TaxTMI 
TaxTMI 
2019 (4) TMI 2009
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.... was allotted a commercial plot in Bhikaji Cama Place, New Delhi, on 23rd March, 1993. Possession of the plot was handed over to respondent No.1 on 6th September, 1993 and a Perpetual Lease Deed dated 28th September, 1993, was executed by the appellant in favour of respondent No.1. It is apposite to reproduce stipulation 6(a) of the said Lease Deed, which reads thus: "6. (a) The Lessee shall not sell, transfer, assign or otherwise part with the possession of the whole or any part of the Commercial Plot except with the previous consent in writing of the Lessor which he shall be entitled to refuse in his absolute discretion. PROVIDED that in the event of the consent being given, the Lessor may impose such terms and conditions as he thinks fit and the Lessor shall be entitled to claim and recover a portion of the unearned increase in the value (i.e. the difference between the premium paid and the market value) of the Commercial plot at the time of sale, transfer assignment, or parting with the possession, the amount to be recovered being fifty per cent of the unearned increase and the decision of the Lessor in respect of the market value shall be final and binding: ....
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....30th May, 2003, the High Court of Punjab and Haryana passed the order of demerger of the companies. It would be apposite to reproduce paragraphs (2) and (3) of the said demerger order, which read thus: "xxx xxx xxx xxx xxx 2. That with effect from the appointed date, the Stainless Steel Undertaking of Jindal Strips Limited with all the property, assets, rights and powers specified in Parts I, II, and III of the Schedule hereto shall stand transferred to and vest in Jindal Stainless Limited, without further act or deed and accordingly the same shall pursuant to Section 394(2) of the Companies Act, 1956 be transferred to and vest in Jindal Steel Limited with effect from the said date for all the estate and interest of Jindal Strips Limited therein, subject to the existing charges thereon more particularly described in the said scheme of arrangement and demerger; and 3. That all the debts, liabilities dues and obligations, secured or unsecured as more particularly described in the Scheme of Arrangement and Demerger, whether provided in the books of account of Jindal Strips Limited, whether disclosed or undisclosed in the balance sheet, pertaining to the Stai....
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....mpany under Section 43A of Companies Act, 1956. 2. Where unearned increase is to be charged: a) Addition of outsiders not falling within the family members shall be allowed through a conveyance deed on payment of 50% unearned increase on his proportionate shares. The unearned increase shall be calculated at the market rate prevalent on the date of receipt of the application in the office of the DDA. b) Substitution of the original allottee/auction purchasers shall be allowed on payment of 50% unearned increase of his shares in the value of the plot which will be calculated at the market rate. The market rate shall be the rate prevalent on the date of receipt of the application. It is irrespective of the fact whether the lease deed has been executed or not. c) 50% Unearned increase will be charged in respect of proportionate shares of the plot parted with by way of addition, deletion or substitution of partner/partners in case of single ownership or partnership firm and Director/Directors/Shareholders/Subscribers in case of Private Limited Company. This is application where the incoming persons do not fall within the definition of family. Un....
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....e instructions (Annexure P23) are inapplicable as they relate to partnership firms or private limited companies only and not to public limited companies like the petitioners. 10. Even clause 6(a) of the Perpetual Lease (Annexure P2) between the first petitioner and the respondent prohibits the transfer of possession of the whole or any part of the commercial plot without previous consent of the respondent and stipulates that sale/transfer/assignment or parting with the possession of the commercial plot would attract 50% of the unearned increase and thus, the first petitioner is bound by it. It is quite elementary that without mutation of the subject premises being there in the name of the allottee, i.e., the first petitioner, there cannot be any conversion of the subject premises from leasehold to freehold and therefore substitution of the Lessees of commercial plots like the instant one, clearly attracts the imposition of unearned increase, in view of a Division Bench decision of this Court in Indian Shaving Products (Supra). The single bench decision in Kiran Kohli (Supra) relied upon by the petitioners is distinguishable on facts and is not applicable to the instant mat....
