The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the income tax department cannot deny Income Tax Deduction to Pharma companies on expenses incurred on providing freebies to doctors on the basis of a CBDT circular and the Indian Medical Council regulations.
The IMA regulations prohibit the practice of acceptance of any gifts, freebies by doctors from the pharmaceutical companies.
“The CBDT has no power to extend the scope of the IMC regulation to pharmaceutical companies without any enabling provision either under the Income Tax Act or the IMA regulations,” the bench observed.
The ITAT said CBDT circulars cannot impose a burden on an assessee, let alone create a new burden, by enlarging the scope of a regulation issued under another legislation.
The ITAT was hearing a plea by a Mumbai-based Medley Pharmaceuticals Ltd. in September 2012, declaring a total income of Rs 29.29 crore. An income tax official assessed the company’s income at Rs 49.23 crore in March 2015, after disallowing expenses of Rs 5.37 crore in freebies to doctors as a deduction. The scope and ambit of statutory provisions in the Indian Medical Council Act, 1956, related to professional conduct are restricted to medical practitioners registered with the State Medical Council, and those whose names are entered in the Indian Medical Register, the bench said.
The Tribunal recalled its own order in a different case wherein it was observed that “even if the assessee had incurred expenditure on distribution of „freebies‟ to doctors and medical practitioners, the same though may not be in conformity with the Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002, but then, as the same only regulates the code of conduct of the medical practitioners/doctors, therefore, in the absence of any prohibition on the pharmaceutical companies in incurring of such sales promotion expenses it cannot be held to have incurred an expenditure for a purpose which is an offense or is prohibited by law.”
The scheme of the Indian Medical Council Act, 1956, deals only with the conduct of individual registered medical practitioners, the ITAT said in the order. “Even otherwise, the enlargement of the scope of MCI regulation to the pharmaceutical companies by the CBDT is dehors (outside the scope of) any enabling provision either under the Income Tax Act or under the Indian Medical Council regulations,” it said.
The ITAT said that though the CBDT can tone down the rigors of law in an order to ensure fair enforcement of the provisions by issuing circulars for clarifying statutory provisions, “it is divested of its powers to create a new impairment adverse to an assessee, or to a class of assesses, without any sanction or authority of law.”Subscribe Taxscan AdFree to view the Judgment