TMI Blog2019 (1) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions relied upon hereinabove on the impugned issue, we hold that the sales promotion expenses incurred by the assessee in the total sum deserves to be allowed. - ITA No. : 2590/Mum/2016, ITA No. : 2786/Mum/2016 - - - Dated:- 21-12-2018 - Shri M. Balaganesh, Accountant Memeber And Shri Ram Lal Negi, Judicial Member For the Appellant : Shri S.K Mishra (DR) For the Respondent : Shri J.D. Mistri, Sr. Advocate And Shri Nitesh Joshi ORDER PER M. BALAGANESH, AM: 1. These cross appeals filed by the assessee as well as by the Revenue are directed against the order of the Ld. CIT(A)-13, Mumbai, dated 29.01.2016 for the A.Y 2010-11, which in itself directed against the order passed by the Assessing Officer (for short the A.O ) u/s. 143(3) of the Income-tax Act, 1961 (for short the Act ). 2. The only effective issue to be decided in both the appeals is as to whether the provisions of Explanation 1 to Sec. 37(1) of the Act could be made applicable in the facts and circumstances of the case. 3. The brief facts of this appeal are that the assessee is a private limited company engaged in the business of marketing and trading of consumer health and pharmace ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re incurred for the period from 10.12.2009 to 31.03.2010 would be squarely hit by the provisions of Explanation 1 to Sec. 37(1) of the Act. Aggrieved, both the assessee as well as the Revenue are in appeal before us. 5. We have heard the rival submissions. We find that Ld. AR at the outset stated that this issue is no longer res integra as the same had been decided by various decisions of the Co-ordinate Benches of this Tribunal and by Hon ble Delhi High Court. He placed reliance on the decision of the Hon ble Delhi High Court in the case of Max Hospital, Pitampura Vs. Medical Council of India in W.P.(C) 1334/2013, dated 10.01.2014, with regard to the proposition that the MCI notification are applicable only for the Doctors in consonance with the ethical manner in which the Doctors are supposed to dispose themselves in their profession. He further argued that the Hon ble Delhi High Court had categorically held that the said notification cannot be made applicable to others and are applicable only to Doctors. In the instant case before us, he argued that the MCI notification cannot be made applicable to the Pharma companies like the assessee herein. In this regard, the relevant op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned minutes of meeting dated 27.10.2012, therefore, there is no cause of action for filing the instant writ petition. (ii) That the MCI has not passed any order against the petitioner and nor does the impugned minutes of meeting dated 27.10.2012 affect any legal right or interest of the petitioner which the petitioner seeks to enforce by filing this writ petition and thus the same is not maintainable. (iii) That the jurisdiction of MCI is limited only to take action against the registered medical professionals under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (hereinafter the 'Ethics Regulations') and has no jurisdiction to pass any order affecting rights/interests of any Hospital, therefore the MCI could not have passed and has not passed, any order against the petitioner which can be assailed before this Hon'ble Court in writ jurisdiction. (iv) That a simple observation made by the Ethics Committee of MCI about the state of affairs in the petitioner Hospital has harmed no legal right/interest of the petitioner for which a writ can be issued by this Hon'ble Court against the answering respondent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held as under: 5. We have considered the rival contentions made by ld. CIT DR as well as ld. Sr. Counsel, Mr J.D. Mistry, perused the relevant finding given in the impugned orders and material referred to before us. The entire controversy revolves around, whether the expenditures in question incurred by the assessee (a pharmaceutical company) is hit by Explanation 1 below section 37(1) in view of CBDT Circular dated 01.08.2012, interpreting the amendment dated 10.12.2009 brought in Indian Medical Council Regulation 2002 or not. The break-up of sales promotion expenses, which has been disallowed by the AO, are as under: Sr.No Particulars of expenses Amount (in Rs.) 1 Customer Relationship Management expenses (CRM) 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 Tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of freebees enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The Assessing Officers of such medical practitioner or professional associations should examine the same and take an appropriate action. This may be brought to the notice of all the officers of the charge for necessary action. From the perusal of the aforesaid Board Circular, it can be seen that heavy reliance has been placed by the CBDT on the Circulars issued by the Medical Council of India, which is the regulatory body constituted under the Medical Council Act, 1956 . One such regulation has been issued is Indian Medical Council Professional Conduct, Etiquette and Ethics) Regulations, 2002 . The said regulation deals with the professional conduct, etiquette and ethics for registered medical practitioners only. Chapter 6 of the said regulation/notification deals with unethical 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 