Enhancing Fair Market Valuation in Clause 91 of Income Tax Bill, 2025 vs. Section 55A of Income Tax Act, 1961

Clause 91 Reference to Valuation Officer.

Income Tax Bill, 2025

Introduction

Clause 91 of the Income Tax Bill, 2025, introduces a procedural framework for the reference to a Valuation Officer to ascertain the fair market value of a capital asset. This clause is significant within the broader context of capital gains taxation, aiming to ensure that the valuation of assets aligns with market realities, thereby preventing tax evasion through underreporting. The provision is a continuation and modification of the existing Section 55A of the Income-tax Act, 1961, which has historically governed the reference to Valuation Officers for similar purposes. The legislative intent behind Clause 91 is to enhance the accuracy of asset valuations and ensure fairness in the assessment of capital gains tax liabilities.

Objective and Purpose

The primary objective of Clause 91 is to provide a mechanism for the Assessing Officer to refer the valuation of a capital asset to a Valuation Officer when there is a discrepancy between the declared value by the assessee and the perceived fair market value. This reference is crucial in maintaining the integrity of the tax system by ensuring that capital gains are calculated based on accurate valuations. The provision is designed to address situations where the value claimed by the assessee may be understated, thus affecting the taxable amount of capital gains. The clause is also intended to provide clarity and uniformity in the valuation process, which is essential for both taxpayers and tax authorities.

Detailed Analysis

Key Provisions of Clause 91

Clause 91(1) outlines the circumstances under which the Assessing Officer may refer the valuation of a capital asset to a Valuation Officer. There are two primary scenarios covered under this clause:

1. Valuation by Registered Valuer:- If the value of the asset claimed by the assessee is based on an estimate by a registered valuer, but the Assessing Officer believes that this value is at variance with the fair market value, a reference to the Valuation Officer can be made.

2. Other Cases:- In cases where the valuation is not by a registered valuer, the Assessing Officer can refer the matter to a Valuation Officer if:

- The fair market value exceeds the claimed value by more than a prescribed percentage or amount.

- Given the nature of the asset and other relevant circumstances, it is deemed necessary to ascertain the fair market value. Clause 91(2) incorporates the procedural aspects by referring to the provisions of Section 269(3) to (8) for necessary modifications, thereby ensuring consistency in the application of valuation procedures.

Comparative Analysis with Section 55A of the Income-tax Act, 1961

Section 55A of the Income-tax Act, 1961, serves as the predecessor to Clause 91 and shares similar objectives in ascertaining the fair market value of capital assets. However, there are notable differences and enhancements in the 2025 Bill:

1. Scope and Applicability:- Both provisions allow for reference to a Valuation Officer when there is a perceived discrepancy in asset valuation. However, Clause 91 provides a more explicit framework by outlining specific scenarios and criteria for such references, potentially reducing ambiguity.

2. Procedural References:- Section 55A refers to various sections of the Wealth-tax Act, 1957, for procedural guidance, whereas Clause 91 simplifies this by referencing Section 269, thereby streamlining the procedural aspects.

3. Valuation Thresholds:- The 1961 Act specifies that the fair market value should exceed the claimed value by a prescribed percentage or amount, a concept retained in Clause 91. However, the 2025 Bill may introduce updated thresholds, reflecting current economic conditions and market dynamics.

4. Legislative Intent and Clarity:- Clause 91 appears to provide clearer legislative intent and structured guidance on when and how valuation references should be made, which might address some of the interpretational challenges faced u/s 55A.

Practical Implications

The introduction of Clause 91 has several practical implications for stakeholders:

1. For Taxpayers:- Taxpayers must ensure that their asset valuations are accurate and justifiable, especially when relying on registered valuers. The provision increases the importance of transparency and documentation in asset valuation to avoid disputes with tax authorities.

2. For Tax Authorities:- The clause empowers Assessing Officers to challenge valuations that appear inconsistent with market values, thereby enhancing the accuracy of tax assessments. It also provides a clear procedural framework for such challenges, potentially reducing litigation.

3. For Valuation Professionals:- Registered valuers play a crucial role under this provision, as their valuations are subject to scrutiny. This emphasizes the need for adherence to professional standards and methodologies in asset valuation.

Conclusion

Clause 91 of the Income Tax Bill, 2025, represents a significant step in refining the process of asset valuation for tax purposes. By addressing potential discrepancies in asset valuations, the provision aims to enhance the fairness and accuracy of capital gains taxation. The clause builds on the foundation established by Section 55A of the Income-tax Act, 1961, while introducing improvements in clarity and procedural consistency. As the Bill progresses, stakeholders must prepare for its implications, ensuring compliance and adapting to the refined valuation framework.

Full Text:

Clause 91 Reference to Valuation Officer.

Dated: 28-3-2025