Circular No. 14 of 2021
F. No.370142/22/2021-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes (TPL Division)
Dated: 02″d July, 2021
Sub.: Guidelines under section 9B and sub-section (4) of section 45 of the Income-tax Act, 1961
– reg.
Finance Act, 2021 inserted a new section 98 in the Income-tax Act 1961 (hereinafter referred
to as “the Act”). This section mandates that whenever a specified person receives any capital asset or
stock in trade or both from a specified entity, during the previous year, in connection with the
dissolution or reconstitution of such specified entity, then it shall be deemed that the specified entity
have transferred such capital asset or stock in trade or both, as the case may be, to the specified
person (hereinafter referred to as “deemed transfer”). This deemed transfer would be in the year in
which such capital asset or stock in trade or both are received by the specified person. Any profits
and gains arising from such deemed transfer is deemed to be the income of such specified entity of
the previous year in which such capital asset or stock in trade or both were received by the specified
person. Further, it is chargeable to income-tax as income of such specified entity under the head
” Profits and gains of business or profession” or under the head “Capital gains”, in accordance with
the provisions of this Act. It has also been provided that the fair market value of the capital asset or
stock in trade or both, on the date of its receipt by the specified person, shall be deemed to be the full
value of the consideration received or accruing as a result of such deemed transfer. The definitions of
terms ” reconstitution of the specified entity”, “specified entity” and “specified person” are provided
in section 98 of the Act.
2. Similarly the Finance Act 2021 substituted sub-section (4) of section 45 of the Act. This
newly substituted sub-section (4) now provides that where a specified person receives any money or
capital asset or both from a specified entity, during the previous year, in connection with the
reconstitution of such specified entity, then any profits or gains arising from receipt of such receipt
by the specified person shall be chargeable to income-tax as income of the specified entity under the
head “Capital gains”. It has been further deemed that this income shall be the income of the specified
entity of the previous year in which such money or capital asset or both were received by the specified person. A formula to calc ulate such profits and gains has also been prov ided in this subsection. The defin itions of terms ” reconstitution of the spec ified entity”, ” specified entity” and
“specified person” shall be as provided in section 9B of the Act while the terms ” se lf-generated
goodwill ” and “self-generated asset” have been defined in this sub-section. It has been further
clarified that when a capital asset is recei ved by a spec ified person from a specified entity in
connection with the reconstitution of such specified entity, the provisions of sub-section (4) of
section 45 of the Act shall operate in addition to the provisions of section 9B of the Act and the
taxation under the said provisions thereof shall be worked out independently. Both, the new section
9B and substituted sub-section (4) of section 45 are applicable for the assessment year 2021-22 and
subsequent assessment years.
3. Sub-section (4) of section 9B of the Act provides that if any difficulty arises in giving effect
to the provisions of this section and sub-section (4) of section 45 of the Act, the Board may, with the
approval of the Central Government, issue guidelines for the purposes of removing the difficulty. For
this purpose, the Central Board of Direct Taxes, with the approval of the Centra l Government, hereby
issues the following guidelines.
(Download full notification)