const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it fulfils all the legal requirements prescribed for medical research. (iv) Ensure that the source and amount of funding is publicly disclosed at the beginning itself. (v) Ensure that proper care and facilities are provided to human volunteers, if they are necessary for the research project(s). (vi) Ensure that undue animal experimentations are not done and when these are necessary they are done in a scientific and a humane way. (vii) Ensure that while accepting such an assignment a medical practitioner shall have the freedom to publish the results of the research in the greater interest of the society by inserting such a clause in the MoU or any other document / agreement for any such assignment. f) Maintaining Professional Autonomy: In dealing with pharmaceutical and allied healthcare industry a medical practitioner shall always ensure that there shall never be any compromise either with his / her own professional 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 tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regulations do not govern or have any concern with the facilities, infrastructure or running of the Hospitals and secondly, that the Ethics Committee of the MCI acting under the Regulations had no jurisdiction to pass any direction or judgment on the infrastructure of any hospital which power rests solely with the concerned State Govt. The case of the Petitioner is that the Petitioner hospital is governed by the Delhi Nursing Homes Registration Act, 1953. It is urged that in fact, an inspection was also carried out on 22.07.2011 by Dr. R.N. Dass, Medical Superintendent (Nursing Home) under the Directorate of Health Services, Govt. of NCT of Delhi and the necessary equipments and facilities were found to be in order which negates the observations dated 27.10.2012 of the Ethics Committee of the MCI. It is also the plea of the Petitioner hospital that the Petitioner was not provided an opportunity of being heard and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. The aforesaid provision applies to an assessee who is claiming deduction of expenditure while computing his business income. The Explanation provides an embargo upon allowing any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law. This means that there should be an offence by an assessee who is claiming the expenditure or there is any kind of prohibition by law which is applicable to the assessee. Here in this case, no such offence of law has been brought on record, which prohibits the pharmaceutical company not to incur any development or sales promotion expenses. A law which is applicable to different 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ION 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; Gifts more than ₹ 1,000/ - upto ₹ 5,000/- : Censure Gifts more than ₹ 5,000/- upto ₹ 10,000/- : Removal from Indian Medical Register or State Medical Register for 3 (three) months Gifts more than ₹ 10,000/ - to ₹ 50,000/- : Removal from Indian Medical Register or State Medical Register for 6(six) months. Gifts more than ₹ 50,000/- to ₹ 1,00,000/ - : Removal from Indian Medical Register or State Medical Register for 1 (one) year. Gifts more than ₹ 1,00,000/ - : Removal for a period of more than 1 (one) year from Indian Medical Register or State Medical Register b) Travel facilities: A medical practitioner shall not accept any travel facility inside the country or outside, including rail, road, air, ship, cruise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Cash or monetary grants more than ₹ 1,000/-upto ₹ 5,000/-: Censure Cash or monetary grants more than ₹ 5,000/-upto ₹ 10,000/-: Removal from Indian Medical Register or State Medical Register for 3 (three) months. Cash or monetary grants more than ₹ 10,000/-to ₹ 50,000/-: Removal from Indian Medical Register or State Medical Register for 6 (six) months. Cash or monetary grants more than more than ₹ 50,000/-to ₹ 1,00,000/-: Removal from Indian Medical Register or State Medical Register for 1 (one) year. Cash or monetary grants more than ₹ 1,00,000/-: Removal for a period of more than 1 (one) year from Indian Medical Register or State Medical Register. From the aforesaid notification, ld. CIT DR submitted that so many violations and censures have been prescribed for any expenditures/ or benefit given to doctors, thus, violation of such guidelines for incurring such kind of expenditures cannot be held to be allowable expenditure. CBDT is well within its power to clarify and interpret the law and prohibit allowance of any expenditure which violates any statute or is in nature of offence. 8. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, leave alone creating a new burden by enlarging the scope of a different regulation issued under a different act so as to impose any kind of hardship or liability to the assessee. In any case, it is trite law that the CBDT circular which creates a burden or liability or imposes a new kind of imparity, same cannot be reckoned retrospectively. The beneficial circular may apply retrospectively but a circular imposing a burden has to be applied prospectively only. Here in this case the CBDT has enlarged the scope of Indian Medical Council Regulation, 2002 and made it applicable for the pharmaceutical companies. Therefore, such a CBDT circular cannot be reckoned to have retrospective effect. The same CBDT circular had come up for consideration before the co-ordinate Bench of the ITAT, Mumbai Bench in the case of Syncom Formulations (I) Ltd. (in ITA Nos. 6429 6428/Mum/2012 for A.Ys. 2010-11 and 2011-12, vide order dated 23.12.2015), wherein Tribunal held that CBDT circular would not be not be applicable in the A.Ys. 2010-11 and 2011-12 as it was introduced w.e.f. 1.8.2012. 