MULYANKAN - Valuers & Appraisers India, Valuation, Appraisal, Auctioning, Auction, Used Machinery, real Estate Advisory

Remember, there is no income tax or capital gain tax liability on an enterprise consequent to revaluation of its assets.

In case of Abdul Majid Vs. ITO-178 and ITR 616, it was decided by the tribunal that the reassessment of the assets’ values called for by the ITO, was not justified, because, the returns filed by the assessee were accompanied with authorised valuer’s certificates in respect of the value of a residential house, regarding which, the ITO had claimed that a fair market price was not being shown.

Beginning from assessment year 1993-94, there is no wealth tax liability on the unlimited value in the form of shares in a company, as these assets are outside the purview of ‘Wealth tax act’. For the first time, beginning from assessment year 1993-94, agricultural land and farm houses will be liable for taxation. Similarly, surplus land / un built areas of a factory would be liable for taxation.

Dissolution of a Partnership

Provisions of capital gain tax will be applicable to assets that accrue to your account from a partnership dissolution. Therefore, it is in your interest to obtain a certified valuer’s report on the value of such assets as on the day of partnership dissolution.

Rent and Depreciation

The principle of depreciation is not applicable to the cost of a land. Therefore, for the purpose of tax planning, the land is purchased in the name of one assessee, the same is rented out to another assessee. This normally leads to disputes pertaining to the amount of rent that should be levied or paid. The valuer’s report, in all such cases can clinch the arguments and substantiate the claims for just and fair rent.

To avoid any piece of your jewellery being wrongfully confiscated, it is advisable to obtain separate valuation for each piece and the pieces thus valued be registered for and / or allotted to different family members. This will prevent anyone from clubbing together the total value of all jewellery for the purpose of tax claims. One may also remember, that it is mandatory to obtain a qualified valuer’s certificate, if the jewellery in household is worth in excess of Rs. 5,00,000/- (Rupee Five lakhs).

Property Transfer

A person or persons buying or selling any property or assets, where the networth of the property including furniture and fixtures, plant and machinery or rights of membership of a co-operative society etc; exceed Rs. 10,00,000/- (Rupees Ten lakhs) in apparent consideration, in metropolitan centre like Mumbai, Calcutta, Delhi, Chennai, Bangalore, Pune, Lucknow, Ahmedabad etc., it is obligatory for both the transferor or transferee to obtain prior permission for the transaction under Section 269 of Income Tax Act. However, the Supreme Court has given a decision in a case under Chapter XXC which relates to income tax acquisition, that a transferor and transferee must be served a "show cause notice" in order to allow natural justice to prevail and prevent violation of articles of the constitution in such cases. Your claims, especially regarding the price of assets to be transferred, to be fair, have to be substantiated. This can be done only by obtaining an official valuer’s certificate at the time of concluding a transaction. Therefore, to avoid additions of unexplained investments under various sections and wherever question pertaining to correct value of your possessions arises, especially for assessments in income tax, wealth tax or gift tax purposes, in order to avoid the embarrassment and trauma under Section 69, 69A, 69B and the consequent penalty, it is always desirable to obtain a qualified valuer’s report in property / assets transfer transactions.

Purchase, Sale, Takeovers and Mergers

Wherever a sale and / or purchase of assets takes place, or two or more organisations / companies decide to amalgamate, or one company takes over the business of another, there is always a need to bring in more finance. In such situations, while approaching a bank or a lending institution, if valuer’s reports are enclosed to your application, the proposals are likely to be speedily processed. Similarly, you can avoid the danger of incorrect valuation by engaging the services of a recognised valuer to correctly assess the values. Incorrect values may lead to problems of unexplained investments in corporate tax returns.

The assets like plant and machinery normally reflect a depreciating value over a period of time. However, the value of the land in possession of the company might as well have appreciated to considerable extent, due to rising demand and rising inflation. In both cases, the book value may not reflect the correct financial position in relation to market realities. Here also, the revaluation of assets will be able to put things in a healthier light for the organisation and allow it to obtain the due credit in the market.

Big industrial houses, commercial establishments, small businesses, proprietary concerns or just individual professionals – all are called upon to furnish, at some time or the other, a bank guarantee in order to complete a transaction. At such times, if the ‘assets owned’ are revalued, the required security will be much easier to obtain for availing the required bank guarantee.

Projecting the Right Image

International accounting standards expect that a true picture of a company’s financial health be reflected in its balance sheet. So that, the intending investors, existing share holders, lending institutions, vendors of that company’s scrip, company’s own bankers - all are continuously aware of the real worth of that enterprise. For this, periodic revaluation of company’s assets is necessary to project the updated picture.

