Rule 10: Definitions for indirect-transfer valuation
Rule 10 defines the terms used in Rules 11 and 12 for valuing assets and attributing offshore-transfer income to Indian assets. The definitions affect the professional engaged, valuation date, financial statements and share-price inputs.
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Rule 10 - Definition of terms for rules 11 and 12
For the purposes of rules 11 and 12, —
(a) "accountant" — (i) means an accountant referred to in section 515(3)(b), who fulfils the following conditions: — (A) if he is pursuing the profession of accountancy individually or is a valuer then — (I) he has professional experience of not less than ten years; and (II) his annual receipt in the year preceding the year in which valuation is undertaken, from the exercise of profession, exceeds fifty lakh rupees; (B) if he is a member or partner in any entity engaged in rendering accountancy or valuation services then, the annual receipt of the entity in the year preceding the year in which valuation is undertaken exceeds three crore rupees; (ii) includes any valuer recognised for undertaking similar valuation by the government of the country, where the foreign company or the entity is registered or incorporated or any of its agencies, who fulfils the following conditions: — (A) the condition referred to in items (A) and (B) of clause (a)(i); (B) if he is a member or partner in any entity engaged in rendering accountancy or valuation services then, the entity or its affiliates have presence in more than two countries;
(b) "balance sheet", — (i) (A) in relation to an Indian company, means the balance-sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the specified date which has been audited under the laws relating to companies in force; and (B) in any other case, it means the balance-sheet of the company or the entity (including the notes annexed thereto and forming part of the accounts) as drawn up on the specified date and submitted to the relevant authority outside India under the laws in force of the country in which the foreign company or the entity is registered or incorporated; and (ii) where, — (A) finalisation of accounts is pending as on specified date for the purposes of items (A) and (B) of sub-clause (i), it means an interim balance-sheet drawn up as on the specified date and approved by the board of directors of the company or an equivalent body in case of any other entity; and (B) the specified date is the date referred to in section 9(10)(d)(ii), it means the balance sheet as drawn up on the specified date and certified by an accountant;
(c) "book value of the liabilities" means the value of liabilities as shown in the balance-sheet of the company or the entity, as the case may be, excluding the paid-up capital in respect of equity shares or members' interest and the general reserves and surplus and security premium related to the paid-up capital;
(d) "connected person" shall have the meaning assigned to it in section 184(5);
(e) "foreign company or entity" means a company or entity registered or incorporated outside India;
(f) "observable price" in respect of a share quoted on a stock exchange shall be the higher of the following: — (i) the average of the weekly high and low of the closing prices of the shares quoted on the said stock exchange during the six months period preceding the specified date; or (ii) the average of the weekly high and low of the closing price of the shares quoted on the said stock exchange during the two weeks preceding the specified date;
(g) "right of management or control" shall include the right to appoint majority of the directors or to control the management or policy decision exercisable by a person or persons acting individually or together, directly or indirectly, including by virtue of shareholding or management rights or shareholders agreements or voting agreements or in any other manner;
(h) "specified date" shall have the meaning assigned to it in section 9(10)(d);
(i) "telegraphic transfer buying rate" shall have the meaning assigned to it in rule 207; and
(j) the expressions "merchant banker" and "recognised stock exchange" shall have the meaning respectively assigned to them in rule 56.
Rule breakdown
Check the valuation professional against the actual limb
For an individual practitioner or valuer in clause (a)(i)(A), the requirements include at least ten years of professional experience and annual professional receipts exceeding ₹50 lakh in the preceding year. The member-or-partner limb refers to entity receipts exceeding ₹3 crore. The overseas-recognised-valuer inclusion has its own cross-referenced conditions and, for the stated member-or-partner situation, presence of the entity or its affiliates in more than two countries. Match the engagement to the full definition rather than assuming any valuer qualifies.
Use the appropriate financial statement
The Indian-company limb uses the audited balance sheet drawn up on the specified date, including notes. The other-company or entity limb refers to a balance sheet submitted under the relevant foreign law. Where finalisation is pending, the definition provides for the stated approved interim balance sheet; the separate specified-date limb requires accountant certification. Rule 11(7) addresses modification after final accounts are available.
Calculate observable price as defined
Compare the average of weekly high and low closing prices over the preceding six months with the corresponding average over the preceding two weeks. The higher result is the observable price. This is not simply the closing quote on the valuation date.
Keep equity exclusions and control rights visible
Book value of liabilities excludes paid-up equity capital or members’ interest and the specified reserves, surplus and related security premium. Management or control includes the right to appoint a majority of directors and management or policy rights held through the listed arrangements or otherwise; it is not limited to a stated shareholding percentage in this definition.
Follow the external definitions
Connected person refers to section 184(5), specified date to section 9(10)(d), the telegraphic transfer buying rate to Rule 207, and merchant banker and recognised stock exchange to Rule 56. Obtain the applicable definitions before finalising the Rules 11–12 computation.
Key takeaways
Limited defined scope
These definitions apply for Rules 11 and 12; they are not a replacement for every definition elsewhere in the Act.
Professional qualifications
The accountant and recognised overseas-valuer limbs include specified experience, receipts and, where relevant, international-presence conditions.
Price and liability inputs
Observable price uses the higher of two defined averages, and book-value liabilities exclude the listed equity and reserve items.
Practical checklist
- Check the professional’s relevant experience and preceding-year receipts evidence.
- Identify the specified date and correct balance-sheet category.
- Document both observable-price averages and the liability exclusions.
- Review agreements that confer management or control rights.
Avoid
- Do not substitute the last traded price for the defined observable price.
- Do not treat every balance-sheet credit as a liability under this definition.
FAQs
Are all accountants automatically qualified for this valuation?
No. Rule 10(a) supplements the section 515(3)(b) reference with the conditions in its applicable limb.
Is observable price the lower of the two averages?
No. Clause (f) chooses the higher of the six-month and two-week averages defined there.
Can interim accounts be relevant?
Yes, in the circumstances stated in clause (b)(ii). Rule 11(7) separately requires appropriate modification after finalisation where its interim-balance-sheet condition applies.