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Amendment in Rule 11U and 11UA omitting reference to the term “accountant”, thereby permitting only merchant bankers to determine the FMV of unquoted equity shares as per the Discounted Free Cash Flow Method

Where a company, other than a company in which public are substantially interested, issues shares at a premium to a person being a resident, section 56(2)(viib) brings to tax in the hands of such company, the difference between the aggregate consideration received for such shares as exceeds the fair market value of the shares under the head “Income from Other Sources”. For this purpose, the fair market value of the shares shall be the value determined in accordance with the prescribed method or the value as may be substantiated by the company to the satisfaction of the Assessing Officer based on the value of its assets on the date of issue of shares, whichever is higher.

Income Tax Rule 11UA deals with Valuation of jewellery, archaeological collections and  shares and securities for the purpose of Section 56. As per Clause (b) of Sub-Rule 2 of Rule 11UA earlier merchant banker and Chartered Accountant were allowed to  do valuation of unquoted equity shares under Discounted Free Cash Flow method but vide Notification No. 23/2018 dated 24th May, 2018 it is provided that now only merchant banker can do valuation of unquoted equity shares under Discounted Free Cash Flow method and Chartered Accountants are no more allowed to do the same.

(Department of Revenue)
(Central Board of Direct Taxes)

Notification No. 23/2018

New Delhi, the 24th May, 2018


S.O. 2087(E).—In exercise of the powers conferred by sub-section (2) of section 56 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:‑

1. (1) These rules may be called the Income-tax (6th Amendment), Rules, 2018.

(2) They shall come into force from the date of their publication in the Official Gazette.

2. In the Income-tax Rules, 1962 (hereinafter referred to as the principal rules), in rule 11U, clause (a) shall be omitted.

3. In the principal rules, in rule 11UA, in sub-rule (2), in clause (b), the words “or an accountant” shall be omitted.

[Notification No. 23/2018/F. No.370142/5/2018-TPL]


(Tax Policy and Legislation)

Note.- The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (ii) vide notification number S.O.969(E), dated the 26th March, 1962 and last amended by the Income-tax (Fifth Amendment) Rules, 2018, vide notification number S.O. 1558 (E), dated 11th April, 2018.

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