Issue/Justification
In respect of sweat equity/ ESOP the company law guidelines specify that the valuation is to be done by the statutory auditors/ merchant bankers. Further, Rule 11UA(c)(c) also provides for the purposes of section 56, 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 a price it would fetch of 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.
However, Rule 3(9) of the Income-tax Rules, 1962 on perquisite valuation provides that for the purposes of section 17(2)(vi) the fair market value of a specified security, not being equity shares in a company, on the date on which option is exercised by the employee, shall be such value as determined by a MERCHANT BANKER on the specified date.
Suggestion
It is suggested that Rule 3(9) should also be amended to enable an accountant to do valuation of sweat equity. Thus, Rule 3(9) may be re- worded as follows:-
“for the purposes of section 17(2)(vi) the fair market value of a specified security, not being equity shares in a company, on the date on which option is exercised by the employee, shall be such value as determined by a merchant banker OR AN ACCOUNTANT on the specified date.”
