Telangana High Court
M/S Prasad Film Laboratories Pv.T Ltd, vs Asst. Commissioner Of Income Tax, on 24 June, 2025
Author: P.Sam Koshy
Bench: P.Sam Koshy
IN THE HIGH COURT FOR THE STATE OF TELANGANA:
HYDERABAD
***
I.T.T.A. Nos.142, 144 and 180 of 2008
Between:
M/s. Prasad Film Laboratories Pvt. Ltd.,
8-2-269/19, L.V. Prasad Marg,
Banjara Hills, Hyderabad-34.
Appellant
VERSUS
Asst. Commissioner of Income Tax,
Circle 14(2), Hyderabad.
Respondent
COMMON JUDGMENT PRONOUNCED ON: 24.06.2025
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA
1. Whether Reporters of Local newspapers
may be allowed to see the Judgments? : Yes
2. Whether the copies of judgment may be
marked to Law Reporters/Journals? : Yes
3. Whether His Lordship wishes to
see the fair copy of the Judgment? : Yes
_________________
P.SAM KOSHY, J
Page 2 of 17
* THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA
+ I.T.T.A. Nos.142, 144 and 180 of 2008
% 24.06.2025
# Between:
M/s. Prasad Film Laboratories Pvt. Ltd.,
8-2-269/19, L.V. Prasad Marg,
Banjara Hills, Hyderabad-34.
Appellant
VERSUS
Asst. Commissioner of Income Tax,
Circle 14(2), Hyderabad.
Respondent
! Counsel for the Appellant : Mr. C.V. Narasimham, learned counsel,
representing M/s. CKR Associates.
^Counsel for the Respondent : Ms. Ms. B.Sapna Reddy, learned Senior
Standing Counsel for the Income Tax
Department.
<GIST:
> HEAD NOTE:
? Cases referred
1. (2005) 10 Supreme Court Cases 383
2. (2023) 2 High Court Cases (All) 770
3. (2009) 318 ITR 462
4. (2009) 318 ITR 376
5. (2009) 318 ITR 476
6. 2011 SCC OnLine Del 4235
7. 2014 SCC OnLine All 17798
8. 2015 SCC OnLine P&H 2707
Page 3 of 17
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA
I.T.T.A.Nos.142, 144 and 180 of 2008
COMMON JUDGMENT:
(per the Hon’ble Sri Justice P.Sam Koshy)
Heard Mr. C.V. Narasimham, learned counsel, representing M/s.CKR
Associates for the appellant, and Ms. B.Sapna Reddy, learned Senior Standing
Counsel for Income Tax Department for the respondent.
2. These are three appeals preferred by the appellant challenging the
common order dated 14.03.2007, passed by the Income Tax Appellate Tribunal,
Hyderabad Bench ‘A’, Hyderabad (hereinafter referred to as the ‘ITAT’)
wherein the appellant herein filed three Income Tax Appeals for three different
assessment years. I.T.T.A.No.180 of 2008 pertains to the assessment year 2003-
04 arising out of I.T.A.No.1075/Hyd/2006, I.T.T.A.No.142 of 2008 pertains to
the assessment year 2004-05 arising out of I.T.A.No.1076/Hyd/2006, and
I.T.T.A.No.144 of 2008 pertains to the assessment year 2005-06 arising out of
I.T.A.No.1077/Hyd/2006.
Page 4 of 17
3. Since the impugned order itself was a common order and the questions of
law involved being common in the three I.T.T.As. herein, we proceed to decide
the instant three appeals by this common judgment.
4. The questions of law raised by the appellant in the instant appeals are:-
(a) Whether the ITAT was correct in holding that the payment made by the
appellant to the parent company amounted to loan or deemed dividend
under Section 2 (22)(e) of the Income Tax Act, 1961 (for short, the ‘Act’)
and on the date of payment whether there existed accumulated profits?
(b) Whether the ITAT has committed an error in its approach while
remanding the matter on the issue of Section 2 (22)(e) of the Act?
5. Admittedly from the factual matrix of the case, as would be evident from
the orders passed by the statutory authority, it would reveal that the appellant
has been making payments in the course of its business on regular intervals to
the parent company. Thus, the funds which were transferred to the parent
company get debited in the books of accounts and was reflected as amount
transferred and at certain places it was reflected that these regular payments
were made even without waiting for collected amount to be received by the
appellant. These payments were considered by the Assessing Officer as amount
Page 5 of 17
paid by way of advance which is liable to be considered to be a dividend paid
by the appellant to the parent company.
