Fair Market Value of inventory under Income Tax
Role of Rule-11UAB comes into play where an assessee converts stock in trade into capital asset under clause-(via) of Section 28 of the Income Tax Act. Clause-(via) provides that where an assessee converts stock in trade into an asset, cost of acquisition of such asset shall be the fair market value as on the date of conversion. Such fair market value shall be used to determine business income of the assessee on conversion of stock into asset and further for determining the quantum of capital gain when the assessee sells such asset after converison. So, we we bring down Rule-11UAB in this article.
Rule-11UAB states that:
“Fair market value of the inventory shall be:-
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- being an immovable property, being land or building or both, shall be the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of stamp duty in respect of such immovable property on the date on which the inventory is converted into, or treated, as a capital asset;
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- being jewellery, archaeological collections, drawings, paintings, sculptures, any work of art, shares or securities referred to in rule 11UA, shall be the value determined in the manner provided in sub-rule (1) of rule 11UA and for this purpose the reference to the valuation date in the rule 11U and rule 11UA shall be the date on which the inventory is converted into, or treated, as a capital asset;
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- being the property, other than those specified in clause (i) and clause (ii), the price that such property would ordinarily fetch on sale in the open market on the date on which the inventory is converted into, or treated, as a capital asset.”
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