Angel Tax Inapplicable to Subsidiary of Public Company: Deemed ‘Public Company’ Status under Section 2(18) Overrides Private Ltd Status

ORDER

Amitabh Shukla, Accountant Member.- This appeal is filed by the assessee against the order bearing DIN & Order No.ITBA / NFAC / S / 250 / 2024-25 / 1072914131(1) dated 04.02.2025 of the Learned Commissioner of Income Tax [herein after “CIT(A), National Faceless Appeal Center [NFAC], Delhi, for the assessment year 2017-18. The reference to the word “Act” in this order hereinafter shall mean the Income Tax Act, 1961 as amended from time to time.

2. The only issue contested by the assessee, through its grounds of appeal, in this case is the upholding of the disallowance of Rs.42,29,48,758/- by the Ld.CIT(A) which was made by the Ld.AO invoking provisions of section 56(2)(viib) of the Act. It was contested that the addition by the Ld.AO was based upon an arbitrary application of Rule-11UA of the Income Tax Rules.

3. During the course of present proceedings, the Ld.Counsel for the assessee vide its application dated 08.09.2025 requested for admission of an additional ground as under:-

“.In addition to the grounds urged in the above appeal, your Petitioner prays leave of the Hon. Tribunal to urge and to be heard the following additional grounds of appeal. It is also prayed that the additional grounds of appeal as under may be taken on record and heard by the Hon. Tribunal along with main appeal.

Additional Grounds

a. The Learned Assessing Officer and the Learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts in invoking the provisions of Section 56(2)(viib) of the Income-tax Act, 1961 in respect of share premium received by the Appellant.

b. Provisions of sec.56(2) (viib) of the Act explicitly excludes company in which the public are substantially interested’, which is defined in Section 2(18) of the Income Tax Act, as reproduced below

(18) “company in which the public are substantially interested” – a company is said to be a company in which the public are substantially interested-

(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item(A) or in item (B) are fulfilled, namely:-

(A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder,

(B) shares in the company (not being shares entitled to a fixed rate of droudend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by-

(a) the Government, or

(b) a corporation established by a Central, State or Provincial Act, or

(c) any company to which this clause applies or any subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year.]

c. By virtue of Section 8 of the General Clauses Act, 1897, reference to the Companies Act, 1956 is to be read as reference to the Companies Act, 2013. As per Section 2(71) of the Companies Act, 2013,

(71) public company” means a company which (a) is not a private company, and (b) has a minimum paid-up share capital as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles,

d. The petitioner company became a subsidiary company of Manappuram Finance Limited on February 12, 2015, which is undoubtedly a listed public limited company. Hence, as per Section 2(71) of the Companies Act, 2013, the appellant is a public limited company with effect from the aforementioned date.

Further, by virtue of being a listed Company, Manappuram Finance Limited is “a company in which the public are substantially interested” as per Section 2(18) of the LT Act, 1961.

Hence, by virtue of Section 2(18)(b)(B)(c) of the I.T Act, since during the whole of the Financial Year 2015-16 (relevant to AY 2016-17), “shares in the company currying not less than fifty per cent of the voting power” was held by Manappuram Finance Limited as stated above, the appellant is also a “company in which the public are substantially interested” during the entire duration of fY 2015-16 (AY 2016-17).

e. Therefore, the petitioner company is excluded from the provisions of sec.56(2)(viiib) of the Income Tax Act, and hence, the addition made under Section 56(2)(viib) of the Act is, therefore, contrary to law, and liable to be deleted in toto.

f. The Hon’ble ITAT, Hyderabad Bench, in the case of Sembcorp Energy India Limited, has upheld the order of the CIT(A) holding that the provisions of section 56(2)(viib) are not applicable, since the assessee-company is a company in which the public are substantially interested within the meaning of section 2(18) (b)(B)(c) of the Income-tax Act.

g. The Hon’ble ITAT, Hyderabad Bench in the case of Apollo Sugar Clinics Ltd. v. Deputy Commissioner of Income-tax, Circle- 1(1), held that the assessee-company satisfies the definition of a company in which the public are substantially interested within the meaning of section 2(18)(b)(B) of the Income-tax Act, and hence, held that the provisions of section 56(2)(viib) are not attracted.

h. The Honorable ITAT Mumbai Bench in the case of Meredith Traders (P.) Ltd v. v Income-tax Officer, held that deemed public company under the Companies Act qualifies as a company in which the public are substantially interested under Section 2(18) of the Income-tax Act

i. The Honorable ITAT New Delhi Bench in the case of DCIT v Comptech Solutions Pvt. Ltd concluded that since Comptech Solutions Pvt. Ltd. was a subsidiary of a widely-held, listed company (Allcargo Logistics Ltd.), it should be considered a “deemed public company under the Companies Act, 2013. The tribunal upheld the view that the deeming fiction established in one law (Companies Act) can be carried forward and applied for the purposes of another law (Income Tax Act) when relevant provisions align. Therefore, because Comptech Solutions was treated as a “public company,” the provisions of Section 56(2) (viib) were found to be inapplicable.'”

4. It was contended that consideration of the same for the purposes of this adjudication is essential. Reliance was also placed upon the decision of Hon’ble Punjab and Haryana High Court in the case of Avery Cycle Industries Ltd. v. Commissioner of Income-tax (Central) [2007] 292 ITR  (Punjab & Haryana)/292 ITR 429 mandating that an additional ground can always be raised u/s 254 if it involves a question of law. Reliance was also placed upon the decision of Hon’ble Allahabad High Court CIT (Central) v. JK Cotton Spinning & Weaving Company Pvt Ltd (Allahabad)/197 CTR 73 (All) holding that the intention of Rule-11 of the appellate tribunal rules is to do complete justice to the parties and that the said rules is enacted for the advance of cause of justice and therefore should be liberally construed. Upon consideration of the matter, we are of the view that the additional ground raised now by the assessee deserves to be admitted. Consequently, the same is admitted and the appeal is adjudicated accordingly.

5. Before proceeding further we deem it appropriate to examine in brief, the factual matrix of this case. M/s. Asirvad Microfinance Private Limited is a private company that has been incorporated on 28 August 2007 under the provisions of Companies Act, 1956. The main objectives of the company are micro credit activities through the formation of Joint Liability Groups. The Registered office of M/s Asirvad Microfinance Private Limited, is situated at First Floor, Deshbandhu Plaza, No.47, Whites Road, Chennai-600 014. The authorized share capital of the Company is Rs.31,00.00.000 (Rupees Thirty One Crores Only) divided into 3,00,00,000 (Three Crores) equity shares of Rs.10 (Rupees Ten) each (“Equity Shares”) and 10,00,000 (Ten Lakhs) redeemable preference shares of Rs. 100 each (Rupees Hundred) each. The issued. subscribed and paid-up share capital of the Company on a Fully Diluted Basis is Rs.26,27,66,360/- (Rupees Twenty Six Crores Twenty Seven Lakhs Sixty Six Thousand Three Hundred Sixty Only). The company is one of the leading Microfinance Company having operation all over Tamil Nadu engaged in the activities of Micro financing in the unorganised sector. On perusal of the financials of the assessee company it was seen that assessee has allotted 1,05,10,655 shares of Face Value (Rs.10/-) to Manappuram Finance Limited and the directors of the company at a Rs.83.42/-. The Company had received share premium of Rs. 55.43 Crores in the said transaction. The assessee was asked to produce details for arriving at the value of the shares issued. In response, the assessee company furnished its reply along with the valuation report dated 25.2.2016. The assessee had contended that the price of the share was Rs.96.60/ share. Upon consideration of valuation report of the assessee the Ld.AO noted that there were several deficiencies and anomalies in the valuation report relied upon the assessee and hence he proceeded to make his own valuation under Rule-11UA of the rules and determined the market value of the shares at Rs.56.36. The Ld.AO observed that the assessee had engineered the price to arrive at the value of Rs.86.60/ share whereas the correct price ought to have been Rs.56.36/share. The Ld.AO consequently made an addition of Rs.42,29,48,758/- invoking provisions of section 56(2)(viib) r.w. Rule 11UA. Aggrieved by the order, the assessee preferred appeal before the Ld.CIT(A) who confirmed the findings of the Ld.AO. The assessee is assailing the impugned order of Ld.CIT(A) dated 04.02.2025.

6. Per contra, the Ld.DR relied upon the order of the lower authorities stating that the disturbances made to the assessee’s valuation of shares and the consequent addition u/s section 56(2)(viib) r.w. Rule 11UA is based upon correct understanding and interpretation of the facts of the case.

7. The Ld.Counsel for the assessee has argued that without prejudice to the absence of any merit in the addition made by the Ld.AO, the additional ground raised by it now strikes at the very root of the addition as a legal ground. It was submitted that the shares of the assessee company were acquired by Manappuram Finance Limited- a public limited company, in two tranches over financial year 2014-15 and 2015-16. It was stated that with the acquisition of shares in FY-2015-16 relevant to current AY-2016-17, the assessee company became a subsidiary of said Manappuram Finance Limited. It was argued that within the meanings of section 2(18) of the Act, the assessee company, by its deeming provision, became a Public Limited Company, by virtue of being a subsidiary of Manappuram Finance Limited. It was further argued that section 56(2)(viib) of the Act specifically excludes its invocation in cases of a public limited company wherein public are substantially interested. The Ld.Counsel thus argued that once the charging section 56(2)(viib) of the Act is not present in its, the very foundation for the addition would go and there would not be any case for making any addition in its case invoking provisions of section 56(2)(viib) of the Act.

8. We have heard the rival submissions in the light of material available on records. At this stage we deem it appropriate to first examine the statutory provisions of 2(18) and section 56(2)(viib) of the Act.

. “…..2. In this Act, unless the context otherwise requires,-

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(18) “company in which the public are substantially mterested”-a com-pany is said to be 89 a company in which the public 89 are substantially interested-

(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.

(2) In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :—(i)dividends ;(ia)income referred to in sub-clause (viii) of clause (24) of section 2;(ib)income referred to in sub-clause (ix) of clause (24) of section 2;(ic)income referred to in sub-clause (x) of clause (24) of section 2, if such income is not chargeable to income-tax under the head “Profits and gains of business or profession”;(id)income by way of interest on securities, if the income is not chargeable to income-tax under the head “Profits and gains of business or profession”;(ii)income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head “Profits and gains of business or profession”; (iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head “Profits and gains of business or profession”;(iv) income referred to in sub-clause (xi) of clause (24) of section 2, if such income is not chargeable to income-tax under the head “Profits and gains of business or profession” or under the head “Salaries”;(v)where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004 but before the 1st day of April, 2006, the whole of such sum ‘.Provided that this clause shall not apply to any sum of money received—(a)from any relative; or(b)on the occasion of the marriage of the individual; or(c)under a will or by way of inheritance; or(d)in contemplation of death of the payer; or(e)from any local authority as defined in the Explanation to clause (20) of section 10; orffrom any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or(g)from any trust or institution registered under [section 12AA or section 12AB].Explanation.—For the purposes of this clause, “relative” means—(i)spouse of the individual;(ii)brother or sister of the individual;(iii)brother or sister of the spouse of the individual;(iv)brother or sister of either of the parents of the individual;(v)any lineal ascendant or descendant of the individual;(vi)any lineal ascendant or descendant of the spouse of the individual;(vii)spouse of the person referred to in clauses (ii) to (vi);(vi)where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006 but before the 1st day of October, 2009, the whole of the aggregate value of such sum:Provided that this clause shall not apply to any sum of money received—(a)from any relative; or(b)on the occasion of the marriage of the individual; or(c)under a will or by way of inheritance; or(d)in contemplation of death of the payer; or(e)from any local authority as defined in the Explanation to clause (20) of section 10; or(f)from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or(g)from any trust or institution registered under [section 12AA or section 12AB].Explanation.—For the purposes of this clause, “relative” means—(i)spouse of the individual;(ii)brother or sister of the individual;(iii)brother or sister of the spouse of the individual;(iv)brother or sister of either of the parents of the individual;(v)any lineal ascendant or descendant of the individual;(vi)any lineal ascendant or descendant of the spouse of the individual;(vii)spouse of the person referred to in clauses (ii) to (vi);(vii)where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,—(a)any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;(b)any immovable property,—(i)without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;(ii)for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration-Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause:Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property;(c)any property, other than immovable property,—(i)without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;(ii)for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration -.Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections -Provided further that this clause shall not apply to any sum of money or any property received—(a)from any relative; or(b)on the occasion of the marriage of the individual; or(c)under a will or by way of inheritance; or(d)in contemplation of death of the payer or donor, as the case may be; or(e)from any local authority as defined in the Explanation to clause (20) of section 10; or(f)from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or(g)from any trust or institution registered under [section 12AA or section 12AB]; or(h)by way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of section 47.Explanation.—For the purposes of this clause,—(a)”assessable” shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of section 50C;(b)”fair market value” of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed;(c)”jewellery” shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2;(d)”property” means the following capital asset of the assessee, namely:—(i)immovable property being land or building or both;(ii)shares and securities;(iii)jewellery;(iv)archaeological collections;(v)drawings;(vi)paintings;(vii)sculptures;(viii)any work of art; or(ix)bullion;(e)”relative” means,—(i)in case of an individual—(A)spouse of the individual;(B)brother or sister of the individual;(C)brother or sister of the spouse of the individual;(D)brother or sister of either of the parents of the individual;(E)any lineal ascendant or descendant of the individual;(F)any lineal ascendant or descendant of the spouse of the individual;(G)spouse of the person referred to in items (B) to (F); and(ii)in case of a Hindu undivided family, any member thereof;(f)”stamp duty value” means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property;(viia)where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010 but before the 1st day of April, 2017, any property, being shares of a company not being a company in which the public are substantially interested,—(i)without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;(ii)for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47.Explanation.—For the purposes of this clause, “fair market value” of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);

(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:Provided that this clause shall not apply where the consideration for issue of shares is received—(i)by a venture capital undertaking from a venture capital company or a venture capital fund or a specified fund; or(ii)by a company from a class or classes of persons as may be notified by the Central Government in this behalfProvided further that where the provisions of this clause have not been applied to a company on account of fulfilment of conditions specified in the notification issued under clause (ii) of the first proviso and such company fails to comply with any of those conditions, then, any consideration received for issue of share that exceeds the fair market value of such share shall be deemed to be the income of that company chargeable to income-tax for the previous year in which such failure has taken place and, it shall also be deemed that the company has under reported the said income in consequence of the misreporting referred to in sub-section (8) and sub-section (9) of section 270A for the said previous year.Explanation.—For the purposes of this clause,—(a)the fair market value of the shares shall be the value—(i)as may be determined in accordance with such method as may be prescribed; or(ii)as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature,whichever is higher;(aa)”specified fund” means a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) [or regulated under the International Financial Services Centres Authority Act, 2019 (50 of 2019)];(ab)”trust” means a trust established under the Indian Trusts Act, 1882 (2 of 1882) or under any other law for the time being in force;(b)”venture capital company”, “venture capital fund” and “venture capital undertaking” shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of Explanation to clause (23FB) of section 10;(viii)income by way of interest received on compensation or on enhanced compensation referred to in sub-section (1) of section 145B;(ix)any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if,—(a)such sum is forfeited; and(b)the negotiations do not result in transfer of such capital asset;(x)where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,—(a)any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;(b)any immovable property,—(A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;(B)for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:—(i)the amount of fifty thousand rupees; and(ii)the amount equal to [ten] per cent of the consideration: Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause ‘.Provided further that the provisions of the first proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, on or before the date of agreement for transfer of such immovable property: Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this subclause as they apply for valuation of capital asset under those sections:[Provided also that in case of property being referred to in the second proviso to sub-section (1) of section 43CA, the provisions of sub-item (ii) of item (B) shall have effect as if for the words “ten per cent”, the words “twenty per cent” had been substituted;](c)any property, other than immovable property,—(A) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;(B)for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration Provided that this clause shall not apply to any sum of money or any property received—(I)from any relative; or(II)on the occasion of the marriage of the individual; or(III)under a will or by way of inheritance; or(IV)in contemplation of death of the payer or donor, as the case may be; or(V)from any local authority as defined in the Explanation to clause (20) of section 10; or(VI)from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or(VII)from or by any trust or institution registered under [section 12A or section 12AA or section 12AB]; or(VIII)by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or subclause (vi) or sub-clause (via) of clause (23C) of section 10; or(IX)by way of transaction not regarded as transfer under clause (i) or clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vib) or clause (vic) or clause (vica) or clause (vicb) or clause (vid) or clause (vii)[or clause (viiac) or clause (viiad) or clause (viiae) or clause (viiaf)] of section 47; or(X)from an individual by a trust created or established solely for the benefit of relative of the individual; *(XI)from such class of persons and subject to such conditions, as may be prescribed;*[(XII) by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, for any illness related to CO VID-19 subject to such conditions, as the Central Government may, by notification in the Official Gazette, specify in this behalf;*(XIII)by a member of the family of a deceased person—(A)from the employer of the deceased person; or(B)from any other person or persons to the extent that such sum or aggregate of such sums does not exceed ten lakh rupees,where the cause of death of such person is illness related to COVID-19 and the payment is—(i)received within twelve months from the date of death of such person; and(ii)subject to such other conditions, as the Central Government may, by notification in the Official Gazette, specify in this behalf. Explanation.— For the purposes of clauses (XII) and (XIII) of this proviso, “family”, in relation to an individual, shall have the same meaning as assigned to it in Explanation 1 to clause (5) of section 10.]Following proviso shall be inserted after the existing proviso to clause (x) of sub-section (2) of section 56 by the Finance Act, 2022, w.e.f. 1-4-2023Provided further that clauses (VI) and (VII) of the first proviso shall not apply where any sum of money or any property has been received by any person referred to in sub-section (3) of section 13.Explanation.—For the purposes of this clause, the expressions “assessable”, “fair market value”, “jewellery”, “property”, “relative” and “stamp duty value” shall have the same meanings as respectively assigned to them in the Explanation to clause (vii);Following Explanation shall be substituted for the existing Explanation to clause (x) of subsection (2) of section 56 by the Finance Act, 2022, w.e.f. 1-4-2023:Explanation.— For the purposes of this clause,—(a)the expressions “assessable”, “fair market value”, “jewellery”, “relative” and “stamp duty value” shall have the same meanings as respectively assigned to them in the Explanation to clause (vii); and(b)the expression “property” shall have the same meaning as assigned to it in clause (d) of the Explanation to clause (vii) and shall include virtual digital asset. (xi)any compensation or other payment, due to or received by any person, by whatever name called, in connection with the termination of his employment or the modification of the terms and conditions relating thereto.”