6. At this juncture, it would be relevant to take note of the provisions of
Section 2 (22)(e) of the Act, which for ready reference is reproduced hereunder:
“(22) “dividend” includes–
………
(e) any payment by a company, not being a company in which the public are
substantially interested, of any sum (whether as representing a part of the
assets of the company or otherwise) made after the 31st day of May, 1987, by
way of advance or loan to a shareholder, being a person who is the beneficial
owner of shares (not being shares entitled to a fixed rate of dividend whether
with or without a right to participate in profits) holding not less than ten per
cent of the voting power, or to any concern in which such shareholder is a
member or a partner and in which he has a substantial interest (hereafter in
this clause referred to as the said concern) or any payment by any such
company on behalf, or for the individual benefit, of any such shareholder, to
the extent to which the company in either case possesses accumulated
profits.”
7. The ITAT went on to decide the matter holding that even though there is
no prohibition of business transactions between the two related concerns under
the common law, the Act specifically provides for treating the payment in
excess of the credit outstanding and the accumulated profit as ‘deemed
dividend’. This is a fiction created by legislature under the special enactment
Page 6 of 17
viz., the Income Tax Act. Therefore, for the purposes of the Act, the amount
paid in excess of credit found in the account and accumulated profit has to be
necessarily treated as deemed dividend in view of the provisions of Section 2
(22)(e) of the Act.
8. However, the ITAT was of the opinion that the Assessing Officer is
bound to compute the credit balances available in the running account on each
day the payment was said to be made by the appellant to the parent company.
According to the ITAT, the Assessing Officer was also required to compute
accumulated profit on each date whenever the payment was made and, hence,
the ITAT remitted the matter back to the Assessing Officer to reconsider the
whole issue afresh and to find out whether there was any credit balance
available in the running account maintained by the appellant with the parent
company on each day basis.
9. The instant appeals were all which were filed in the year 2008. Pending
the appeals, the order of remand under challenge was acted upon and
appropriate tax liability was assessed and which was independently dealt with
by the appellant by way of an appeal.
Page 7 of 17
10. Today, when the matters are taken up for hearing, it was contended by the
learned Senior Standing Counsel for Income Tax Department that since the
order of remand stands acted upon and fresh assessment orders also having been
passed and which has also been subjected to challenge by way of appeal,
nothing further remains to be adjudicated upon in the instant three appeals and
they should be disposed of as having become infructuous.
11. This objection of the learned Senior Standing Counsel for Income Tax
Department was opposed by the learned counsel for the appellant on the ground
that what has been done by the Assessing Officer was in terms of the order of
remand. So the ground raised in challenging the order of remand would not be
available to the appellant in an appeal in challenging the fresh assessment order.
12. We find force in the argument of the learned counsel for the appellant
taking into consideration the judgment of the Hon’ble Supreme Court in the
case of Nagesh Datta Shetti and Others vs. State of Karnataka and Others1,
wherein in paragraph Nos.7 and 8, it has been held as under:
“7. ………the Tribunal did not keep the proceedings pending though it was
brought to its notice that the writ appeal had been admitted. The appellants
have also contributed to the confusion to a great measure by not seeking stay1
(2005) 10 Supreme Court Cases 383
Page 8 of 17of direction. In given cases the court/forum to which the matter is remitted
can await decision in the appeal where the directions given are impugned. A
copy of the order passed by the Tribunal pursuant to the direction given by
learned Single Judge has been placed on record. It clearly shows that the
Tribunal acted only on the basis of the direction given and on that ground
alone granted occupancy rights.
8. The High Court was not justified in holding that the writ appeal had been
rendered infructuous because of the subsequent decision of the Tribunal.
Correctness of the order passed by learned Single Judge was being
challenged in the writ appeal. Any decision taken by the Tribunal has to be
perforce subject to the decision in the writ appeal. Therefore, the Division
Bench should have considered the matter on merits without concluding that
the writ appeal had become infructuous.”
