2019 (2) TMI 1544 - HC - Indian Laws

Liability to pay 50% of the unearned increase for mutation/transfer of the property - whether a change in shareholding of a company amounts to transfer of the property? - Held that - The issue whether a change in the shareholding warrants imposition of unearned increase was considered by the Coordinate Bench of this Court in M/s K.G. Electronics Pvt. Ltd. v. DSIIDC Ltd 2013 (12) TMI 1683 - DELHI HIGH COURT , wherein it was held that the guidelines in question do not provide for the payment of unearned increase in case of transfer of shares in a company and, therefore, the respondents are not entitled to claim unearned increase. It is relevant to note that in that case, the original promoters had divested 42.36% of the total outstanding share capital, out of which a substantial part was towards their respective spouses. The Court noted that 28.248% of the shares transferred by the promoters were held by non-family members. Indisputably, the petitioner s case is on a better footing as only 10.23% of the shareholding is held by persons other than the original promoters. The demand for unearned increase by the respondent is unsustainable, as there is no transfer of the property in question - impugned communication is, accordingly, set aside - petition allowed - decided in favor of appellant.

Summary

Issues:
1. Impugning a communication regarding payment for mutation/transfer of property.
2. Whether a change in shareholding of a company amounts to transfer of the property.
3. Validity of the demand for unearned increase by the respondent.

Analysis:
Issue 1: The petitioner challenged a communication demanding payment for mutation/transfer of a property. The petitioner, a company, argued that there was no transfer of the property or significant shareholding change warranting the imposed unearned increase. The property was initially allotted to a partnership firm, which later converted into a private limited company with the same shareholders in the same proportion.

Issue 2: The main issue was whether a change in shareholding of a company constitutes a transfer of the property. The court referred to a previous judgment where it was held that guidelines did not require payment of unearned increase for share transfers in a company. The court noted that only 10.23% of the shareholding was held by persons other than the original promoters, unlike the previous case where 28.248% was held by non-family members. The court emphasized that a change in shareholding does not equate to a transfer of assets.

Issue 3: The court found the demand for unearned increase by the respondent to be unsustainable due to the absence of property transfer. Citing legal precedents, including a Supreme Court decision, the court set aside the impugned communication. The court directed the respondent to process the petitioner's application for conversion promptly and refund the deposited amount. The petition was allowed in favor of the petitioner.