature of Societies, Trust and Companies. The amendments assume that a charitable organization is entitled to convert itself into a commercial entity; a charitable organization normally cannot convert itself into a commercial entity unless it has survived only on the conditional capital contribution of the promoters which is not permissible under current law. A trust under the Indian law, in any case, is irrevocable and therefore all its properties are set aside irrevocably for public charitable/religious purposes. Therefore unless there is a revocable trust (which cannot get 12AA registration) there is no question of Standards & Norms, Legal Series Vol. IX, Issue 5, August 2016

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converting it into a commercial entity. However, one needs to study the constitution and law of Societies and Companies where further complexities have been created by the Companies Act 2013.

CONVERSION ALLOWED UNDER COMPANIES ACT 2013 1.7.1

The Rules 21 and 22 of the Companies (Incorporation) Rules 2014 allow conversion of a section 8 company (a charitable company) into a commercial company. It is difficult to understand how a charitable organization under any law can be converted into a commercial entity. A charitable organization is essentially a Trustee on behalf of public at large. It may be noted that a Trustee is a mere executant and does not have the power to make any constitutional changes. Once funds are set aside for public charitable or religious purposes they cannot revert back to commercial purposes. The voluntary contributions collected from public at large are specifically for public charitable purposes and nobody has the right to change the purpose at any time in future.

1.7.2

Therefore, if conversion is allowed under Companies Act 2013 then it only implies that the section 8 company will extinguish all its assets and income for public charitable purposes and there upon it can be converted into a commercial entity.

1.7.3

Prior to the enactment of Income Tax Act 1961 mixed and joint trusts were permissible i.e. the property of the trust could be used for both commercial and charitable purposes and exemptions could be claimed for the charitable portion. Such trusts are no longer permissible.

1.7.4

It can be legally debated whether a trust can be formed with the condition that the property of the trust can be used for charitable purposes for x number of years and at the end of the period the property will go back to the settler. Legally there is no bar in creating a trust where the property is not given but income from property is given for a specified period. But probably Income Tax registration under section 12AA will be questioned.

IT WILL INCREASE LITIGATIONS AND CONTROVERSIES 1.8.1

The amendments provide unfettered powers to the assessing officer to raise huge


06


tax demands in case of cancellation under section 12AA(3). This provision should not have been linked with cancellation under section 12AA(3) as against cancellation the department can raise huge tax demands and create hardship to the assesses. There are old organizations where the income may not be considerable but the market value of properties may be astronomical. In such cases raising huge demands based on cancellation under 12AA(3), may not be advisable. This provision should have been confined only to conversion into a commercial entity. In case of cancellation under section 12AA(3), the assets do not necessarily cease to be for public charitable or religious purposes. This is an untenable assumption that cancellation of 12AA(3) results in a commercial entity.

CONTROVERSIES 1.9.1

1.9.2

These amendments could have been handled with better application of mind on the part of the law makers. We continue to suffer from complex and controversial provisions which keep on coming in the name of rationalization and simplification. The following amendments or provisos are needed to make some sense out of the changes: -

The taxation should be confined only to the extent of the income against which exemption were claimed. The assets created out of income on which tax was paid even after 12AA registration should be excluded. For example tax paid under section 115BBC for anonymous donations or under section 11(3), 11(1)(c) etc.

-

Assets created out of corpus donations and settler’s contribution should be kept out of the implications of such provisions.

-

Assets held in fiduciary capacity as legal obligations shall be subjected to the embedded obligations attached, therefore necessary clarity should be provided.

-

The deeming provision by virtue of which all cancellations under section 12AA(3) are implicated under this provision is too harsh and unfair, particularly when the cancellation is made on frivolous or technical reasons.

-

This provision should also be linked to organization registered under section 10(23C)(iv), (v), (vi) & (via) otherwise any organization will be motivated to get an approval under these sections before conversion. It will only encourage misuse of provisions.

To sum up, the amendments are a poor execution of an apprehension misunderstood.