13. Likewise, subsequently the Allahabad High Court also in somewhat
similar factual backdrop in the case of Yasmeen Zia vs. Haneefa Khursheed
and Others 2, in paragraph Nos.23 to 26, has held as under:
23. The law gives to the person aggrieved by the order of remand, a right to
appeal, and that right cannot be taken away only for the reason that a final
order has been passed consequent to the remand, either before or after a
person files an appeal against the remand order. So long as his appeal is
otherwise in order, he would have a right to be heard, and such an appeal
cannot be dismissed on the mere ground that another appeal has not been
filed from the final order passed by the trial court consequent to the remand.
This would be so also for the reason that the final order which is passed by
the trial court after the order of remand is in its nature dependent and
2
(2023) 2 High Court Cases (All) 770
Page 9 of 17
subordinate to the order of remand, since it would be consequential to the
same and is to be controlled by the terms of the remand order. It would,
therefore, follow that if the remand order is set aside, the order passed by the
trial court, consequent thereto, would also fall on the ground.
24. As regards the contention sought to be raised by the respondents that the
later order passed by the trial court consequent to the remand order having
not been appealed against, would remain in force even if the earlier order
were to be reversed, and therefore, the present appeal would be of no
consequence, it may be observed that the later order passed by the trial court
merely carries out the directions of the remand made by the first appellate
court, and it cannot in any way be held to have the effect of superseding the
said order. The validity of the later order passed by the trial Judge would,
therefore, depend upon the validity of the earlier order passed by the first
appellate court. The trial court’s jurisdiction to hear the case being
dependent upon the remand order, if the remand order is held to be invalid,
the proceedings consequent to the remand order would be rendered non est.
25. The effect of reversal of the order of remand under Order 41 Rule 23,
would be that anything done in pursuance of such an order would ipso facto
cease to have any effect and the trial court would have no jurisdiction to pass
any further order in the case. The contention raised by the respondent that
the final order passed by the trial court, which is the result of the remand
made by the first appellate court, would survive the reversal of the remand
order, would, therefore, lead to an apparent logical inconsistency, and the
argument would be unsupportable.
26. ………there is no reason why the party concerned should be forced into
filing an appeal against the said final order, when he has a statutory right of
appeal under Order 43 Rule 1(u), against the order of remand, especially,
when in the appeal against the final order it would not be open to him to
Page 10 of 17
impugn the correctness of the order of remand by virtue of the bar imposed
by Section 105(2).”
14. So far as the question of law as to ‘whether the payment made in the
usual course of business by the assessee to the parent company could be treated
as dividend’, the Delhi High Court in the case of Commissioner of Income-tax
vs. Raj Kumar 3, in paragraph Nos.28, 29 and 33, has held as under:
“28. Therefore, if the said background is kept in mind, it is clear that sub-
clause (e) of section 2(22) of the Act, which is in parimateria with sub- clause
(e) of section 2(6A) of the 1922 Act, plainly seeks to bring within the tax net
accumulated profits which are distributed by closely held companies to its
shareholders in the form of loans. The purpose being that persons who
manage such closely held companies should not arrange their affairs in a
manner that they assist the shareholders in avoiding the payment of taxes by
having these companies pay or distribute, what would legitimately be
dividend in the hands of the shareholders, money in the form of an advance or
loan.
29. If this purpose is kept in mind then, in our view, the word “advance” has
to be read in conjunction with the word “loan”. Usually attributes of a loan
are that it involves positive act of lending coupled with acceptance by the
other side of the money as loan : it generally carries an interest and there is
an obligation of repayment. On the other hand, in its widest meaning the term
“advance” may or may not include lending. The word “advance” if not found
in the company of or in conjunction with a word “loan” may or may not
include the obligation of repayment. If it does, then it would be a loan. Thus,
arises the conundrum as to what meaning one would attribute to the term3
(2009) 318 ITR 462
Page 11 of 17“advance”. The rule of construction to our minds which answers this
conundrum is noscitur a sociis. The said rule has been explained both by the
Privy Council in the case of Angus Robertson v. George Day [1879] 5 AC 63
by observing “it is a legitimate rule of construction to construe words in an
Act of Parliament with reference to words found in immediate connection
with them” and our Supreme Court in the case of Rohit Pulp and Paper Mills
Ltd. v. CCE, AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor
Sabha, AIR 1960 SC 610.
