Sec 50D of Income Tax Act: Fair market value deemed to be full value to consider in certain cases

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The section states that:

Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or cannot be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.

Main objective behind introducing this section:

“The existing provisions of the Income-tax Act provide that on the transfer of a capital asset, capital gains are calculated as the difference between the sale consideration and the cost of acquisition. It is proposed to insert a new section 50D so as to provide that where the consideration received or accruing as a result of the transfer of a capital asset by an assessee, is not ascertainable or cannot be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.

Salient features of the section:

a) There must be transfer of a Capital Asset; for applicability of this section the asset transferred must be in nature of Capital Asset and not business asset or stock in trader etc., the Capital Assets transferred must be covered under definition of Capital Assets under provisions of Section 2(47) of the Act, 1961. The transfer must be definite and absolute transfer and not a limited or contingent transfer.

b) Consideration for such transfer is not ascertainable or cannot be determined; the consideration of Capital Asset transferred must be not ascertainable/determined. Provisions are applicable in such case also where in an agreement between parties the Sale Consideration mentioned as NIL, but it is a debatable issue. Advertisement

c) The Capital Gain on such transfer shall be chargeable to tax in the previous year in which transfer of Capital Asset takes place irrespective of the fact whether sale consideration is received or not. Please note that Actual Realisation of Sale Consideration is not relevant for determination of liability to pay capital gain tax.

d) For computing Capital gain tax, the Fair Market Value of asset at the date of transfer shall be considered as Sale Consideration.