AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (4) TMI 1898
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....upholding the disallowance of sale promotion expenses amounting to Rs. 33,76,162 /- under section 37(1) of the Act. 2. Brief facts of the case are that Assessee Company is engaged in the business of manufacturing of Pharmaceuticals product and in Oral care products. The assessee filed its return of income for assessment year 2012- 13 on 26th September 2012 declaring total income of Rs. 8,95,10,543/-. The assessment was completed on 25th February 2015 under section 143(3). The assessing officer while passing assessment order made the disallowance of sale promotional expenses of Rs. 33,76,162/-. On appeal before Commissioner (Appeals) the disallowance of sale promotional expenses, made by assessing officer was confirmed. Thus, further aggrieved by the order of Commissioner (Appeals) the assessee has filed present appeal before us. 3. We have heard the ld. AR of the assessee and ld. Sr. DR for the revenue and perused the material available on record. The ld. AR of the assessee submits that Assessee Company is engaged in the business of manufacturing of Pharmaceuticals and trading in Oral health care products. During the assessment year under consideration the assessee debited Rs. 1,....
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....alue items were distributed having high value e.g. TV, Computer and Mobile Phone etc. These items were distributed to the Medical practitioner with the motive to re-call the product. Such promotional material cannot be considered as gift or expenses prohibited by law. Such a small gift bearing company's logo does not tantamount to giving gift to Doctors. In fact is an advertisement and is fully allowable as advertisement expenditure. Moreover, the sale promotional expenses incurred by the assessee are only .5% of total turnover of the assessee. The similar expenses was disallowed by assessing officer in earlier assessment year for 2010-11 and in 2011-12 and on appeal before Commissioner (Appeals) the expenses were allowed, the revenue has not filed appeal before the Tribunal. The ld AR for the assessee in his first proposition of law submits that Indian Medical Council Regulations are not applicable on the assessee and are applicable to the Doctors. In support of his submissions the ld AR for the assessee relied on the decision of Delhi High Court in Max Hospital Vs Medical Council of India (WC (C) 1334/2013) and decisions of Mumbai Tribunal in DCIT Vs PHL Pharma Ltd (78 taxmann.co....
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.... contended that the expenditure is incurred for the purpose of advertising of the product and not for the purpose of gift. The details of the items were also provided (which we have refereed supra). The assessee also relied on the order of ld. Predecessor of CIT(A), for assessment year 2010-11 and 2011-12. The ld CIT(A) not followed the order of his predecessor taking his view that his predecessor was not having the benefit of CBDT Circular No.5 of 2012, which is clarificatory in nature. The ld CIT(A) on relying the decision of Kerala High Court in CIT Vs Moidu's Medicare (P) ltd 76taxmann.com 309(Ker), Punjab & Haryana High Court in Kap Scan and Diagnostic Centre (P) Ltd [2012] 25 taxmann.com 92 (P&H), Himachal High Court in Confederation of Indian Pharmaceutical Industry Vs CBDT [2014] 44 taxmann.com 365 (HP) and Tribunal's decision in Apex Laboratory (P) ltd Vs ACIT [2017] 80 taxmann.com 236, TTK Healthcare Ltd [2017] 78 taxmann.com 86 (both Chennai Tribunal), Liva Health Care Ltd (2016) 83 taxmann.com 171(Mumbai Tribunal) confirmed the action of the assessing officer. The ld CIT(A) also differentiated the ratio in DCIT Vs PHL Pharma (P) Ltd (2017) 78 taxmann.com 36. 8. We....
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....ed above. Now whether the nature of such expenditure incurred by the assessee is to be disallowed in view of the CBDT Circular dated 01.08.2012. For the sake of ready reference, the said CBDT Circular No.5/2012 is reproduced hereunder: "INADMISSIBILITY OF EXPENSES INCURRED IN PROVIDING FREEBEES TO MEDICAL PRACTITIONER BY PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRY Circular No. 5/2012 [F. No. 225/142/2012-ITA.II], dated 1-8- 2012 It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India (the 'Council') which is a regulatory body constituted under the Medical Council Act, 1956. 2. The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health....
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....zette of India. The said clause reads as under:- "6.8 Code of conduct for doctors and professional association of doctors in their relationship with pharmaceutical and allied health sector industry. 6.8.1 In dealing with Pharmaceutical and allied health sector industry, a medical practitioner shall follow and adhere to the stipulations given below: (a) Gifts: A medical practitioner shall not receive any gift from any pharmaceutical or allied health care industry and their sales people or representatives. (b) Travel facilities: A medical practitioner shall not accept a any travel facility inside the country or outside, including rail, air, ship, cruise tickets, paid vacations etc. from any pharmaceutical or allied healthcare industry or their representatives for self and family members for vacation or for attending conferences, seminars, workshops, CME programme etc as a delegate. (c) Hospitality: A medical practitioner shall not accept individually any hospitality like hotel accommodation for self and family members under any pretext. (d) Cash or monetary grants: A medical practitioner shall not receive any cash or monetary grants from any pharmaceutical and allied....