………
33. Keeping the aforesaid rule in mind we are of the opinion that the word
“advance” which appears in the company of the word “loan” could only
mean such advance which carries with it an obligation of repayment. Trade
advance which are in the nature of money transacted to give effect to
commercial transactions would not, in our view, fall within the ambit of the
provisions of section 2(22)(e) of the Act. This interpretation would allow the
rule of purposive construction with noscitur a sociis, as was done by the
Supreme Court in the case of LIC of India v. Retired LIC Officers Association
[2008] 3 SCC 321. The observation in para 24 of the report being apposite
are extracted herein below :
“Each word employed in a statute must take colour from the purport
and object for which it is used. The principle of purposive interpretation,
therefore, should be taken recourse to”.”
15. The said judgment has been followed by the Delhi High Court in the case
of Commissioner of Income-tax vs. Ambassador Travels P. Ltd. 4, wherein in
paragraph Nos.3 and 4, it has been held as under:
4
(2009) 318 ITR 376
Page 12 of 17
3. The Tribunal was of the view that there is nothing on record to show that
the amounts considered by the Assessing Officer were in any manner
advances or loans in the account of the assessee. Being a travel agency, it
had regular business dealings with the above two concerns dealing with
holiday resorts and the tourism industry. Therefore, since the transactions
were normal business transactions, which were carried out during the course
of the relevant previous year, they cannot be described as advances or loans,
which form a distinct category of financial transactions. Under the
circumstances, the Tribunal came to the conclusion that since these
transactions did not represent loans or advances, the provisions of section
2(22)(e) of the Act were not at all applicable.
4. We are of the view that the order passed by the Tribunal does not suffer
from any error of law. It is quite clear that the assessee was a travel agency
and the above two concerns that it had dealings with, that is, M/s. Holiday
Resort Pvt. Ltd. and M/s. Ambassador Tours (I) Pvt. Ltd. were also in the
tourism business. The assessee was involved in the booking of resorts for the
customers of these companies and entered into normal business transactions
as a part of its day-to-day business activities. The financial transactions
cannot in any circumstances be treated as loans or advances received by the
assessee from these two concerns.”
16. Likewise, again the Delhi High Court in the case of Commissioner of
Income-tax vs. Creative Dyeing and Printing P. Ltd.5, in paragraph Nos.11
and 13 has held as under:
“11. ………The finding of facts, arrived at by the Tribunal, in the present
case, is that the transaction in question was a business transaction and which
transaction would have benefited both the assessee-company and M/s. Pee5
(2009) 318 ITR 476
Page 13 of 17Empro Exports Pvt. Ltd. In fact, as stated above, the counsel for the appellant
has conceded that the amount is in fact not a loan but only an advance
because the amount paid to the assessee-company would be adjusted against
the entitlement of moneys of the assessee-company payable by M/s. Pee
Empro Exports Pvt. Ltd. in the subsequent years.
………
13. Therefore, we hold that the Tribunal was correct in holding that the
amounts advanced for business transaction between the parties, namely, the
assessee-company and M/s. Pee Empro Exports Pvt. Ltd. was not such to fall
within the definition of deemed dividend under section 2(22)(e). The present
appeal is, therefore, dismissed.”
17. Similar view was reiterated again in the case of Commissioner of
Income-tax vs. Arvind Kumar Jain6, wherein the Delhi High Court relying
upon its judgment in the case of Raj Kumar (supra), held at paragraph Nos.5
and 7 as under:
“5. ………Keeping the aforesaid rule in mind we are of the opinion that the
word “advance’ which appears in the company of the word “loan’ could only
mean such advance which carries with it an obligation of repayment. Trade
advance which are in the nature of money transacted to give effect to a
commercial transactions would not, in our view, fall within the ambit of the
provisions of Section 2(22)(e) of the Act. This interpretation would allow the
rule of purposive construction with noscitur a sociis, as was done by the
Supreme Court in the case of LIC of India v. Retd. LIC Officers Assn. [2008]
3 SCC 321.”
………
6
2011 SCC OnLine Del 4235
Page 14 of 17
7. It is trite law that mere nomenclature of entry in the books of accounts is
not determinative of the true nature of transaction. See Commissioner of
Income Tax v. India Discount Co. Ltd. 75 ITR 191 (SC), Commissioner of
Income Tax v. Provincial Farmers (P) Ltd. 108 ITR 219 (Cal) and KCP
Ltd. v. CIT, 245 ITR 421. In the present case after going through the relevant
evidence as well as current account maintained between the parties, it has
been established that the payment made were the result of trading transaction
between the parties and the amount was not given by way of loan or
advance.”
