Whether when Medical Council's amended regulations prohibit freebies gifted to practitioners by pharma companies, any fault can be found with CBDT Circular disallowing expenditure incurred on such freebies - NO, validity of Circular upheld: HC

THE issue before the Bench is - Whether when the Medical Council's amended regulations prohibit freebies gifted to practitioners by pharma companies, any fault can be found with CBDT Circular disallowing the expenditure incurred on such freebies in violation of MCI's rules. And the verdict goes against the assessee.

Facts of the case

Assessee is a confederation of pharma SSIs. It filed a writ against the CBDT Circular No. 5/2012 dated 1.8.2012 and prayed for its quashing. As per the Circular, the Medical Council of India in exercise of the powers vested in it under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 imposed prohibition on any medical practitioner or their professional associates from accepting any gift, travel facility, hospitality, cash or monetary grant from any pharmaceutical and allied health sector Industries. So, the Circular disallows all such expenses, which are incurred on providing freebies to medical practitioners in violation of the MCI's regulations.

While arguing before the High Court, the counsel for the assessee contended that the Circular

had gone beyond the section itself.

Held that,

++ the MCI regulation is a very salutary regulation which is in the interest of the patients and the public. This Court is not oblivious to the increasing complaints that the medical practitioners do not prescribe generic medicines and prescribe branded medicines only in lieu of the gifts and other freebies granted to them by some particular pharmaceutical industries. Once this has been prohibited by the Medical Council under the powers vested in it, Section 37(1) of the Income-tax Act comes into play;

++ we are not in agreement with the submissions of the assessee's counsel. The explanation to Section 37(1) makes it clear that any expenditure incurred by an assessee for any purpose which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession. The sum and substance of the circular is also the same. In case the assessing authorities are not properly understanding the circular then the remedy lies for each individual assessee to file appeals under the Income-tax Act but the circular which is totally in line with Section 37(1) cannot be said to be illegal;

++ in fact para 4 of the circular itself clarifies that the value of the freebies enjoyed by the medical practitioner is also taxable as business income or income from other sources depending on the facts of each case. Therefore, if the assessee satisfies the assessing authority that the expenditure is not in violation of the regulations framed by the medical council then it may legitimately claim a deduction, but it is for the assessee to satisfy the assessing officer that the expense is not in violation of the Medical Council Regulations referred to above.