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....(ii) Ensure that patients' interests are not compromised in any way. (iii) Ensure that such affiliations are within the law. (iv) Ensure that such affiliations / employments are fully transparent and disclosed. (h) Endorsement: A medical practitioner shall not endorse any drug or product of the industry publically. Any study conducted on the efficacy or otherwise of such products shall be presented to and / or through appropriate scientific bodies or published in appropriate scientific journals in a proper way".[Emphasis added is ours] 6. On a plain reading of the aforesaid notification, which has been heavily relied upon by the department, it is quite apparent that the code of conduct enshrined therein is meant to be followed and adhered by medical practitioners/doctors alone. It illustrates the various kinds of conduct or activities which a medical practitioner should avoid while dealing with pharmaceutical companies and allied health sector industry. It provides guidelines to the medical practitioners of their ethical codes and moral conduct. Nowhere the regulation or the notification mentions that such a regulation or code of conduct will cover pharmaceutical compani....
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....8. It is clearly admitted by the Respondent that it has no jurisdiction to pass any order against the Petitioner hospital under the 2002 Regulations. In fact, it is stated that it has not passed any order against the Petitioner hospital. Thus, I need not go into the question whether the adequate infrastructure facilities for appropriate post-operative care were in fact in existence or not in the Petitioner hospital and whether the principles of natural justice had been followed or not while passing the impugned order. Suffice it to say that the observations dated 27.10.2012 made by the Ethics Committee do reflect upon the infrastructure facilities available in the Petitioner hospital and since it had no jurisdiction to go into the same, the observations were uncalled for and cannot be sustained. " [Emphasis added is ours] From the aforesaid decision, it is ostensibly clear that the Medical Council of India has no jurisdiction to pass any order or regulation against any hospital or any health care sector under its 2002 regulation. So once the Indian Medical Council Regulation does not have any jurisdiction nor has any authority under law upon the pharmaceutical company or any alli....
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....d in the statute has to be excluded for other class of assessee. If the Medical Council regulation is applicable to medical practitioners then it cannot be made applicable to Pharma or allied health care companies. If section 37(1) is applicable to an assessee claiming the expense then by implication, any impairment caused by Explanation 1 will apply to that assessee only. Any impairment or prohibition by any law/regulation on a different class of person/assessee will not impinge upon the assessee claiming the expenditure under this section. 7. Before us the learned CIT DR strongly relied upon the fact that CBDT Circular, while clarifying the applicability of Explanation 1 to section 37(1) on medical practitioners and pharmaceutical companies have interpreted that Indian Medical Council Regulation is applicable for pharmaceutical companies also. He also brought to our notice that another notification was issued by Indian Medical Council which was published on 01.12.2016 which further prohibits such kind of embargo on medical practitioners and have added para 6.8.1 and also given instances of action which shall be taken upon medical practitioners. The relevant clause of the sa....
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....ical Register for 3 (three) months. Expenses for travel facilities more than Rs. 10,000/-to Rs. 50,000/-: Removal from Indian Medical Register or State medical Register for 6 (six) months. Expenses for travel facilities more than Rs. 50,000/- to Rs. 1,00,000/-: Removal from Indian Medical Register or State Medical Register for 1 (one) year. Expenses for travel facilities more than Rs. 1,00,000/-: Removal for a period of more than 1 (one) year from Indian Medical Register or State Medical Register (c) Hospitality: A medical practitioner shall not accept individually any hospitality like hotel accommodation for self and family members under any pretext. Expenses for Hospitality more than Rs. 1,000/- upto Rs. 5,000/-: Censure Expenses for Hospitality more than Rs. 5,000/- upto Rs. 10,000/-: Removal from Indian Medical Register or State Medical Register for 3 (three) months. Expenses for Hospitality more than Rs. 10,000/- to Expenses for Hospitality more than Rs. 10,000/- to months. Expenses for Hospitality more than Rs. 50,000/- to Rs. 1,00,000/: Removal from Indian Medical Register or State Medical Register for 1 (one) year. Expenses for Hospitality more than Rs. 1,00,000/-:....