18. Similar view has also been taken by the Allahabad High Court in the case
of Commissioner of Income-tax vs. Atul Engineering Udyog, Nunihal,
Agra7, wherein in paragraph Nos.8, 9, 15 and 17, it has been held as under:
“8. From a perusal of the aforesaid provision “dividend” includes any
payment by a Company by way of advance or loan to a shareholder or to any
concern in which such holder is a member or a partner and in which he has a
substantial interest would be a deemed dividend, but such dividend would not
include any advance or loan made to a shareholder by a Company in the
ordinary course of its business.
9. The essential ingredient is a “loan” or an “advance” to a shareholder or
to a concern in which such shareholder has a substantial interest. Under this
provision a deemed fiction is created whereby the scope and ambit of
dividend has been enlarged to cover “loan” and “advance” granted by
closely held Companies to their shareholders.
………
7
2014 SCC OnLine All 17798
Page 15 of 17
15. Apart from the aforesaid, the word “loan” means anything lent,
especially money on interest. On the other hand, “deposit” means something
which is deposited or put down, namely, a sum of money paid to secure an
article, service, etc. The legislature has made a conscious distinction between
the expression “loan’ and “deposit”. The two are not identical in meaning.
………
17. In the light of the aforesaid, we find that the deposit made by the sister
concern was a business transaction arising in the normal course of business
between the two concerns. This is a finding of fact, which is based on the
appreciation of evidence.”
19. Similar issue came up for consideration even before the Punjab and
Haryana High Court in the case of Commissioner of Income Tax-I, Ludhiana
vs. Shri Amrik Singh 8 wherein the Punjab and Haryana High Court also took
the same stand holding that the money transferred in the normal course of
business, as a matter of fact of business expediency, would not amount to
advances made to be treated as dividend, and the Punjab and Haryana High
Court also relied upon the decision of the Delhi High Court in the case of
Creative Dyeing and Printing P. Ltd. (supra). The said judgment of the
Punjab and Haryana High Court was also challenged by the Revenue before the
Hon’ble Supreme Court vide Special Leave to Appeal (C) No.14223 of 2015.
However, the Hon’ble Supreme Court dismissed the said Special Leave to
Appeal on 14.08.2015.
8
2015 SCC OnLine P&H 2707
Page 16 of 17
20. Last but not the least, all the aforesaid decisions of various High Courts
and the Hon’ble Supreme Court was taken into consideration by the Central
Board of Direct Taxes, which in turn had issued a Circular i.e. Circular No.19 of
2017, dated 12.06.2017, wherein the Central Board of Direct Taxes in clause 3
of the said Circular held as under:
“3. In view of the above it is, a settled position that trade advances, which are
in the nature of commercial transactions would not fall within the ambit of
the word ‘advance’ in section 2(22)(e) of the Act. Accordingly, henceforth,
appeals may not be filed on this ground by Officers of the Department and
those already filed, in Courts/Tribunals may be withdrawn/not pressed
upon.”
21. In view of the aforesaid Circular of the Central Board of Direct Taxes, the
whole issue would stand laid to rest thereby resulting in the remand order made
by the ITAT itself totally uncalled for and the consequential orders, if any, on
the said issue detrimental to the interest of the assessee would also be rendered
bad in law.
22. Accordingly, we are of the considered opinion that the three appeals filed
by the appellant, deserve to be and are accordingly allowed. The common order
passed by the ITAT on 14.03.2017 is set aside / quashed and the question of law
stand answered in favour of the appellant and against the Revenue holding that
Page 17 of 17
the payments so made by the appellant to the parent company would not amount
to be treated as dividend or as advances made. No costs.
23. As a sequel, miscellaneous petitions pending if any, shall stand closed.
________________
P.SAM KOSHY, J
_______________________________
NARSING RAO NANDIKONDA, J
Date: 24.06.2025
Note: L.R. Copy to be marked.
(B/o)GSD