Section 67(10) of the Income Tax Act, 2025 provides that where a specified person receives any money or capital asset from a specified entity in connection with the reconstitution of such specified entity, any profits or gains arising from such receipt shall be deemed as income of the specified entity and chargeable to tax under the head "Capital gains"【67†L10】. Rule 50 of the Income Tax Rules, 2026 provides the methodology for attributing this amount to capital assets remaining with the specified entity【50†L0】.
The Statutory Framework
Section 67(10)
Section 67(10) provides that where a specified person receives during the tax year any money or capital asset, or both, from a specified entity in connection with the reconstitution of such specified entity【67†L10】:
- Any profits or gains arising from such receipt shall be deemed as income of the specified entity
- Such income shall be chargeable to tax under the head "Capital gains"
- The income shall be determined as: A = B + C − D
- B = Value of any money received
- C = Amount of fair market value of the capital asset received
- D = Amount of balance in the capital account of the specified person
Rule 50
Rule 50 provides the methodology for attributing the amount chargeable to tax under Section 67(10) to capital assets remaining with the specified entity【50†L0】.
Attribution Methodology
Scenario 1: Revaluation or Valuation
Where the aggregate of the value of money and the fair market value of the capital asset received by the specified person from the specified entity, in excess of balance in his capital account, chargeable to tax under Section 67(10) relates to revaluation of any capital asset or valuation of self-generated asset or self-generated goodwill, of the specified entity, the amount attributable to the capital asset remaining with the specified entity for purpose of Section 72(5) shall be【50†L0】:
A = B × (C/D)
Where:
- A = The amount attributable to the capital asset remaining with the specified entity for purpose of Section 72(5)
- B = Amount charged under Section 67(10)
- C = Increase in, or recognition of, value of the asset remaining with the specified entity, because of revaluation or valuation
- D = Aggregate of increase in, or recognition of, value of all assets because of the revaluation or valuation
Scenario 2: No Revaluation or Valuation
Where the aggregate of the value of money and the fair market value of the capital asset received by the specified person from the specified entity, in excess of the balance in his capital account, charged to tax under Section 67(10) does not relate to revaluation of any capital asset or valuation of self-generated asset or self-generated goodwill, of the specified entity, the amount charged to tax under Section 67(10) shall not be attributed to any capital asset for the purposes of Section 72(5)【50†L0】.
Scenario 3: Capital Asset Received
Where the aggregate of the value of money and the fair market value of the capital asset received by the specified person from the specified entity, in excess of balance in his capital account, charged to tax under Section 67(10) relate only to the capital asset received by the specified person from the specified entity, the amount charged to tax under Section 67(10) shall not be attributed to any capital asset for the purposes of Section 72(5)【50†L0】.
Key Definitions
Self-Generated Goodwill and Self-Generated Asset
"Self-generated goodwill" and "self-generated asset" mean goodwill or asset, as the case may be, which has been acquired without incurring any cost for purchase or which has been generated during the course of the business or profession【67†L11】.
Revaluation
The amount chargeable to tax under Section 67(10) shall relate to revaluation of any capital asset or valuation of self-generated asset or self-generated goodwill, of the specified entity, if the revaluation is based on a valuation report obtained from a registered valuer【50†L0】.
Depreciation Restriction
The specified entity shall not be entitled for the depreciation on【50†L0】:
- The increase in value of an asset on account of its revaluation
- The recognition of the value of a self-generated asset or self-generated goodwill, due to its valuation
Form 27: Reporting Requirements
The specified entity shall furnish the details of amount attributed to capital asset remaining with the specified entity in Form No. 27【50†L0】. The person who is authorised to verify the return of income of the specified entity under Section 265 shall verify Form No. 27.
Form No. 27 shall be furnished on or before the due date referred to in Section 263(1)(c) for the tax year in which the amount is chargeable to tax under Section 67(10)【50†L0】.
Expert Legal Guidance
Understanding the capital asset attribution methodology is essential for specified entities undergoing reconstitution. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping specified entities comply with the attribution requirements and ensure proper reporting.