Where,
A = |
Book value of the assets in Balance Sheet as reduced by:
- Any amount paid as advance tax under the Income Tax Act
- Debit balance of the Profit and Loss Account or the Profit and Loss Appropriation Account as per Balance Sheet
- Any other amount in the Balance Sheet which does not represent the value of any asset
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L = |
Book value of liabilities shown in the Balance Sheet but not including the following amounts:
- The paid-up equity capital
- The amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company
- Reserves, by whatever name called, other than depreciation reserve
- Credit balance of Profit and Loss Account
- Provision for taxation, other than amount paid as advance tax under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto
- Any amount representing provisions made for meeting liabilities, other than ascertained liabilities
- Any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares
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PE = |
Total amount of paid up equity share capital as shown in Balance Sheet. |
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PV = |
The paid up value of such equity shares. |
The fair market value of shares other than equity shares shall be estimated to be price it would fetch if sold in the open market on the valuation date. The assessee may obtain a report from a merchant banker or a Chartered Accountant in respect of such valuation.
Where the inadequate consideration is treated as income from other sources as per this provision, the fair market value determined to compute the income chargeable to tax shall be considered as the cost of acquisition of such shares, irrespective
of the actual cost of acquisition.
SKP’s Comments
The objective behind introduction of this provision is to charge to tax the gains arising on transfer of unlisted shares for a consideration much lower than the fair market value. It is important to take into account the above provisions before any exercise of share transfer or business restructuring. |