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2021 (10) TMI 794 - AT - Income TaxExpenditure on account of freebies to medical professionals - deduction u/s 37(1) - opposed schools of thought - Scope 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 - whether it can be allowed as a deduction under section 37(1) in the hands of the pharmaceutical companies? HELD THAT:- In any case, the coordinate bench decision relied upon by the learned CIT(A) did not take into account another coordinate bench decision in the case of Liva Healthcare [2016 (9) TMI 856 - ITAT MUMBAI] and Hon”ble HP High Court”s judgment in the case of Confederation of Indian Pharmaceutical Industry [2013 (7) TMI 387 - HIMACHAL PRADESH HIGH COURT], which were rendered prior to that date but not taken into account by the coordinate bench. As to what should be precedence value of such a coordinate bench decision, we find guidance from Hon”ble AP High Court”s full bench decision in the case of CIT Vs B R Constructions [1992 (6) TMI 13 - ANDHRA PRADESH HIGH COURT] wherein Their Lordships has observed that a “precedent ceases to be a binding precedent … (iii) when it is inconsistent with the earlier decisions of the same rank; and (iv) when it is rendered per incuriam”. Clearly, therefore, the decisions which disregard earlier binding decisions on the same issue, “cease to be a binding judicial precedent”, and the coordinate bench decision in assessee”s own case thus ceases to be a binding precedent. As the regulations prohibiting the acceptance of freebies by the medical professionals provide, under section 20A of the Indian Medical Council Act 1956 read with rule 6.8 of Indian Medical Council (Professional conduct, Etiquette and Ethics) Regulations, 2002, as amended from time to time, that such freebies cannot be lawfully accepted by medical professionals, and, therefore, any expenditure incurred for extending these freebies to the medical professionals is for a “purpose which is prohibited by law”. On these facts, therefore, Explanation to Section 37(1) is clearly attracted. It is an open secret, secret if it is, that all these freebies extended by the pharmaceutical companies to the medical professionals, more often than not, come with strings attached, and that is what makes the expenditure in question for a purpose which is, as discussed earlier, “prohibited by law”. The plea of the learned counsel that these regulations do not bind pharmaceutical companies, and, therefore, extending these freebies to medical professionals canot be treated as “prohibited by law” is thus wholly irrelevant in the present context. What is material is that the expenditure in question is incurred for the purposes which are prohibited in law, and that is what disqualifies the expenditure in question from deduction under section 37(1) by virtue of Explanation thereto. The freebies from pharmaceutical companies cannot, under section 20A of the Indian Medical Council Act 1956 read with rule 6.8 of Indian Medical Council (Professional conduct, Etiquette and Ethics) Regulations, 2002, as amended from time to time, be lawfully accepted by medical professionals and, therefore, an extension of such freebies is for a purpose “prohibited by law”. The stand of the Assessing Officer cannot, therefore, be faulted. The more we ponder about the rationale of PHL Pharma decision [2017 (1) TMI 771 - ITAT MUMBAI] the more convinced we are 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. There is, thus, no meeting ground between these two diametrically opposed schools of thought- one followed by PHL Pharma (supra), and the other followed by Liva Healthcare [2016 (9) TMI 856 - ITAT MUMBAI]. As a coordinate bench of equal strength, it is not for us to disregard the decisions in the case of PHL Pharma [2017 (1) TMI 771 - ITAT MUMBAI] but, with due respect though without the slightest hesitation, we do indeed have our considered reservations on its correctness. Taking a cue from the path so guided by Hon”ble Supreme Court in the case of Paras Laminates [1990 (8) TMI 140 - SUPREME COURT] we recommend 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. Matter referred to larger bench.
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