TaxTMI 
TaxTMI 
2018 (4) TMI 1898
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed Commissioner of income tax (Appeals) erred in 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Total 33,76,162/- 4. It was submitted that the item distributed were not of high value items. All the invoices of these items were provided to the assessing officer. No high value 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the ld CIT(A) the assessee filed the details of the cost of the items which were disallowed by the assessing officer and explained that the expenditure incurred by assessee is allowable. The assessee 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 L....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 7,61,96,260 2 Key Account Management expenses (KAM) 2,56,68,509 3 Gift Articles 9,20,22,518 4 Cost of samples 3,60,85,320 Total 22,99,72,607 The nature of aforesaid expenses has already been explained 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 Condu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... acts, whereby a physician or medical practitioners shall not aid or abet or commit any of the acts illustrated in clause 6.1 to 6.7 of the said regulation which shall be construed as unethical. Clause 6.8 has been added (by way of amendment dated 10.12.2009) in terms of notification published on 14.12.2009 in Gazette 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, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l autonomy and/or with the autonomy and freedom of the medical institution. (g) Affiliation: A medical practitioner may work for pharmaceutical and allied healthcare industries in advisory capacities, as consultants, as researchers, as treating doctors or in any other professional capacity. In doing so, a medical practitioner shall always: (i) Ensure that his professional integrity and freedom are maintained. (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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thus the principles of natural justice were violated. 7. In the counter affidavit filed by the Respondents, it is not disputed that the MCI under the 2002 Regulations has jurisdiction limited to taking action only against the registered medical practitioners. Its plea however, is that it has not passed any order against the Petitioner hospital therefore; the Petitioner cannot have any grievance against the impugned order. . . . . . . . . . . . . . . . . . . . . 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 jur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t class of persons or particular category of assessee, same cannot be made applicable to all. The regulation of 2002 issued by the Medical Council of India (supra), provides limitation/curb/prohibition for medical practitioners only and not for pharmaceutical companies. Here the maxim of "Expressio Unius Est Exclusio Alterius" is clearly applicable, that is, if a particular expression in the statute is expressly stated for particular class of assessee then by implication what has not been stated or expressed 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....actitioner shall not accept any travel facility inside the country or outside, including rail, road, 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. Expenses for travel facilities more than Rs. 1,000/ - upto Rs. 5,000/ -: Censure. Expenses for travel facilities more than Rs. 5,000/-upto Rs. 10,000/-: Removal from Indian Medical Register or State Medical 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 f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is applicable for medical practitioners only and the censure/action which has been suggested by it is only on medical practitioners and not for pharmaceutical companies or allied health sector industries. The violation of the aforesaid regulation would not only ensure a removal of a doctor from the Indian Medical Register or State Medical Register for a certain period of time and it does not impinge upon the conduct of pharmaceutical companies. This important distinction has to be kept in mind that regulation issued by Medical Council of India is qua the doctors/medical practitioners and not for 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt doctors and inviting of other doctors to participate in the seminars on a topic related to therapeutic area. It arranges lectures and sponsors knowledge upgrade course which helps pharmaceutical companies to make aware of the products and medicines manufactured and launched by it. Under Key Account Management, the assessee makes endeavour to create awareness amongst certain class of key doctors about the products of the assessee and the new developments taking place in the area of medicine and providing correct diagnosis and treatment of the patients. The said activities by the assessee are to make 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, dia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed 1.8.2012 was challenged. The Hon'ble High Court though upheld the validity of the said circular but with a rider that if the assessee satisfies the assessing authority that the expenditure is not in violation of the regulation framed by the medical council, then it may legitimately claim the deduction. The assessee has to satisfy the AO that the expenditure is not in violation of the Medical Council regulation. Thus, if the assessee brings out that the MCI regulation is not applicable to the assessee before the AO, the same cannot be applied blindly. 12. At the time of hearing, our attention was 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enhancement or knowledge sharing oriented as no details of seminar and its course content is brought on record rather the trip is directed towards leisure and entertainment of Doctors and their spouses which in our view appears to be clearly a distinguishable feature in this year enabling us to take a divergent view and the expenses incurred by the assessee cannot be allowed as business expenditure u/s. 37 of the Act as it is clearly hit by explanation to Section 37 of the Act being against public policy as unethical prohibited by law." In view of the above, he pointed out that in the above decision for A.Y. 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) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ourt (supra), that the said CBDT circular has been upheld. On this aspect we have already discussed in detail herein above that, firstly, High Court itself carves out a rider that assessee is free to demonstrate before the AO that this circular is not applicable on facts of the case; and secondly, CBDT circular which creates new impairment and imposes disallowbility not envisaged in any of the Act or regulation cannot be reckoned to be retrospective. Another strong reference has been made to the decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. Kap Scan and Diagnostic Centre (P.) Ltd. [2012] 344 ITR 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 o....