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.... the pharmaceutical companies. As a logical corollary to it, if there is any violation or prohibition as per MCI regulation in terms of section 37(1) r.w. Explanation 1, then it is only meant for medical practitioners and not for pharmaceutical company (Assessee Company) for claiming the expenditure. 9. Adverting to the contention of the Ld. CIT DR that CBDT is well empowered to issue such clarification, it is seen that the CBDT Circular dated 01.08.2012 (supra) in its clarification has enlarged the scope and applicability of 'Indian Medical Council Regulation 2002' by making it applicable to the pharmaceutical companies or allied health care sector industries. Such an enlargement of scope of MCI regulation to the pharmaceutical companies by the CBDT is without any enabling provisions either under the provisions of Income Tax Law or by any provisions under the Indian Medical Council Regulations. The CBDT cannot provide casus omissus to a statute or notification or any regulation which has not been expressly provided therein. The CBDT can tone down the rigours of law and ensure a fair enforcement of the provisions by issuing circulars and by clarifying the statutory provisi....
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....ke the doctors aware of its products and research work carried out by it for bringing the medicine in the market and its results are based on several levels of tests and approvals. Unless the pharmaceutical companies make aware of such kind of products to key doctors or medical practitioners, then only it can successfully launch its products/medicines. This kind of expenditure is definitely in the nature of sales and business promotion, which has to be allowed. Coming to the gift articles and free samples of medicines, it is seen that the assessee gives various kind of articles like, diaries, pen sets, calendars, paper weights, injection boxes etc. embossed with bold logo of its brand name and the product name so that the doctors remembers the brand of the assessee and also the name of the medicine. All the gift articles, as pointed out by the assessee before the authorities below and also before us are very cheap and low cast articles which bears the name of assessee and it is purely for the promotion of its product, brand reminder, etc. These articles cannot be reckoned as freebies given to the doctors. Even the free sample of medicine is only to prove the efficacy and to establi....
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....as also drawn to the decision of Tribunal of our Co-ordinate Bench in the case of Asstt. CIT v. 'Liva Healthcare Ltd. [2016] 161 ITD 63/73 taxmann.com 171. In counter, to this decision the learned counsel, Shri JD Mistry distinguished the said judgment and submitted that the facts of the case in the Liva Healthcare (supra) were substantially different from the facts of the present case. In the case of Liva Healthcare (supra), the Hon'ble Tribunal disallowed such expenses u/s. 37(1) of the Act on the ground that they were not incurred wholly and exclusively for the purpose of business as the same were incurred to create good relations with the doctors in lieu of expected favours from doctors for recommending to the patients the pharmaceutical products dealt with by the company to generate more and more business and profits for the assessee company. The Tribunal also recorded the fact that the spouse of the doctors also accompanied the doctors for overseas trips to Istanbul and expenses were incurred for cruise travels to island, gala dinner, cocktails, gala entertainment etc. of such doctors. In assessee's case it is an admitted fact that expenses have not been incu....
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.... 2009-10 in the case of Liva Healthcare, there was a specific finding of a fact that no details have been filed with respect to any seminar has been conducted for doctors and that the trips were directed towards leisure and entertainment of doctors and their spouses. This was a distinguishable feature for the Hon'ble Tribunal to take a contrary view from A.Y. 2008-09. He further submitted that the Hon'ble Tribunal in the case of Liva Healthcare Ltd. v. ACIT [IT Appeal No. 4791 (Mum.) of 2014] for A.Y. 2010-11 has followed the decision of Liva Healthcare (supra) for A.Y. 2008-09 and has decided this issue in favour of the assessee. This, further brings out the fact that the Hon'ble Tribunal disallowed the expenses u/s. 37(1) of the Act in the case of Liva Healthcare for A.Y. 2009-10 only on the ground that the same were not incurred wholly and exclusively for the purpose of business. 13. Apart from the aforesaid distinguishing features as highlighted by the learned senior counsel, we find that on the facts itself in the case of Liva Healthcare [2009-2010] (supra), there was a clear cut material on record that the Doctors along with their spouses were taken to foreign t....
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....476/25 taxmann.com 92, wherein commission was paid to the private doctors for referring the patients for diagnosis to the assessee company. In background of these facts and issues involved, the Hon'ble High Court held that said payment of commission is wrong and is opposed to be a public policy. It should be discouraged as it is not a fair practice. The ratio of said decision cannot be applied on the facts of the present case because there is no violation of any law or anything which is opposed to public policy. Similarly, there is reference to the decision of Hon'ble Supreme Court in the case of Eskayef (Now Known as Smithkline Beecham) Pharmaceuticals (India) Ltd. v. CIT [2000] 245 ITR 116/111 Taxman 561, which was given in context of Section 37(3A) of the Act. In the said case the assessee had claimed expenditure on distribution of physician's samples u/s. 37. In the background of such claim the Hon'ble Apex court held that, if the expenditure falls within the bare minimum it will not be caught by sub-section (3A) of section 37. On the contrary, the Hon'ble Apex Court observed that physicians samples are necessary to ascertain the efficacy of medicine and int....