The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) recommended the constitution of a larger bench to consider the issue of Deduction on freebies to medical professionals.
The Deputy Commissioner of Income Tax has raised the issue of whether an item of expenditure on account of freebies to medical professionals, which is hit by rule 6.8.1 of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002- as amended from time to time, read with section 20A of the Indian Medical Council Act 1956, can be allowed as a deduction under section 37(1) of the Income Tax Act, 1961 read with Explanation thereto, in the hands of the pharmaceutical companies.
The assessee, Macleods Pharmaceuticals Ltd. is a company engaged in the business of manufacturing pharmaceutical products, such as tablets, capsules, liquids, and injectables, etc. This is a case in which the assessee company was subjected to a search and seizure operation. The assessments were reopened, and the assessment proceedings were initiated. During the course of these assessment proceedings, the Assessing Officer noted that while the assessee has Rs 221.25 crores on sales promotion so far as the assessment year 2012-13 is concerned, and Rs 139.07 crores so far as the assessment year 2011-12 is concerned, the amounts spent to the extent of Rs 137.62 crores for the assessment year 2012- 13 and Rs 111.11 crores for the assessment year 2011-12 pertains to payments of freebies to doctors. These amounts, according to the Assessing Officer, included “payments made for gifts, promotion items, facilities etc given to various medical practitioners within the country as well as abroad”.
The coram of Vice President, Pramod Kumara, and Judicial Member, Saktijit Dey said that “this decision calls for reconsideration by a larger bench. In our humble understanding, conclusions arrived in the said decision do not reflect the correct legal position, and the same is the position with respect to a large number of other coordinate bench decisions following the said decision or following the line of reasoning in the said decision- as discussed above. However, in all fairness, while we may or may not agree with a coordinated bench decision, it cannot be open to us to disregard the same, lest such judicial inconsistency should shake public confidence in the administration of justice and lest one of the fundamental legitimate expectations of the stakeholders, i.e. those exercising judicial functions will follow the reason or ground of the judicial decision in the earlier cases on identical matters, will stand declined.”
“It is, however, equally true”, to borrow the words of Hon’ble Supreme Courts as articulated in the case of Union of India Vs Paras Laminates Pvt Ltd [(1990) 186 ITR 722 (SC)], “that it is vital to the administration of justice that those exercising judicial power must have the necessary freedom to doubt the correctness of an earlier decision if and when subsequent proceedings being to light what is perceived by them as an erroneous decision in the earlier case” and that “in such circumstances, it is but natural and reasonable and indeed efficacious that the case is referred to a larger bench”, the tribunal added.
The ITAT recommended the constitution of a bench of three or more Members to consider the question as to whether or not an item of expenditure on account of freebies to medical professionals, which is hit by rule 6.8.1 of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002- as amended from time to time, read with section 20A of the Indian Medical Council Act 1956, can be allowed as a deduction under section 37(1) of the Income Tax Act, 1961 read with Explanation thereto, in the hands of the pharmaceutical companies.
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