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Manner of determination of fair market value and reporting requirement for Indian concern-Indirect transfer provisions-section 9(1) of the Income-tax Act 1961-Draft Rule

Income Tax - F No 142/26/2015-TPL - Dated:- 23-5-2016 - F No 142/26/2015-TPL Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes ******* New Delhi, Dated 23rd May, 2016 Subject: s-reg. Under section 9 of the Income-tax Act, 1961 (the Act), income arising from indirect transfer of assets situated in India is deemed to accrue or arise in India. The provisions of section 9(1)(i) of the Act provides that if any share or interest in a foreign company or entity .....

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obal assets is to be in the prescribed manner. 3. Further, section 285A of the Act mandates reporting requirement on the Indian concern through or in which the foreign company or entity holds the assets in India. The information to be furnished and its manner is also required to be prescribed. 4. Therefore, the manner of computation of FMV of assets of the foreign company or entity and the reporting requirement by the Indian concern are proposed to be provided through the amendments of the Incom .....

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ereafter referred to as foreign company or entity ), for the purposes of clause (i) of sub-section (1) of section 9, shall be computed in accordance with the provisions of this rule. (2) Where the asset is the share of an Indian company listed on a recognized stock exchange not being the case referred to in sub-rule (2), the fair market value of the share shall be the observable price of such share on the stock exchange: Provided that where the share is held as part of the shareholding which con .....

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ded further that where, on the specified date the share is listed on more than one recognized stock exchange, the observable price of the share shall be computed with reference to the recognised stock exchange which records the highest volume of trading in the share during the period which is considered for determining the price. (3) Where the asset is the share of an Indian company not listed on a recognized stock exchange on the specified date, the fair market value shall be the fair market va .....

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y partnership or association of person, as determined by a merchant banker or an accountant in accordance with any internationally accepted valuation methodology as increased by the liability, if any, considered in such determination. (5) The fair market value of the assets other than those referred to in sub-rules (2), (3) and (4) shall be estimated to be the price it would fetch if sold in the open market on the specified date as determined by a report from a merchant banker or an accountant a .....

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then the fair market value of all the assets of the foreign company or the entity shall be the value determined in such report as increased by the aggregate amount of liabilities, if any, that have been reduced for computing the value of assets for determination of such consideration; (ii) In any other case, - (a) Where, as on the specified date, the share of the foreign company or entity is listed on a stock exchange, the fair market value of all the assets owned by the foreign company or enti .....

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k exchange, the observable price in the aforesaid formula shall be in respect of the stock exchange which records the highest volume of trading in the share during the period which is considered for determining the price. (b) Where, as on the specified date, the share in the foreign company or entity is not listed on a stock exchange the value of all the assets owned by the foreign company or entity shall be determined in accordance with the following formula: Fair market value of all assets = A .....

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te of such currency as on the specified date. Explanation : For the purposes of this rule and rule 11UC, - (i) telegraphic transfer buying rate shall have the meaning as assigned to it in the Explanation to rule 26; (ii) observable price in respect of a share quoted on a stock exchange is the higher of the following:- (a) the average of the weekly high and low of the closing prices of the shares quoted on the said exchange during the six months period preceding the specified date; or (b) the ave .....

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on 9; (v) the terms accountant , merchant banker and recognised stock exchange shall have the meaning as assigned to them in rule 11U; (vi) balance sheet ,- (a) in relation to an Indian company, means the balance-sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the specified date which has been audited by the auditor of the company appointed under the laws relating to companies in force and where the balance-sheet on the specified date i .....

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ecified date and which has been submitted to the relevant authority outside India under the laws in force of the country in which the foreign company or the entity is incorporated or established. 11UC : Determination of Income attributable to assets in India (1) The income from transfer outside India of a share of, or interest in, a company or entity referred to in clause (i) of sub-section (1) of section 9, attributable to assets located in India ,shall be determined in accordance with the foll .....