07


Annexure 1

TEXT OF SECTION 115TD, 115TE, 115TF OF INCOME TAX ACT, 1961

‘CHAPTER XII-EB SPECIAL PROVISIONS RELATING TO TAX ON ACCRETED INCOME OF CERTAIN TRUSTS AND INSTITUTIONS Tax on accreted income 115TD. (1) Notwithstanding anything contained in this Act, where in any previous year, a trust or institution registered under section 12AA has— (a)

converted into any form which is not eligible for grant of registration under section 12AA;

(b)

merged with any entity other than an entity which is a trust or institution having objects similar to it and registered under section 12AA; or

(c)

failed to transfer upon dissolution all its assets to any other trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, within a period of twelve months from the end of the month in which the dissolution takes place,

then, in addition to the income-tax chargeable in respect of the total income of such trust or institution, the accreted income of the trust or the institution as on the specified date shall be charged to tax and such trust or institution, as the case may be, shall be liable to pay additional income-tax (herein referred to as tax on accreted income) at the maximum marginal rate on the accreted income. (2) The accreted income for the purposes of sub-section (1) means the amount by which the aggregate fair market value of the total assets of the trust or the institution, as on the specified date, exceeds the total liability of such trust or institution computed in accordance with the method of valuation as may be prescribed: Provided that so much of the accreted income as is attributable to the following asset and liability, if any, related to such asset shall be ignored for the purposes of subsection (1), namely:— (i) any asset which is established to have been directly acquired by the trust or institution out of its income of the nature referred to in clause (1) of section 10; (ii) any asset acquired by the trust or institution during the period beginning from the date of its creation or establishment and ending on the date from which the registration under section 12AA became effective, if the trust or institution has not been allowed any benefit of sections 11 and 12 during the said period:


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Provided further that where due to the first proviso to sub section (2) of section 12A, the benefit of sections 11 and 12 have been allowed to the trust or the institution in respect of any previous year or years beginning prior to the date from which the registration under section 12AA is effective, then, for the purposes of clause (ii) of the first proviso, the registration shall be deemed to have become effective from the first day of the earliest previous year: Provided also that while computing the accreted income in respect of a case referred to in clause (c) of sub-section (1), assets and liabilities, if any, related to such asset, which have been transferred to any other trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, within the period specified in the said clause, shall be ignored. (3) For the purposes of sub-section (1), a trust or an institution shall be deemed to have been converted into any form not eligible for registration under section 12AA in a previous year, if,— (i) the registration granted to it under section 12AA has been cancelled; or (ii) it has adopted or undertaken modification of its objects which do not conform to the conditions of registration and it,— (a) has not applied for fresh registration under section 12AA in the said previous year; or (b) has filed application for fresh registration under section 12AA but the said application has been rejected. (4) Notwithstanding that no income-tax is payable by a trust or the institution on its total income computed in accordance with the provisions of this Act, the tax on the accreted income under sub-section (1) shall be payable by such trust or the institution. (5) The principal officer or the trustee of the trust or the institution, as the case may be, and the trust or the institution shall also be liable to pay the tax on accreted income to the credit of the Central Government within fourteen days from,— (i) the date on which,— (a) the period for filing appeal under section 253 against the order cancelling the registration expired and no appeal has been filed by the trust or the institution; or (b) the order in any appeal, confirming the cancellation of the registration, is received by the trust or institution, in a case referred to in clause (i) of sub-section (3); (ii) the end of the previous year in a case referred to in sub-clause (a) of clause (ii) of sub-section (3); (iii) the date on which,— (a) the period for filing appeal under section 253 against the order rejecting the application expires and no appeal has been filed by the trust or the institution; or


