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TMI Blog2009 (9) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... eholding of the company and it does not amount to succession. ii) Whether the sale of 100% share-holding of the company to the new management would not constitute 'transfer' as envisaged in section 2(47) (vi) of the Income-tax Act, 1961 and would not thus attract the Capital Gains Tax." The facts of the case are that the assessee- M/s. Hotel Kshitij is a Private Limited Company engaged in the business of running of a hotel at Shimla. The company was a closely held company and all the shares were held by one family. An agreement was entered into by the erstwhile share-holders and management of the company on 14.3.1993 agreeing to transfer the shares and the management to a new set of share-holders w.e.f. 31.3.1993. It was also agreed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare-holding would amount to transfer of business in terms of Section 170(1) of the Income Tax Act which read as follows:- "170 (1) Where a person carrying on any business or profession (such person hereinafter in this Section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession- (a) the predecessor shall be assesseed in respect of the income of the previous year in which the succession took place up to the date of succession. (b) The successor shall be assesseed in respect of the income of the previous year after the date of succession." The Apex Court in Commissioner of Income Tax, Madras v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to use the capital assets of the company and, therefore, the case is covered under Section 170 of the Act. Even if for the sake of arguments, we accept that the transfer of shares amounts to transfer of capital assets in terms of Section 2(47), then also in our considered view, Section 170 will not apply. A bare reading of Section 170 shows that the transfer of the business should be from one asssessse to another. Person under Section 2(31)(iii) of the Income Tax Act includes a company. Under Company Law, a company is a juristic person. The share holders are not the owners of the company. It is the company itself which is its own owner having its own seal and succession. Where shares are transferred, at best this would be a transfer vis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at of the share-holders. The change in the share-holders of the company does not change the legal identity of the company. Therefore, Section 170 had no application to the facts of the case. Reliance in this behalf may be placed on the judgment of the Allahabad High Court in Commissioner of Income Tax v. Mass Products (Ind.) Ltd. ITR 221, 1996 wherein it was held as follows:- "In our opinion, the first question referred to us has to be answered in the negative and against the Department because it is settled law that a limited liability company is a distinct legal entity separate from its shareholder. Change in the shareholders of the company does not change the legal identity of the company. A limited liability company is thus different ..... X X X X Extracts X X X X X X X X Extracts X X X X
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