Sch. II , Rule 5
UNQUOTED EQUITY SHARES IN COMPANIES OTHER THAN INVESTMENT COMPANIES.
(1) The value of an unquoted equity share in any company, other than an investment company, shall be determined in the manner set out in sub-rule (2).
(2) The value of all the liabilities as shown in the balance sheet of such company shall be deducted from the value of all its assets shown in that balance sheet; the net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance sheet; the result multiplied by the paid-up value of each equity share shall be the break-up value of each unquoted equity share, and an amount equal to eighty per cent of the break-up value so determined shall be the value of the unquoted equity share for the purposes of this Act.
(3) For the purposes of sub-rule (2), –
(a) the following amounts shown as assets in the balance-sheet shall not be treated as assets, namely :-
(i) any amount paid as advance tax under the Income-tax Act;
(ii) any amount shown in the balance sheet including the debit balance of the profit and loss account or the profit and loss appropriation account which does not represent the value of any asset;
(b) the following amounts shown as liabilities in the balance sheet shall not be treated as liabilities, namely :-
(i) the paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date on which the gift was made at a general body meeting of the company;
(iii) reserves, by whatever name called, other than those set apart towards depreciation;
(iv) credit balance of the profit and loss account;
(v) any amount representing provision for taxation, other than the amount referred to in sub-clause (i) of clause (a), to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;
(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares.
Explanation : For the purposes of this rule, “balance sheet”, in relation to any company, means the balance sheet of such company (including the Notes annexed thereto and forming part of the accounts) as drawn up on the date on which the gift was made and, where there is no such balance sheet, the balance sheet drawn up on a date immediately preceding that date, and, in the absence of both, the balance sheet drawn up on a date immediately after the date on which the gift was made.