Rupee Devaluation / Revaluation

In a global market, the currency fluctuations vis-a-vis the major players is a matter of paramount importance in financial planning Recently we have made our Rupee partially convertible. The Russian Rubble has sunk to unfathomable depth in relation to American Dollar. The Rupee however, has consolidated its position after slight adjustment. In a situation like this, where many companies have purchased equipment form both Western and former Soviet Block, the book values will now have no relation to market realities. Therefore, today, all the companies, small as well as big, will find it in their interest to obtain revaluation of their plant and machinery assets; especially those of foreign origin. To keep up with the currency fluctuations in international market, it is advisable to obtain revaluation certificates periodically, at least once in three to five years duration.

Advance payment against works contract

In some of the tenders floated by the Government departments, public undertakings etc. the appointed contractor is entitled to claim advance payment towards machinery and equipment which he will deploy for the project. This claim will, of course, have to be substantiated by a certified valuer’s report. In fact, the machinery deployed may not be new, because, the contractor is entitled for advance, even against the deployment of ‘used machines’. But, the quantum of advance available against such used / second hand machines will be naturally less. In these cases a valuer’s report is important, as it enables one to arrive at a precise market value of equipment against which a justified claim for advance can be made.

When shifting a factory to backward / non-industrial area, where there are number of tax incentives offered by the authorities, a certain percentage of old plant is allowed to be relocated there. However, a clause in this offer states, that the value of such relocated equipment should be within the permissible limits. In this case also, the claims for incentive benefits will have a smoother sailing if they are backed by the qualified valuer’s report.

Security Deposits with Power Supply Companies

Electricity supply companies, everywhere, demand a security deposit from their consumers, which is equal to that of consumer’s average quarterly consumption. With the continuous increase in electricity rates, the bill for one’s quarterly consumption also keeps increasing, consequently the security deposit that has to be paid keeps going up. The impact of this increase is felt most keenly by industries such foundry or heavy engineering where power consumption is very high. In one typical case an industry has, with the help of revaluation reports, succeeded in offering mortgage of its fixed assets as a security to power company by creating a second charge on it. The second charge could be created, because assets already mortgaged to the bank, when revalued, were found to be higher in value at prevailing market prices.

Duty Draw-Back and Export Incentives

For claiming duty drawback and export incentives, it is desirable to substantiate the claims with the help of valuer’s report, preferably from a valuer who is also a Chartered Engineer.

Foreign Collaboration

If one aims to enter into a collaboration with an overseas foreign firm, then, as a part of pre-planning it is desirable to have the existing assets revalued and incorporate their correct value in the books to ensure proper financial perspectives.

Technological Know-how

The Mumbai High Court in its judgement in the case of C.I.T. Vs. M/s. Baker India Pvt. Ltd., 40196, ITR 667, held that a ‘Technical Know-how’ constitutes the plant. The expression plant does not necessarily mean something fixed in location, but should be construed in a wider sense of indicated / introduced operation. It is always difficult to arrive at a precise value to put on a rather abstract concept like the ‘know-how’. Therefore, in deciding the quantum of compensation to be paid for transfer of technological ‘know-how’. Therefore, in deciding the quantum of compensation to be paid for transfer of technological ‘know-how’ a third party, like authorised valuer’s opinion, is the most desired thing to obtain. At times, the compensation towards ‘know-how’ is made through equity participation and the valuer’s report recorded in books becomes a must to regularize the transactions.

If a second hand machine is imported, the value of the same as shown on the invoice is normally disputed by the custom authorities. This is expected, since their job is to collect maximum revenue for the department. But, if the invoice is supported by the authorised valuer’s assessment and certified by him, it will save time and money for both sides.

Rules of various local government bodies indicate the percentage of octroi duty to be levied on different commodities and the basis for deciding this is supposed to be the value indicated in the invoices. However, this is normally disputed by octroi authorities, because of the conflict of interests normal between a tax payer and tax collector. In case of technical equipment like machines, process equipment etc., the problem is more intractable as the octroi recovery personnel do not possess any technical expertise. Therefore, a qualified valuer’s certificate obtained in such cases can resolve the problems to the satisfaction of all.

When the management of a public limited concern decides to dispose off some of its capital goods items or sell some scrap material, residual commodities etc., they are answerable to their board and shareholders about the value of such deals. The shareholders are very alert to such transactions. With increasing globalisation the companies in India have also to respond increasingly to shareholders queries. Therefore, an independent, certified valuer’s opinion has now become a must for all public limited concerns while auctioning off or disposing their surplus materials.

