2019 (5) TMI 906 - HC - Indian Laws

Levy of unearned increase in respect of the subject property - Merger of companies - change in the shareholding - DDA claims that the subject property was transferred in the year 2005-06, as there was a material change in the shareholding of the petitioner. According to DDA, the said change in shareholding brought about the change in the effective control in the subject property, which is construed as a transfer, thereby entitling DDA to levy unearned increase. Whether any unearned increase is payable on account of the merger of Aquarium Acquisition Corp. (AAC) with Gillette Company, USA (TGC) or the transfer of TGCs shareholding in the petitioner to Procter Gamble, Netherlands? HELD THAT - Unearned increase can be demanded only in cases where subject property is sold, transferred, assigned or its possession is parted with by the lessor. In this case, the lease was in favour of Sharpedge, which merged with the petitioner - The question whether the said merger involved transfer of the subject property is no longer res integra. Indisputably, with the merger of Sharpedge with the petitioner (then known as Indian Shaving Products Ltd.) on 23.04.1992, the subject property also vested with the petitioner along with other assets of Sharpedge. This clearly amounted to transfer of the subject property and, therefore, unearned increase was payable on such transfer, which was occasioned in terms of the scheme of amalgamation as approved by BIFR. The controversy involved in the present petition does not relate to levy of unearned increase on such transfer but on account of dilution of the share capital of TGC by issue of shares to Procter Gamble, USA and transfer of certain shares held by TGC in the petitioner company to Procter Gamble, Netherlands. It is trite law that an incorporated company is an entity separate from its shareholders - It is well settled that shares of a company are a separate asset wholly distinct from the assets held by the company. In the present case, there was dilution of the share capital of TGC as well as transfer of shares held by the TGC in the petitioner company. The transfer of shares of the petitioner company cannot be construed as transfer of the assets of the petitioner company. Essentially, DDA seeks to lift the corporate veil of the petitioner in order to establish transfer of assets of the petitioner to the Procter Gamble Group. Clearly, no grounds for lifting of the corporate veil are established in this case. It is nobody s case that the transaction relating to dilution of equity of TGC in favour of Procter Gamble, USA by virtue of the merger of AAC with TGC or the transfer of shares held by TGC in the petitioner company to Procter Gamble, Netherlands is a subterfuge to transfer the subject property to another entity. The takeover of the Gillette Group by Procter Gamble, USA was obviously for commercial reasons and the said transaction was not crafted for transferring of the subject property - the fundamental premise that there has been a transfer of the subject property is erroneous and consequently, the demand of unearned increase founded on the same is liable to be set aside. This Court considers it apposite to direct the concerned Wing of DDA to compute the amount refundable to the petitioner having regard to the decision of the DDA, as recorded in its order dated 26.07.2012, and the observations made hereinabove. Petition disposed off.

Summary

Issues Involved:
1. Levy of unearned increase on the subject property due to change in shareholding.
2. Refund of ?3,94,57,027/- paid towards interest on unearned increase.
3. Execution of conveyance deed by DDA.

Issue-wise Detailed Analysis:

1. Levy of Unearned Increase on the Subject Property Due to Change in Shareholding:
The primary controversy revolves around whether unearned increase is payable due to the merger of Aquarium Acquisition Corp. (AAC) with Gillette Company, USA (TGC) and the subsequent transfer of TGC's shareholding in the petitioner to Procter & Gamble, Netherlands. The DDA argued that this change in shareholding constituted a transfer of the subject property, invoking Clause 4 of the lease deed, which restricts the lessee from selling, transferring, assigning, or parting with possession of the property without prior approval and mandates payment of unearned increase upon such transfer.

However, the court noted that the merger of Sharpedge with the petitioner (then known as Indian Shaving Products Ltd.) on 23.04.1992, which resulted in the transfer of the subject property to the petitioner, had already been settled, with the petitioner having paid the unearned increase for that transfer. The court emphasized that the transfer of shares within a company does not equate to the transfer of the company's assets. The court referenced established legal principles, including the distinct legal entity of a company separate from its shareholders, as upheld in cases like Bacha F. Guzdar v. Commissioner of Income Tax and Vodafone International Holdings B.V. v. Union of India.

The court concluded that the dilution of TGC's share capital and the transfer of shares to Procter & Gamble, Netherlands, did not constitute a transfer of the subject property. Consequently, the demand for unearned increase on this basis was deemed erroneous and set aside.

2. Refund of ?3,94,57,027/- Paid Towards Interest on Unearned Increase:
The petitioner sought a refund of ?3,94,57,027/- paid under protest towards interest on unearned increase. The DDA had previously decided to drop this demand, as recorded in the order dated 26.07.2012. The court noted that the DDA had acknowledged the illegitimacy of this demand and had committed to refunding the amount, subject to adjustments for any dues.

The court directed the DDA to compute the refundable amount in accordance with its decision from 26.07.2012 and the court's observations. The petitioner's claim for interest on the refundable amount was rejected, considering the high interest rate already applied and the payments made by the petitioner.

3. Execution of Conveyance Deed by DDA:
The petitioner also sought the execution of the conveyance deed for converting the subject property from leasehold to freehold. The court directed the DDA to execute the conveyance deed in favor of the petitioner within six weeks, without waiting for the determination of the refundable amount.

Conclusion:
The court set aside the impugned letters dated 15.04.2013, 14.05.2013, and 13.01.2015, which demanded unearned increase based on the change in shareholding. The DDA was directed to refund the amount of ?3,94,57,027/- to the petitioner, compute any additional refundable amounts, and execute the conveyance deed within six weeks. The petition was disposed of with these observations.