Rule 189 — Method of valuation for the purposes of computing fair market value of assets and liabilities under section 352(2) for accreted income. Made under s.352 of the Income-tax Act, 2025.
Rule 189 gives effect to Section 352 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) sets the aggregate side of the computation for section 352(2): the aggregate fair market value of the total assets of the specified person is the aggregate of the fair market value of all the assets in the balance sheet, reduced by tax paid and by any amount shown as an asset, including the unamortised amount of deferred expenditure, which does not represent the value of any asset.
Sub-rule (2) then values each class of asset. Clause (I) covers shares and securities. A quoted share or security is valued at the average of its lowest and highest price on a recognised stock exchange on the specified date, or, where there was no trading on that date, at the average of the lowest and highest price on the immediately preceding date on which it was traded. An unquoted equity share is valued by the formula (A + B - L) x pv / PE, where A is the book value of all assets in the balance sheet other than bullion, jewellery, precious stone, artistic work, shares, securities and immovable property, reduced by tax paid and by any amount shown as an asset that does not represent the value of any asset; B is the fair market value of bullion, jewellery, precious stone, artistic work, shares, securities and immovable property determined under this rule; L is the book value of liabilities in the balance sheet excluding six listed items — contingent liabilities other than arrears of dividends on paid-up equity capital, amounts set apart for dividends on preference and equity shares, reserves and surplus by whatever name called even if negative other than those set apart towards depreciation, provision for taxation other than tax paid to the extent of the excess over the tax payable on book profits, provisions for meeting liabilities other than ascertained liabilities, and any amount of cumulative preference shares; PE is the total paid-up equity share capital shown in the balance sheet; and pv is the paid-up value of the share being valued. A share or security other than an equity share is estimated at the price it would fetch if sold in the open market on the specified date, on the basis of a valuation report from a merchant banker or an accountant.
Clause (II) values immovable property at the higher of two figures: the price it would ordinarily fetch if sold in the open market on the specified date on the basis of a valuation report from a registered valuer, and the stamp duty value as on the specified date.
Clause (III) values a business undertaking held by a specified person at its net assets, being (A + B - L) determined in the manner provided in clause (I)(b).
Clause (IV) is residual: any other asset is valued at the price it would ordinarily fetch if sold in the open market on the specified date on the basis of a valuation report from a registered valuer, or, where no valuer is registered for that class of asset, from a valuer who is a member of one of ten listed valuer bodies, including the Institution of Valuers, the Indian Institution of Valuers, the Royal Institute of Chartered Surveyors: India Chapter, the American Society of Appraisers and the Appraisal Institute, or a valuer appointed by any public sector bank or public sector undertaking for valuation purposes.
Sub-rule (3) sets the liability side: the total liability of the specified person is the book value of liabilities in the balance sheet on the specified date, but excluding capital fund, accumulated funds or corpus by whatever name called; reserves, surpluses or excess of income over expenditure by whatever name called; contingent liabilities; provisions for meeting liabilities other than ascertained liabilities; and provision for taxation other than tax paid, to the extent of the excess over the income-tax payable on the income.
Sub-rule (4) defines the terms the computation runs on, including balance sheet as the balance sheet drawn up on the specified date and audited by an accountant, merchant banker as a category I merchant banker registered with the Securities and Exchange Board of India, registered valuer as a person registered as a valuer under section 514, tax paid as income-tax paid by deduction or collection at source or as advance tax reduced by income-tax claimed as refund, specified date as the date specified in column C of the Table in section 352(4), and specified person as in section 355(l).
Section 352 charges accreted income, which is the excess of the fair market value of total assets over total liability on a specified date. The section names the measure but cannot supply the valuation machinery, and without it the charge would turn on whichever valuation theory each side preferred. The rule fixes one method per class of asset, fixes what is stripped out of the balance sheet on both sides, and names who may value what — a registered valuer for immovable property and residual assets, a merchant banker or accountant for non-equity securities.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Valuation date for every class of asset and for total liability | The specified date | The date specified in column C of the Table in section 352(4); the rule states no date of its own | Sub-rule (4)(h) |
| Value of a quoted share or security | Average of the lowest and highest price on a recognised stock exchange on the specified date | Where there was no trading on the specified date, the average of the lowest and highest price on the immediately preceding date on which it was traded | Sub-rule (2)(I)(a) |
| Value of an unquoted equity share | (A + B - L) x pv / PE | A is adjusted book value of other assets, B the fair market value of bullion, jewellery, precious stone, artistic work, shares, securities and immovable property, L the book value of liabilities net of six exclusions, PE the paid-up equity capital and pv the paid-up value of the share | Sub-rule (2)(I)(b) |
| Value of immovable property | The higher of the registered valuer's open market price and the stamp duty value | Both measured as on the specified date | Sub-rule (2)(II) |
| Value of a business undertaking held by a specified person | Net assets, being (A + B - L) | Determined in the manner provided in clause (I)(b) | Sub-rule (2)(III) |
The balance sheet is the starting point but never the answer: on the asset side, tax paid and any figure that does not represent the value of an asset — the unamortised deferred expenditure being the named example — come out under sub-rule (1), and on the liability side sub-rule (3) removes corpus, reserves and surplus, contingent liabilities, unascertained provisions and excess tax provision. Because reserves and surplus are excluded from liabilities even when the resulting figure is negative, a person with accumulated deficits cannot use them to reduce the total liability. Immovable property is the one class where the rule takes the higher of two measures, so a valuation report below the stamp duty value does not displace it. Note that the valuer's qualification changes with the asset: a registered valuer under section 514 for immovable property and residual assets, a merchant banker or an accountant for non-equity securities, and for a residual asset with no registered valuer in that field, a member of one of the ten listed professional bodies. The rule is method, not charge — what is taxed and on what date is section 352's business, and even the specified date comes from the Table in section 352(4) rather than from here.
A specified person's balance sheet on the specified date shows total assets of Rs 12 crore, including Rs 40 lakh of unamortised deferred expenditure and Rs 20 lakh of tax paid, and land carried at Rs 3 crore. The land is valued by a registered valuer at Rs 5 crore while its stamp duty value on that date is Rs 5.6 crore; clause (II) takes the higher figure, Rs 5.6 crore. The other assets are valued by their own clauses, and the Rs 40 lakh and Rs 20 lakh drop out under sub-rule (1). On the liability side the balance sheet shows Rs 4 crore, of which Rs 1.5 crore is corpus and Rs 30 lakh is a provision for an unascertained liability; both are excluded by sub-rule (3), leaving Rs 2.2 crore as total liability for section 352(2).
A specified person meets it when accreted income has to be computed under section 352 — in the valuation reports commissioned for the specified date, in the audited balance sheet drawn up on that date, and in any dispute about the value of the assets on which the charge is worked out.
the aggregate fair market value of the total assets of the specified person, shall be the aggregate of the fair market value of all the assets in the balance sheet, as reduced by
the fair market value of an immovable property shall be higher of the following
reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation
