Section 56(2)(viib) does not apply to share premium received by a wholly owned subsidiary from its holding company.

Section 56(2)(viib) was held inapplicable to share premium received by a wholly owned subsidiary from its 100% holding company because the transaction was confined within the group and no benefit accrued to an outside party. Relying on earlier co-ordinate bench rulings endorsed by the High Court, the Tribunal found the deletion of the addition consistent with the settled legal position, and the Revenue's challenge failed.

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Issues: Whether addition made under section 56(2)(viib) of the Income-tax Act, 1961 was sustainable where a wholly owned subsidiary issued shares at premium to its holding company.

Analysis: The Tribunal noted that the issue stood covered by earlier co-ordinate bench decisions, which had been endorsed by the High Court. Those decisions held that the deeming fiction under section 56(2)(viib) does not apply to share premium received by a subsidiary from its 100% holding company, since no benefit accrues to any outsider in such a r-group transaction. On that basis, the order of the first appellate authority deleting the addition was found to be consistent with the settled position.

Conclusion: The addition under section 56(2)(viib) was rightly deleted, and the Revenue's challenge failed.

Ratio Decidendi: Section 56(2)(viib) does not apply to share premium received by a wholly owned subsidiary from its holding company in the absence of any benefit to an outside party.

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