June 26, 2022

No tax exemption on freebies given by drug companies to doctors: Supreme Court | India News – Times of India

NEW DELHI: Expressing concern over pharmaceutical companies giving freebies to doctors, which push medicine prices up, the Supreme Court on Tuesday held that they are not entitled to claim tax exemption on the expenditure incurred in giving incentives to medical practitioners to promote their medical products and it would be considered as part of their income.
Abench of Justices U U Lalit and S Ravindra Bhat dismissed the plea of a company seeking exemption on expenditure of Rs 4. 7 crore incurred towards gifting freebies such as hospitality, conference fees, gold coins, LCD TVs, fridges, laptops etc to medical practitioners for creating awareness about a health supplement manufactured by it. The court upheld a 2012 circular issued by the Central Board of Direct Taxes clarifying that such expenses incurred by pharmaceutical and allied health sector industries for distribution of incentives to medical practitioners are ineligible for the benefit of Section 37(1) of the Income Tax Act pertaining to business deduction.
The bench accepted the plea of additional solicitor general Sanjay Jain who contend- ed on behalf of the government that though gifting freebies to doctors may not be classified as an ‘offence’ under any statute but it was specifically prohibited under Medical Council of India regulations. He said while a pharma company could not be punished for indulging in such practice, it should not be allowed to benefit by claiming a tax exemption on the freebies distributed.
Bringing a decade-old dispute arising out of the 2012 circular to an end, the bench ruled that medical practitioners were forbidden from accepting such gifts or “freebies” and it was no less a prohibition on the part of their giver or donor. It said the pharmaceutical companies gifting freebies to doctors is clearly “prohibited by law”, and not allowed to be claimed as a deduction under Section 37(1).
Holding that no court will lend its aid to a party that roots its cause of action in an immoral or illegal act, the bench said, “Doctors and pharmacists being complementary and supplementary to each other in the medical profession, a comprehensive view must be adopted to regulate their conduct in view of the contemporary statutory regimes and regulations. Therefore, denial of the tax benefit cannot be construed as penalising the assessee pharmaceutical company. Only its participation in what is plainly an action prohibited by law, precludes the assessee from claiming it as a deductible expenditure. ”

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