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Representations on new Rule 11UAE providing for computation of FMV in case of slump sale   Jun 18, 2021

The Finance Act 2021 amended the definition of ‘slump sale’ as per section 2(42C) of the Income-tax Act, 1961 (IT Act) to include transfer of the undertaking by any means. At enactment stage, further amendment was carried out to s.50B(2) to provide that fair market value (FMV) of the undertaking as on the date of transfer, calculated in the prescribed manner, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the undertaking. Both amendments were made effective from A.Y. 2021-22 (F.Y. 2020-21) onwards.
 
The CBDT notified Rule 11UAE on 24 May 2021 vide Notification No. 68/2021 dated 24 May 2021 to prescribe the method of valuation of FMV. However, the Notification is silent on the effective date of applicability of new Rule 11UAE.
 
The FMV as per Rule 11UAE can be higher than actual consideration in certain circumstances giving rise to notional capital gains taxation. This can pose a challenge where the undertaking is bonafide transferred at its true commercial value which is lower than Rule 11UAE value. There is no opportunity provided in the rule for the taxpayer to rebut such notional valuation. Hence, the new Rule 11UAE raises concern for the industry with reference to its effective date and lack of opportunity to rebut the normative valuation.
 
A detailed note on difficulties faced by taxpayers on the new Rule 11UAE is enclosed herewith for your kind consideration.
 
We trust our concerns and suggestions shall be favourably considered through amendments to Rule 11UAE and/or clarificatory Circular.

 

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