Vacating Premises

Due to exigencies of commercial and / or legal situations, vacating the occupied premises sometimes becomes imminent. This may lead to tragic consequences of retrenchment of staff or in some cases even closing down of a unit. Yet, even here, the valuer can obtain relief for the beleaguered business by postponing the imminent eviction.

Hiring out an imported piece of machinery can pose problems in respect of its value based rent. This situation becomes more complicated when the currency devaluation makes it difficult to agree to a base price. The devaluation of the Soviet Rubble in relation to U.S.Dollar and the import price paid by the Indian buyers at the old official exchange rate is a case in point. Here also, the help of a qualified valuer becomes invaluable.

S.S.I. Registration

To qualify for concessions granted under Small Scale Industry rules, a certification by a qualified valuer regarding the capital employed in plant and machinery becomes very helpful.

Hidden Costs – not reflected in the invoice

Tailor made, custom built machine or equipment is billed for the cost of material used plus actual labour cost in manufacture. But, the costs of technology and the probable margins are not shown in the price. Also the various duties that may have been paid when the equipment was brought from outside are not taken into account. If a qualified valuer is employed, he will account for all the parameters and decide the correct price.

General Insurance and Insurance Cover

Before the year 1972, when the Government of India nationalised the general insurance business, the private insurance companies, doing underwriting, first assessed the value of assets to be insured. However, after nationalisation, the sum assured is solely decided by the insured. Unfortunately the insured party, at times, comes to know of this anomaly only when an occasion arises to make a claim. By then the corporation may declare the assets to be overvalued and treat the claim as substandard. Therefore, an exhaustive, detailed report from a qualified valuer sent along with the proposal form becomes your safeguard.

Under the Bombay Stamp Act and as per Transfer of Property Act, the documents pertaining to sale / purchase of a property are considered valid, only if, the necessary stamp duty is paid and the required denomination stamps are affixed to the documents. The Sub-Registrar who records the deal will impound the documents if the necessary stamp is not affixed. Here also, the crux of the matter is that, the stamp fee is related to the price involved. In case of land deals, (Government of Maharashtra has created a belt system for land prices, which does not reflect the market price) to avoid transactions being overvalued, a qualified valuer’s report becomes necessary.

Acquisition by Government

Liquidator’s Role

It is the duty of the official liquidator to probe into a company’s assets and then decide about liquidating or otherwise. The liquidator also has to decide as to what price the company’s assets would fetch at current market price. So, here also, a qualified valuer plays a key role.

Co-op. Society and Charitable Trusts

A charitable trust or a co-op. Society must obtain prior permission form the Charity Commissioner or the Registrar of Co-op. Societies before desposing the capital goods assets like building, property, plant, machinery etc. A qualified valuer’s report in this instance, before the sale, is a must !

Co-op. Society and Charitable Trusts

Last Testaments and Wills

Ownership rights transferred through inheritance etc. will create a life interest for tax purposes. If a precise value of such inheritance is recorded, then it is convenient for tax planning. The qualified valuer is the right person to give you the correct price of such assets.

Immigration officers who scrutinize visa applications to some prosperous countries like U.S.A. try to find-out the applicant’s financial and family stakes in the country of his / her origin. A qualified valuer’s certificate, pertaining to your assets here, enclosed to your visa application will speed up the decisions.

Senior executives in corporate sector are entitled to numerous benefits like furnished accommodation. The furnished residence of a senikor level executive contains numerous high value fixtures and furniture. The time may come when the value of such fixtures and furniture may have to be correctly assessed.

All lending institutions providing funds for housing, demand a qualified valuer’s certificate along with the loan application itself for sanctioning a loan against the hypothecation etc. of proposed house purchase.

Division of Assets in the Family

While dividing assets of a joint family, a qualified valuer’s report leads to smoother operations and fair adjustments.

Settlement in divorce cases become complicated when sizeable assets are involved and where emotional and pecuniary values get mixed up. This creates conflicting claims. A qualified valuer can help sort out matters to the satisfaction of parties.

Larger Public Interests

Expenditure of tax payers money by the Government departments on various projects becomes a matter of great controversy in a democratic setup. Questions relating to amounts spent on road construction, erection of dams–the actual and claimed expenses etc. can be settled with the help of qualified and independent judgement of a valuer. Here the valuer plays a role of public auditor and finds out whether the interests of the people are violated by unscrupulous means.