M. Katju, J. - (1.) THIS is an income-tax reference under Section 256(2) of the Income-tax Act, 1961, by which the following questions have been referred to this court for its opinion : " 1. Whether, on the facts and in the circumstances of the case having held that there was a change in the ownership of majority shareholding of the assessee-company, the Tribunal was legally correct in holding that it did not amount to a change in the ownership of the assessee-company ? 2; Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the two lines of business carried on by the assessee-company in 1965 and 1971 constituted the same business within the meaning of Section 72(1)(i) of the Income-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in allowing the assessee's claim for adjustment of unabsorbed depreciation in respect of the assessment years prior to the assessment year 1967-68, in spite of the fact that the allowance was never deemed to be the depreciation allowance for the assessment years 1967-68 onwards ?"
(2.) WE have heard learned counsel for the parties. The facts of the case are that the assessee is a public limited company registered under the Indian Companies Act which manufactures articles like metal and metal sheets including lanterns, stoves, metal boxes, cover, etc. Its manufacturing operations were suspended on November 30, 1965, and restarted on September 1, 1971. In the relevant assessment year 1973-74, the assessee claimed set-off of the losses and unabsorbed depreciation, carried forward from the assessment years 1965-66 to 1968-69. The Income-tax Officer did not allow the said carry forward and set-off and his order was upheld in appeal by the Appellate Assistant Commissioner. However, in second appeal the Tribunal held in favour of the assessee and hence, this reference at the instance of the Department.
(3.) AS regards the first question referred, it appears that the majority shares in the assessee-company, were earlier held by Narang Group but later the ownership of the majority shares were transferred to Kapoor Group which started manufacturing electrical goods. 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 from a partnership-firm because while a company is distinct from its shareholders and directors, a partnership-firm is not different from its partners and it is not a distinct legal entity. Since the assessee is a limited liability company change in the ownership of its shares will have no effect on the legal identity of the company. As regards the second question it may be noticed that the Income-tax Appellate Tribunal has recorded a finding of fact (in paragraph 18 of its order) that there was only a temporary suspension of business during the period November 30, 1965, and September 1, 1971, and that the manufacturing activities resumed from September 1, 1971, is not in any way different from manufacturing activity which the company carried on till November 30, 1965. This being a finding of fact, the second question has also to be decided in favour of the assessee and against the Department.;