Unearned increase cannot be charged on a pure demerger treated as a business reorganisation without sale or consideration.

A demerger that was only a business reorganisation, with no sale, consideration, or profit-making transfer, did not attract unearned increase under the perpetual lease deed. The lease clause was aimed at sale, transfer, assignment, or parting with possession so the lessor could recover part of the lessee's profit, and the applicable policy did not extend to a demerger within the same business group. The court distinguished precedent on amalgamation because it involved different facts and a different basis of transfer. The demand and notice for unearned increase were therefore unsustainable, and relief was granted against them.

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Issues: Whether, on a demerger amounting to a mere reorganisation of business and involving no sale or consideration, the respondent was entitled to charge unearned increase under the perpetual lease deed and the applicable policy.

Analysis: The lease clause enabling recovery of unearned increase was directed to cases of sale, transfer, assignment or parting with possession so that the lessor could recover a portion of the profit earned by the lessee. On the facts, the transaction was a demerger within the same business group, with common management and no consideration passing. The policy provision dealing with a newly floated company did not cover such a demerger, and the clause dealing with conversion of a partnership into a company reflected the policy's approach to mere reorganisation. The cited precedent on amalgamation was distinguished because it involved different facts and a different basis for transfer.

Conclusion: The demand for unearned increase was not sustainable, and the appellants were entitled to relief against the impugned demand and notice.

Ratio Decidendi: A demerger that is only a reorganisation of business, without sale, consideration, or an element of profit-making transfer, does not attract a demand for unearned increase under a lease clause aimed at transfer transactions.

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