What the courts have decided on section Rule 3, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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All India Central Bank Officers Federation v Union of India
High CourtHelps departmentNo later treatment found
My client is a bank officer taxed on a deemed concession in rent for the bank's quarters even though the market rent is lower than the percentage of salary applied. Is the deeming provision open to challenge?
Not on the grounds run so far. A Division Bench of the Bombay High Court dismissed a batch of writ petitions by bank officers' associations challenging Explanations 1 to 4 below s.17(2) inserted by the Finance Act 2007 with limited retrospective effect. It held the legal fiction is not an impermissible legislative override of Arun Kumar v Union of India, that the retrospectivity is valid, and that classifying by city population and measuring the concession as a percentage of salary does not offend Article 14.
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Statutory position — Rule 40BB: how the "amount received by the company" is computed for s.115QA buy-back tax, sub-rule by sub-rule, including bonus shares at nil and dematerialised shares on FIFO
CBDT Circulars & InstructionsCuts both ways
The Assessing Officer has computed my client company's buy-back tax by deducting what the tendering shareholder paid for the shares. Which figure does the Act actually require, and where is it laid down?
Rule 40BB matters only for buy-backs governed by s.115QA — that is, buy-backs before 1 October 2024, since the second proviso to s.115QA(1) switches that section off from that date. It prescribes, for clause (ii) of the Explanation to s.115QA(1), "the amount received by a company in respect of the share issued by it, being the subject matter of buy-back", and that figure — not the shareholder's cost — is what is deducted from the buy-back consideration to give the "distributed income" charged at twenty per cent. The general rule in sub-rule (2) is the amount actually received on subscription "including any amount actually received by way of premium"; sub-rule (13) makes the face value the amount received in any case the rule does not otherwise cover.
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Statutory position — Rule 3(8) and Rule 3(9): how the fair market value of an ESOP or sweat equity share is fixed on the date of exercise, including the merchant banker's specified date
CBDT Circulars & InstructionsCuts both waysNo later treatment found
The Assessing Officer says my ESOP perquisite should have been computed on a higher share value than my employer used. What is the prescribed method for fixing the fair market value on the date I exercised?
This is stage one — the fair market value that fixes the perquisite under s.17(2)(vi) on exercise. For an equity share LISTED on a recognised stock exchange, Rule 3(8)(ii) takes the AVERAGE OF THE OPENING PRICE AND THE CLOSING PRICE of the share on the date of exercise on that exchange; where it is listed on more than one exchange, the exchange with the highest volume of trading in the share; and where there is no trading in the share at all on the date of exercise, the closing price on the recognised stock exchange on the date closest to and immediately preceding the exercise date. For an equity share NOT listed, Rule 3(8)(iii) takes such value as is determined by a merchant banker on the "specified date", and Rule 3(9) applies the same merchant-banker method to a specified security that is not an equity share. The "specified date" is the date of exercise, or any earlier date NOT MORE THAN 180 DAYS BEFORE THE DATE OF EXERCISE — this is the point most often got wrong.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
