The CBDT issued
Circular No. 5/2012 dated 1.8.2012
stating that as the Indian Medical Council had imposed a prohibition on
medical practitioners taking any Gift, Travel facility, Hospitality,
Cash or monetary grant from pharmaceutical and allied health sector
Industries, the expenditure incurred by the assessee in providing such “
freebies” had to be regarded as incurred “
for a purpose which is either an offence or prohibited by law”
and disallowed under the Explanation to s. 37(1) of the Act. The
assessees challenged
the validity of the Circular on the basis that it
went beyond s. 37(1) and was invalid. HELD by the High Court rejecting
the contention:
The regulation of the Medical Council prohibiting medical
practitioners from availing of freebies 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, s.
37(1) comes into play. The Petitioner’s contention that the circular
goes beyond the section is not acceptable. In case the assessing
authorities are not properly understanding the circular then the remedy
lies for each individual assessee to file an appeal but the circular
which is totally in line with s. 37(1) cannot be said to be illegal. 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 AO that the expense is not in violation of the Medical
Council Regulations.
Confederation of Indian Pharmaceutical Industry vs. CBDT (H. P. High Court)