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....he said Clause is to protect DDA and to permit it to recover a part of the unearned increase which the lessee obtains on sale of the property. 14. In other words, the intent is to recover a part of the profit made by the lessee. 15. In the present facts it is obvious that no consideration whatsoever has passed. It is a case of reorganisation of business. 16. The impugned order relies on Clause 2(d) of the Policy for charge of unearned increase to hold that the appellants are covered by the said clause and are hence liable to pay unearned increase. Clause 2(d) of the policy reads as under:' 2(d) In case where a private limited company/public limited company separately floating a new company although Directors may be the same and the name of old company has not changed and if still exists as it was, 50% unearned increase will be chargeable in such cases.' 17. Reference may also be had to clause 1(b) (which deals with situations where no unearned increase is to be charged) of the policy which reads as follows: ' 1(b) In case of conversion of partnership firm into private limited company comprising original partners as Directors/Subscribers/....
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....ke consequential steps as per law regarding conversion of the property to freehold without charging the said unearned increase." 8. This decision has been challenged by the appellant on the ground that the Division Bench has completely misconstrued the relevant clauses in the Lease Deed and the policy document. According to the appellant, clause 6(a) of the Lease Deed uses the expansive expression "sell, transfer, assign or otherwise part with the possession of the whole or any part of the commercial plot." Further, the proviso thereto stipulates that the lessor shall be entitled to claim and recover UEI on the value (i.e. difference between the premium paid and the market value) of the commercial plot at the relevant time. The appellant contends that clause 6(a) cannot be construed to mean that if no sale consideration is involved in the transaction, then the appellant would not be entitled to recover the UEI. For, the words "sell, transfer, assign or otherwise parting with the possession" could be even without consideration and the stipulation makes it amply clear that the appellant is entitled to recover UEI towards the "premium paid" on the "market value" of the commercial p....
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....tructions (clause 1 thereof), such as substitution of a family member, conversion of a partnership firm into a private limited company or addition, deletion or substitution of partners in a firm, or change from private limited company to public limited company, which although, are cases of transfer, but no UEI is chargeable. In the present case, contends the learned counsel for the respondents, the two companies are admittedly group companies and respondent No.1 (original lessee) owned 98.62% of the shares of respondent No.2 at the relevant time. In reality, therefore, the respondent No.1 (original lessee) continued to have control over the property in question and, by invoking the principle of lifting or piercing of corporate veil, it must be concluded that the transfer of property in terms of the scheme of demerger is effectively not to an outsider muchless for consideration. The respondents have distinguished the decisions relied upon by the appellant. According to the respondents, the exposition in the said decisions must be understood in the context of the fact situation of the concerned case. In the present case, however, the transfer of property is not to an outsider and, in....
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....eration amount or the value paid by the transferee is below the market value, would not inhibit recovery of 50% of the prescribed unearned increase amount on actual or, in a given case, notional basis. This is the plain meaning of the stipulation. This position is reinforced from the contemporaneous instructions issued by the competent authority of the appellant about the manner in which the unearned increase should be charged and from whom such charges should be recovered. That can be discerned from the instructions dated 6th September, 1988. 12. Indeed, the said instructions advert to the category of persons from whom no unearned increase should be charged, despite being a case of transfer of the property as mentioned in clause (1) thereof. The Division Bench of the High Court has relied upon the category mentioned in clause (1)(b). The same reads thus: "1. No unearned increase to be charged: (a) xxx xxx xxx (b) In case of conversion of partnership firm into private limited company comprising original partners as Directors/Subscribers/Shareholders." From the plain language of this clause, we fail to fathom how the said clause will be of any avail ....
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....argeable in such cases." This clause plainly applies to the present case. The demand of unearned increase from the respondents is founded on that basis. The High Court misinterpreted the said clause and erroneously opined that it is not applicable to a case of demerger of a public limited company. 14. The principal clause is clause 6(a) of the Lease Deed. The clause referred to in the instructions is equally significant. Indeed, the latter merely provides for the mechanism to recover the unearned increase from the original lessee. The fact that the same group of persons or directors/ promoters/shareholders would be and are associated with the transferee company does not cease to be a case of transfer or exempted from payment of UEI, as envisaged in clause 6(a) of the Lease Deed. Rather, clause 2(d) of the policy, noted above, makes it expressly clear that unearned increase be charged irrespective of the fact that the directors in both companies are common and the old (parent) company has not changed its name. 15. The fact that it was a case of transfer is reinforced from the order of demerger passed by the Company Judge and once it is a case of transfer, coupled with the f....