09


(b) the order in any appeal, confirming the cancellation of the application, is received by the trust or institution, in a case referred to in sub-clause (b) of clause (ii) of sub-section (3). (iv) the date of merger in a case referred to in clause (b) of sub-section (1); (v) the date on which the period of twelve months referred to in clause (c) of sub-section (1) expires. (6) The tax on the accreted income by the trust or the institution shall be treated as the final payment of tax in respect of the said income and no further credit therefor shall be claimed by the trust or the institution or by any other person in respect of the amount of tax so paid. (7) No deduction under any other provision of this Act shall be allowed to the trust or the institution or any other person in respect of the income which has been charged to tax under sub-section (1) or the tax thereon. Explanation.—For the purposes of this section,— (i) “date of conversion” means,— (a) the date of the order cancelling the registration under section 12AA, in a case referred to in clause (i) of sub-section (3); or (b) the date of adoption or modification of any object, in a case referred to in clause (ii) of sub-section (3); (ii) “specified date” means,— (a) the date of conversion in a case falling under clause (a) of sub-section (1); (b) the date of merger in a case falling under clause (b) of subsection (1); and (c) the date of dissolution in a case falling under clause (c) of sub-section (1). (iii) registration under section 12AA shall include any registration obtained under section 12A as it stood before its amendment by the Finance (No. 2) Act, 1996. Interest payable for non-payment of tax by trust or institution 115TE. Where the principal officer or the trustee of the trust or the institution and the trust or the institution fails to pay the whole or any part of the tax on the accreted income referred to in sub-section (1) of section 115TD, within the time allowed under sub-section (5) of that section, he or it shall be liable to pay simple interest at the rate of one per cent. for every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid. When trust or institution is deemed to be assessee in default 115TF. (1) If any principal officer or the trustee of the trust or the institution and the trust or the institution does not pay tax on accreted income in accordance with the provisions of section 115TD, then, he or it shall be deemed to be an assessee in default in respect of the


10


amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply. (2) Notwithstanding anything contained in sub-section (1), in a case where the tax on accreted income is payable under the circumstances referred to in clause (c) of sub-section (1) of section 115TD, the person to whom any asset forming part of the computation of accreted income under sub-section (2) thereof has been transferred, shall be deemed to be an assessee in default in respect of such tax and interest thereon and all the provisions of this Act for the collection and recovery of income-tax shall apply: Provided that the liability of the person referred to in this sub-section shall be limited to the extent to which the asset received by him is capable of meeting the liability.’.


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Annexure 2

CBDT CIRCULAR REGARDING CANCELLATION OF REGISTRATION U/S. 12AA


12



13


Annexure 3

CBDT DRAFT RULES ON VALUATION OF THE MARKET VALUE OF TRUST PROPERTIES

F. No. 370142/21/2016-TPL Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes ******* New Delhi, dated 24th October, 2016 Subject: Draft Rules for prescribing the method of valuation of fair market value in respect of the trust or the institution-Chapter XII-EB of the Income-tax Act, 1961- reg. 1.

The Finance Act, 2016, inter alia, inserted a new Chapter XII-EB consisting of sections 115TD, 115TE and 115TF in the Income-tax Act, 1961 (the Act). This chapter contains specific provisions relating to levy of additional income-tax where the charitable institution exempt under the Act ceases to exist as charitable organization or converts into a noncharitable organization.

2.

Sub-section (2) of newly inserted section 115TD provides that the accreted income for the purposes of sub-section (1) thereof means the amount by which the aggregate fair market value of the total assets of the trust or the institution, as on the specified date, exceeds the total liability of such trust or institution computed in accordance with the method of valuation as may be prescribed. Therefore, the method of valuation of fair market value in respect of the trust or the institution as on the specified date for determination of accreted income needs to be prescribed in the rules.

3.

Accordingly, it is proposed to insert rule 17CB in the Income-tax Rules, 1962. The draft rule 17CB, on which comments and suggestion of stakeholders and general public may be sent electronically by 31st October, 2016 at the email address, [email protected] in this regard, are as under: “17CB. Method of valuation for the purposes of sub-section (2) of section 115TD. (1) For the purpose of sub-section (2) of section 115TD of the Act, the aggregate fair market value of the total assets of the trust or institution, shall be the aggregate of the fair market value of all the assets in the balance sheet as reduced by(i)

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 Act, and


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(ii) (2)

any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset.