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date, computed in accordance with rule 11UB: Provided that if the transferor of the share of, or interest in, the company or entity fails to provide the information which is necessary for the application of the aforesaid formula then whole of the income from the transfer of such share or interest shall be deemed to be attributable to the assets located in India. (2) The transferor of the share of, or interest in, a company or entity that derives its value substantially from assets located in Ind .....

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nd documents in accordance with this rule. (2) The information shall be furnished in Form 49D electronically under digital signature to the Assessing Officer having jurisdiction over the Indian concern within a period of ninety days from the end of the financial year in which any transfer of the share of, or interest in, a company or entity incorporated outside India (hereafter referred to as foreign company or entity ) referred to in the Explanation 5 to clause (i) of sub-section (1) of section .....

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d upon to do so by any income-tax authority in the course of any proceeding to substantiate the information furnished under sub-rule (2), namely: - (i) details of the immediate holding company or entity, intermediate holding company or companies or entity or entities and ultimate holding company or the entity of the Indian concern; (ii) details of other entities in India of the group of which the Indian concern is a constituent ; (iii) the holding structure of the shares of, or the interest in, .....

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ormation relating to the decision or implementation process of the overall arrangement of the transfer; (vii) information relating to, - (a) the business operation; (b) personnel; (c) finance and properties; (d) internal and external audit or the valuation report, if any, forming basis of the consideration in respect of share, or the interest, of the foreign company or the entity being transferred and its subsidiaries, which directly or indirectly hold the assets located in India through, or in, .....

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ting practice followed. (4) The Principal Director General of Income-tax (Systems) or Director General Income-tax (Systems), as the case may be, shall specify the procedure for filing of Form No. 49D and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the information so furnished under this rule. (5) The information and documents specified in sub-rule (3) shall be kept and maintained for a period of eight years from the .....

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of another company or entity; (iii) immediate holding company or the entity means the company or entity that directly maintains the controlling interest in the Indian concern . 5. The following Forms are proposed to be provided: (A) FORM NO. 3CT [See rule 11UC] Income attributable to assets located in India under section 9 of the Income-tax Act, 1961 * I/We have examined the accounts and records of M/s ** (name and address of the assessee) having PAN ……….. being transferor .....

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see attributable to the assets located in India . * I/We certify that in respect of the assessment year ………………………… the income deemed to accrue or arise in India to the assesse on transfer of share/interest* in the above mentioned company/entity* is Rs………………... which has been worked out on the basis of the details given in the Annexure to this form. In my/our * opinion and to the best o .....

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tails) Rs…………….. 3. Value of assets located in India from which the share or interest derives its value (company/ entity wise details): Rs……………. 4. Value of global assets of the company or the entity (entity wise details) : Rs…………… 5. Income attributable to assets located in India(entity wise breakup and aggregate) Rs…………. 6. Details of the method employed for arri .....

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r 5. Previous Year 6. Assessment Year 7. Details of immediate holding entity, intermediate holding entity and ultimate holding entity, - (A) Immediate holding entity: - (a) Name (b) Country of incorporation (c) Country of which it is tax resident (B) Intermediate holding entity: - (a) Name (b) Country of incorporation (c) Country of which it is tax resident (C) Ultimate holding entity: - (a) Name (b) Country of incorporation (c) Country of which it is tax resident 8. (a) Whether share of, or int .....

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e Indian concern. If yes give details. (i). Name of the company or entity (ii). Details of the transactions including consideration for such transaction (iii). Name of transferor along with address (iv). Percentage share/interest transferred including percentage holding of transferor during the period of 12 months preceding the transfer (v). Details of the transferee along with address (vi). Holding structure in respect of shares of, or interest in, the company or entity before and after the tra .....

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vious year ] 10. (a) Whether share of, or interest in, the company or entity referred to in 8 has been transferred during the previous year, the income from which is deemed to accrue or arise in India under the provisions of section 9(1). (b) If yes give details: - (i). Name of the company or entity (ii). Details of the transaction(s) (iii). Name of transferor along with address (iv). Percentage share/interest transferred including holding percentage of transferor during the period of 12 months .....

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