10. From the perusal of the nature of expenditure incurred by the assessee, it is seen that under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd therapeutic, hence in order to provide correct diagnosis and treatment of the patients, it is imperative that the doctors should keep themselves updated with the latest developments in the medicine and the main object of such conferences and seminars is to update the doctors of the latest developments, which is beneficial to the doctors in treating the patients as well as the pharmaceutical companies. Further as pointed out and concluded by the learned CIT(A) there is no violation by the assessee in so far as giving any kind of freebies to the medical practitioners. Thus, such kind of expenditures by a pharmaceutical companies are purely for business purpose which has to be allowed as business expenditure and is not impaired by EXPLANATION 1 to section 37(1). 11. Before us, the Ld. CIT DR has also much harped upon the decision of the Hon ble Himachal Pradesh High Court in the case of Confederation of Indian Pharmaceutical Industry (SS) vs. CBDT (supra), in support of the argument that CBDT Circular has been approved and confirmed by the High Court and therefore, it has a huge binding precedence. From the perusal of the said judgment of the Hon ble High Court, it is seen tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) for A.Y. 2008-09, has decided similar issue in favour of the assessee. However, in A.Y. 2009-10, Hon ble Tribunal while noting the fact that consistency has to be adopted, distinguished the order of A.Y. 2008-09 as under: The assessee has contended that in the immediately preceding assessment year the Tribunal has decided the issue in favour of the assessee in ITA NO. 388/Mum/2012 for assessment year 2008-09. In our considered view, principles of Res judicata is not applicable to income tax proceedings although we are fully agreeable that principles of consistency is to be maintained (Hon ble Supreme Court decision in Radha Soami Satsang v. CIT (1992) 193 ITR 321 (SC) but in the instant assessment year, we have observed that these overseas trips for Doctors and their spouses were organized by the assessee whereby no details of the contents of seminar, if any conducted by the assessee overseas has been brought on record and also even the spouses accompanied the Doctors to the overseas trip which included cruise visit to island, gala dinners, cocktail, gala entertainment etc. rather than being directed towards seminar for product information dissemination or directed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retrospective effect. This judgment was lost sight of by the bench. In any case on careful perusal of the Tribunal order in the case of Liva Healthcare (supra) we find that the Tribunal though has incorporated the relevant provisions and clauses of the Indian Medical Council Regulation 2002 , however, has not elaborated or dwell upon as to how this MCI regulation which is strictly meant for medical practitioners and doctors can be made applicable to pharmaceutical companies. There has to be some enabling provision or specific clause in the said regulation whereby the pharmaceutical companies are barred from conducting seminars or conferences by sponsoring the doctors. The entire conduct relates to doctors and medical practitioners and lists out the censures and fines imposed upon them. What has not been provided in the MCI regulation cannot be supplied either by the court or by the CBDT. There has to be express provision under the law whereby pharmaceutical companies are prohibited to conduct conferences or seminar or give free samples. In the Tribunal decision of Liva Healthcare, strong reference has been made to Hon ble Himachal Pradesh High Court (supra), that the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mane to the issue involved. Thus, in our opinion, the aforesaid decision of this Tribunal is clearly distinguishable and cannot be held to be applicable and also we have already given our independent finding as to allowability of expenses in the hands of the assessee as business expenditure. 14. Accordingly, we uphold the order of the ld. CIT(A) deleting the disallowance aggregating to ₹ 22,99,72,607/-. 5.3. The next proposition made by the Ld. AR was that the regulations and guidelines issued by the MCI contains only code of conduct in respect of the Doctors and other medical professionals and are not applicable to Pharmaceuticals or allied health sector industries. In this regard, the reliance placed on the aforesaid decision is well founded. The Ld. AR finally placed reliance on the recent decision of this Tribunal in the case of Aristo Pharma Private Limited Vs. ACIT in ITA No. 6680/Mum/2012; ITA No. 5553/Mum/2014; ITA No. 5479/Mum/2015; ITA No. 6129/Mum/2014; ITA No. 5167/Mum/2015; and ITA No. 5747/Mum/2015 for the A.Ys 2005-06, 2009-10, 2010-11 and 2011- 12 dated 26.07.2018. 5.4. In any case, in our considered opinion, we hold that it is trite law that CBDT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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