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Shri. Ajay Seth, I.A.S.
Revenue Secretary
Department of Revenue
Ministry of Finance
Government of India
Room No.128-B, North Block
New Delhi – 110 001
Sir,
Re : Representation for amending reference of “merchant banker” in Income-tax rules relating to valuation by adding “registered valuer” or “accountant” pursuant to SEBI’s decision to prohibit Merchant Bankers from valuation activities
The Income-tax Rules 1961 provide for valuation of shares and other assets by Category I Merchant Banker regulated under SEBI Guidelines in various circumstances like ESOP perquisites, indirect transfer u/s. 9(1)(i), gift taxation u/s. 56(2)(x), etc. For this purpose, “merchant banker” is defined to mean 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) (Refer, for instance, Rule 11U(c))
In this regard, we would like to bring to your kind attention that recently SEBI in its 208th Board Meeting held on 18 December 2024 has approved amendments to SEBI (Merchant Bankers) Regulations, 1992. One of the decisions taken is to prohibit Merchant Bankers from undertaking valuation activity as part of Merchant Banker registration. However, existing valuation assignments taken up by them may be completed. If a Merchant Banker wishes to take up valuation activities, it shall obtain registration from the concerned regulator or authority, within a period of nine months.
This development has immediate and significant impact on income tax compliances concerning valuation by Category I Merchant Banker under various Income-tax rules. This is because for all new valuation assignments accepted after the effective date of amendment, the valuation will not be in the capacity as Category I Merchant Banker and therefore, there could be litigation on whether it is valid for income tax purposes.
We suggest that the reference to “merchant banker” in various Income tax rules may be amended to add registered valuer referred in section 247 of the Companies Act, 2013 (18 of 2013) or an accountant (wherever accountant is not already covered therein). In this regard, we are pleased to attach a detailed representation setting out the background and rationale for our recommendation.
Immediate action of CBDT by amending the relevant rules will clear any ambiguity, lead to certainty & better compliance by taxpayers and avoid any unwarranted litigation on valuation aspect.
Our representatives shall be happy to discuss the issue in person and provide any further information or clarifications to facilitate the above referred amendment.
Thanking you,
Yours sincerely,
Sandeep Khosla
Director General