For the purpose of sub-rule (1), the fair market value of an asset shall be determined in the following manner, namely:— (i)

Valuation of shares and securities,— (a) the fair market value of quoted share and securities shall be the following,— I.

the average of the lowest and highest price of such shares and securities quoted on a recognised stock exchange as on the specified date ; or

II.

where on the specified date, there is no trading in such shares and securities on a recognised stock exchange; the average of the lowest and highest price of such shares and securities on a recognised stock exchange on a date immediately preceding the specified date when such shares and securities were traded on a recognised stock exchange,

(b) the fair market value of unquoted equity shares shall be the value, on the specified date of such unquoted equity shares as determined in accordance with the following formula, namely:— Fair market value = (A+B - L) × (PV), (PE) where, A = book value of all the assets in the balance sheet (other than bullion, jewellery, precious stone, artistic work, shares, securities, and immovable property) as reduced by(i)

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 Act; and

(ii)

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;

B = fair market value of bullion, jewellery, precious stone, artistic work, shares, securities and immovable property as determined in the manner provided in this rule; 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;


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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 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 share; (c)

The fair market value of shares and securities other than equity shares shall be estimated to be price it would fetch if sold in the open market on the specified date on the basis of valuation report from a merchant banker or an accountant in respect of such valuation; (ii)

The fair market value of an immovable property shall be higher of the following: (a) price that the property shall ordinarily fetch if sold in the open market on the specified date on the basis of the valuation report from a registered valuer, and (b) stamp duty value as on the specified date,

(iii) The fair market value of a business undertaking, held by trust or institution, shall be its net assets:(A + B-L) Which shall be determined mutatis mutandis applying the manner provided in sub-clause (b) of clause (i) of sub-rule (2). (iv) The fair market value of any asset, other than those referred to in clauses (i), (ii) and (iii) above, shall be the price that the asset shall ordinarily fetch if sold in the open market on the specified date on the basis of valuation report obtained from a registered valuer: Provided that in case no valuer is registered for valuation of such assets, the valuation report shall be obtained from a valuer who is a


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member of any one of the professional valuer bodies viz. Institution of Valuers, institution of Surveyors (Valuation Branch), institution of Govt. Approved Valuers, Practicing Valuers Association of India, The Indian Institution of Valuers, Centre for Valuation Studies, Research and Training, Royal institute of Chartered Surveyors, India Chapter, American Society of Appraisers, USA, Appraisal institute USA or a valuer who is appointed by any public sector banks or public sector undertakings for valuation purposes. (3)

For the purpose of sub-section (2) of section 115 TD of the Act, the total liability of the trust or institution shall be book values of liabilities in the balance sheet on the specified date but not including the following amounts , namely:— (i)

Capital fund or accumulated funds or corpus, by whatever name called, of the trust or institution,

(ii)

Reserve or surpluses or excess of income over expenditure, by whatever name called,

(iii) any amount representing contingent liability (iv) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (v) 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 income in accordance with the law applicable thereto. Explanation— For the purposes of this rule,— (a) “accountant” shall mean 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 trust or institution as an auditor; (b) “balance-sheet” in relation to any trust or institution, shall mean the balance-sheet of such trust or institution (including the notes annexed thereto and forming part of the accounts) as drawn up on the specified date which has been audited by an accountant; (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 share or security” in relation to share or security 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;


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(e) “recognized stock exchange” shall have the same meaning as assigned to it in clause (f) of section 25 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (f)

“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;

(g) “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); (h) “specified date” means the date as referred in explanation to section 115TD of the Act; (i)

“stamp duty value” means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property;

(j)

“unquoted shares and securities”, in relation to shares or securities, means shares and securities which is not a quoted shares or securities.” (Rajesh Kumar Kedia) Director (TPL-I) Tel No: 011-23095446

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