9. Upon consideration of the entire controversy, we have noted that the entire case of the Revenue for making the impugned addition of Rs.42,29,48,758/- rests upon invocation of provisions of 56(2)(viib). We have also noted that by virtue of acquisition of its shares by the Manapuram Finance Limited supra in the second tranche during FY-2015-16, assessee company, became a subsidiary company of said Manapuram Finance Limited which was a public limited company in which public were substantially interested. We have noted that section 2(18) defines that a subsidiary company of a public limited company would be a deemed public limited company itself. We have also noted that the operation of section 56(2)(viib) is excluded in respect of public limited company in which public were substantially interested. Thus, as the assessee company was a deemed public limited company on the date of transfer of shares, provisions of section 56(2)(viib) would not apply it its case. There cannot therefore be any case for making any addition in the case of the assessee invoking provisions of section 56(2)(viib) by the Revenue. It is trite law that when the foundation goes, the superstructure always collapses. In this case, the addition made by the Ld.AO is resting upon the foundation of provisions of section 56(2)(viib). The additional ground raised by the assessee is therefore allowed and the Ld.AO is directed to delete the impugned addition of Rs.42,29,48,758/- u/s 56(2)(viib) of the Act.

10. Since the assessee has succeeded qua the additional ground raised by it and the addition stands deleted, all other grounds raised by the assessee on the merits of the addition have become academic and therefore left open.

11. In the result, the appeal of the assessee is allowed.