Rule 12 — Determination of income attributable to assets in India. Made under s.9 of the Income-tax Act, 2025.
Rule 12 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.
Sub-rule (1) gives the apportionment formula for an indirect transfer. Where a share of, or interest in, a company or an entity referred to in section 9(10)(a) is transferred outside India, the income attributable to assets located in India is A × B / C, determined with reference to the specified date. A is the income from the transfer of that share or interest computed as per the provisions of the Act, as if such share or interest is located in India. B is the fair market value of assets located in India as on the specified date from which the share or interest referred to in A derives its value substantially, computed as per rule 11. C is the fair market value of all the assets of the company or the entity as on the specified date, again computed as per rule 11.
Sub-rule (2) deals with the transferor who does not co-operate. If he fails to provide the information required for the application of the formula, the income from the transfer is to be determined in such manner as the Assessing Officer may deem suitable. The formula is then simply unavailable to him.
Sub-rule (3) puts the working on record. The transferor must obtain and furnish along with the return of income a report in Form No. 4, duly signed and verified by an accountant, providing the basis of the apportionment as per the formula and certifying that the income attributable to assets located in India has been correctly computed.
Section 9(10) brings an offshore transfer of a foreign share or interest into the Indian net where the value comes substantially from Indian assets, but the gain on that transfer is a single global figure and only part of it belongs to India. The section leaves the split unstated. Rule 12 supplies the split as a fraction of fair market values on one common date, and rule 12(3) makes the taxpayer show his working through an accountant rather than assert the fraction.
The rule apportions; it does not charge. A is already a figure computed under the Act, so every rule about how gains are computed has done its work before the fraction is applied. B and C must both be fair market values under rule 11 and both as on the specified date; substituting book value for either, or valuing them on different dates, corrupts the fraction rather than approximating it. Sub-rule (2) is the real sanction: the formula is a benefit that depends on furnishing information, and withholding it does not leave the income unquantified but hands the quantification to the Assessing Officer. Form No. 4 is due along with the return, not on a later demand.
A non-resident sells shares of a foreign company outside India. The income from that transfer, computed as per the provisions of the Act as if the shares were located in India, is Rs. 100 crore. Under rule 11, the fair market value on the specified date of the Indian assets from which the shares derive their value substantially is Rs. 30 crore, and of all the company's assets Rs. 120 crore. The income attributable to assets located in India is 100 × 30 / 120, that is Rs. 25 crore, and the accountant's Form No. 4 setting out that computation goes in with the return.
You meet it in the return of income of a non-resident transferor, as the Form No. 4 that must accompany it, and again in any assessment of an indirect transfer, where the Assessing Officer tests the B and C values against rule 11.
the income from the transfer of such share or interest shall be determined in such manner as the Assessing Officer may deem suitable
shall obtain and furnish along with the return of income a report in Form No. 4 duly signed and verified by an accountant