CBDT notifies Rule 11UAD for Section 50CA: CBDT vide Notification No. 42/2020 [F. No.370149/143/2019-TPL] dated 30.06.2020 notified new Rule 11UAD in the Income Tax Rules, 1962 to provide for non-applicability of the provisions of section 50CA when unquoted shares of a company are transferred by the assessee.
Section 50CA is a special provision for determining the full value of consideration for the transfer of share other than quoted share. It provides that where the consideration received or receivable on the transfer by an assessee of a capital asset, being share of a company other than a quoted share, is less than the fair market value of such share determined in such manner as may be prescribed, the value so determined shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.
Therefore, section 50CA is a deeming provision which replaces the actual sales consideration with the fair market value if the actual consideration on the transfer of unquoted shares is less than the fair market value determined as per Rule 11UAA.
Rule 11UAA provides for valuation of unquoted shares as per Rule 11UA(1)(c)(b) or (c).
Section 50CA excludes certain transfers of unquoted shares by such class of persons and subject to such conditions as may be prescribed. Finance (No. 2|) Act, 2019 empowered the CBDT to notify transfer of such shares by persons where the provisions of section 50CA shall not apply.
In this regard, CBDT has now issued Notification No. 42/2020 on 30.06.2020 to exclude the following transfers of unquoted shares in the given circumstances from the deeming provisions of section 50CA-
Provisions of section 50CA shall not apply to the transfer of any movable property, being unquoted shares, of a company and its subsidiary and the subsidiary of such subsidiary by an assessee, where,—
(i) Where the National Company Law Tribunal (NCLT) has suspended the Board of Directors of such company and has appointed new directors nominated by the Central Government u/s 241 and u/s 242 of the Companies Act, 2013 (which deals with Oppression & Mismanagement) and
(ii) share of such company and its subsidiary and the subsidiary of such subsidiary has been transferred pursuant to a resolution plan approved by the NCLT u/s 242 of the Companies Act, 2013 after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.
Rule 11UAD defines the subsidiary company of a company as a company if such other company holds more than 50 per cent in nominal value of the equity share capital of the company.
Read the full text of the Notification No. 42/2020 dated 30.06.2020.
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 30th June, 2020
G.S.R. 423(E).—In exercise of the powers conferred by section 50CA read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:─
1. Short title and commencement.‒ (1) These rules may be called the Income-tax (15th Amendment) Rules, 2020.
(2) They shall come into force from the 1st day of April, 2020 and shall be applicable for assessment year 2020-21 and subsequent assessment years.
2. In the Income-tax Rules, 1962, after the rule 11UAC, the following rule shall be inserted, namely:—
Prescribed class of persons for the purpose of section 50CA.
11UAD. The provisions of section 50CA of the Act shall not apply to transfer of any movable property, being unquoted shares, of a company and its subsidiary and the subsidiary of such subsidiary by an assessee, where,—
(i) the Tribunal, on an application moved by the Central Government under section 241 of the Companies Act, 2013, has suspended the Board of Directors of such company and has appointed new directors nominated by the Central Government under section 242 of the said Act; and
(ii) share of such company and its subsidiary and the subsidiary of such subsidiary has been transferred pursuant to a resolution plan approved by the Tribunal under section 242 of the Companies Act, 2013 after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.
Explanation.-For the purposes of this sub-rule,-
(a) a company shall be a subsidiary of another company, if such other company holds more than half in nominal value of the equity share capital of the company;
(b) "Tribunal" shall have the same meaning assigned to it in clause (90) of section 2 of the Companies Act, 2013.
[Notification No.42 /2020/F. No.370149/143/2019-TPL]
ANKUR GOYAL, Under Secy. (Tax Policy and Legislation)
Explanatory Memorandum: It is hereby certified that no person is being adversely affected by giving retrospective effect to these rules.
Download Copy of Notification No. 42/2020 dated 30.06.2020 on Section 50CA in pdf format.
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