Rule 10 — Definition of terms for rules 11 and 12. Made under s.9 of the Income-tax Act, 2025.
Rule 10 gives effect to Section 9 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule is a definition rule. It has no operative command of its own; it fixes the meaning of ten expressions used in rules 11 and 12, and nothing in it applies outside those two rules.
Clause (a) defines "accountant" in two limbs. The first limb means an accountant referred to in section 515(3)(b) who meets a size test: if he practises accountancy individually or is a valuer, he must have professional experience of not less than ten years and annual receipt from the exercise of profession, in the year preceding the year in which the valuation is undertaken, exceeding fifty lakh rupees; if he is a member or partner in an entity rendering accountancy or valuation services, that entity's annual receipt in the preceding year must exceed three crore rupees. The second limb includes a valuer recognised for similar valuation by the government of the country where the foreign company or entity is registered or incorporated, or by any of its agencies, who satisfies those same conditions and, where he is a member or partner in such an entity, whose entity or its affiliates have presence in more than two countries.
Clause (b) defines "balance sheet". For an Indian company it is the balance-sheet, including the notes annexed and forming part of the accounts, drawn up on the specified date and audited under the laws relating to companies in force; in any other case it is the balance-sheet of the company or entity drawn up on the specified date and submitted to the relevant authority outside India under the laws of the country of registration or incorporation. Two substitutes are provided: where finalisation of accounts is pending as on the specified date, an interim balance-sheet drawn up as on that date and approved by the board of directors or an equivalent body; and where the specified date is the date referred to in section 9(10)(d)(ii), the balance sheet drawn up on that date and certified by an accountant.
Clause (c) defines "book value of the liabilities" as the value of liabilities shown in the balance-sheet, excluding paid-up capital in respect of equity shares or members' interest and the general reserves and surplus and security premium related to that paid-up capital. Clause (f) defines "observable price" of a quoted share as the higher of two averages: the average of the weekly high and low of the closing prices during the six months preceding the specified date, and the average of the weekly high and low of the closing price during the two weeks preceding the specified date. Clause (g) defines "right of management or control" inclusively, covering the right to appoint a majority of the directors or to control management or policy decisions, exercised individually or together, directly or indirectly, including by shareholding, management rights, shareholders agreements, voting agreements or any other manner.
The remaining clauses borrow meanings rather than supply them: "connected person" from section 184(5), "foreign company or entity" as a company or entity registered or incorporated outside India, "specified date" from section 9(10)(d), "telegraphic transfer buying rate" from rule 207, and "merchant banker" and "recognised stock exchange" from rule 56.
Rules 11 and 12 value shares and interests for the indirect transfer provisions, and a valuation is only as good as the words it is built on. Section 9(10) leaves open who may value, on what accounts, and at what price a quoted share is taken. This rule settles each of those before the valuation machinery runs: it puts a floor of experience and receipts under the person signing, it names the accounts to be used when the specified date does not coincide with a finalised balance sheet, and it stops a quoted price being picked from a favourable day by fixing two averaging windows and taking the higher.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Minimum professional experience of an accountant practising individually or a valuer | Not less than ten years | Where he is pursuing the profession of accountancy individually or is a valuer | Clause (a)(i)(A)(I) |
| Minimum annual receipt of an individual practitioner or valuer | Exceeding fifty lakh rupees | From the exercise of profession, in the year preceding the year in which the valuation is undertaken | Clause (a)(i)(A)(II) |
| Minimum annual receipt of the entity where he is a member or partner | Exceeding three crore rupees | Entity engaged in rendering accountancy or valuation services, in the year preceding the year in which the valuation is undertaken | Clause (a)(i)(B) |
| Geographic spread required of a foreign valuer's entity | Presence in more than two countries | Where the recognised foreign valuer is a member or partner in an entity rendering accountancy or valuation services; the entity or its affiliates must have that presence | Clause (a)(ii)(B) |
| First averaging window for the observable price of a quoted share | Six months preceding the specified date | Average of the weekly high and low of the closing prices quoted on the stock exchange | Clause (f)(i) |
| Second averaging window for the observable price of a quoted share | Two weeks preceding the specified date | Average of the weekly high and low of the closing price quoted on the stock exchange; the observable price is the higher of the two averages | Clause (f)(ii) |
Two traps sit in this rule. The first is the accountant test: being an accountant within section 515(3)(b) is not enough for rules 11 and 12, because clause (a)(i) adds an experience floor and a receipts floor, and the receipts are tested for the year preceding the year of valuation, not the year of valuation itself. A firm partner is tested on the entity's receipts of three crore rupees, not on his own. The second is the observable price: it is the higher of the six-month average and the two-week average, so the shorter window cannot be used simply because the price fell, and both are averages of weekly highs and lows of closing prices rather than of daily closes. Where the accounts are not final on the specified date, clause (b)(ii) does not permit the last audited balance sheet to be used; it requires an interim balance-sheet drawn up as on the specified date and approved by the board or an equivalent body. Because this is a definition rule, none of these meanings travels beyond rules 11 and 12.
A firm is asked in August to value shares of a foreign company for a computation under rule 11, with the specified date falling on 31 March. The partner signing has twelve years' experience, but the test that matters for him is the firm's annual receipt of the preceding year, which must exceed three crore rupees. The foreign company's accounts for the year are not final on 31 March, so under clause (b)(ii)(A) an interim balance-sheet drawn up as on 31 March and approved by the board is used. For a quoted share the observable price is worked out twice, once over the six months to 31 March and once over the two weeks to 31 March, and the higher figure is taken.
A reader meets it only inside a rule 11 or rule 12 valuation, in the valuation report and in the credentials page that accompanies it, and again in an assessment where the Department tests whether the person who signed met the experience and receipts conditions.
his annual receipt in the year preceding the year in which valuation is undertaken, from the exercise of profession, exceeds fifty lakh rupees
the average of the weekly high and low of the closing prices of the shares quoted on the said stock exchange during the six months period preceding the specified date