TMI Blog2018 (4) TMI 1898X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. So once the Indian Medical Council Regulation does not have any jurisdiction nor has any authority under law upon the pharmaceutical company or any allied health sector industry, then such a regulation cannot have any prohibitory effect on the pharmaceutical company like the assessee. Thus, considering the above factual and the legal position, we are of the view that expenditure incurred by assessee on distributing glass, face mask, pen, writing pad, towel set, wall clock, paper cups except Voltas Cooler and stabilizer cannot be regarded as freebies given to the Doctors. Hence, except the cost of the Voltas Cooler and stabilizer we allow all the remaining expenditure incurred by the assessee on account of sale promotion expenses. Therefore, the ground of appeal raised by the assessee is partly allowed. - ITA No.6244, 6245/Mum/2017 - - - Dated:- 20-4-2018 - SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER Appellant by : Sh. Yogesh Thar AR Respondent by : Sh. V. Justine Sr DR ORDER PER PAWAN SINGH, JUDICIAL MEMBER: 1. These two appeals by assessee under section 253 of Income tax Act are directed against the separate or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e promotion expenses are allowable business expenditure. The expenses are such that the same would not be considered for the purpose which is an offence or which is prohibited by law according to the explanation attached with section 37(1) of the Act. The ld AR submits that the assessee incurred expenses on the following items; Serial No. Date Particular of expenses Amount in Rs 1 30/04/2011 Set of 4 glasses @ 275 per set for Thermoseal 12,99,375/- 2 02/05/2011 Disposable face mask (Set of 25) @ 40 per set 2,31,000/- 3 21/05/2011 Pen with name of the products (Thermoseal and Hexidine) embossed on it @ 25.5 per pen 3,34,688/- 4 09/06/2011 Doctor writing pad @ 24 per unit 69,023/- 5 25/07/2011 Pen with name of the products (Thermoseal and Hexidine) embossed on it @ 35.40 per pen. Chemist o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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.com36)(Mum.) and Sanjay Pharma India Ltd Vs PCIT( 89 taxmann.com249). 5. For second proposition the ld AR for the assessee submits that expenses incurred for sale promotion and advertisement and not for the purpose of distributing the gift, the ld AR for the assessee relied on the decisions of Calcutta High Court in Indian Oxygen Ltd Vs CIT (210 ITR 274) (Cal), CIT Vs Dabur Pvt Ltd (250ITR 301)(Kol), decision of Tribunal in ACIT Vs Dupen Laboratories Private Ltd (ITA No.5195/M/2013), Macleod s Pharmaceuticals Ltd Vs ACIT (taxmann.com250) and Syncom Formulation Ltd Vs DCIT (ITA No.6429/M/2012). In support of legal submissions that the Circular No.5/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p 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 have noted that the facts of the case law relied by ld CIT(A) in CIT Vs Moidu s Medicare (P) ltd (supra) are quite different, in the said case the assessee claimed to have paid commissions to the Doctors and could not substantiate its claim and even not disclosed the names of the persons to whom such commission was paid. The decision in case of Kap Scan and Diagnostic Centre (P) Ltd (supra) and in Confederation of Indian Pharmaceutical Industry Vs CBDT (supra) was considered and differentiated by Mumbai Tribunal in DCIT Vs PHL Pharma(P) Ltd, which we shall refereed in preceding paras. In Apex Laboratories (P) Limited Vs ACIT (supra) the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ND 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 sector Industries. 3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this subsection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 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 healthcare industry for individual purpose in individual capacity under any pretext. Funding for medical research, study etc. can only be received through approved institutions by modalities laid down by law / rules / guidelines adopted by such approved institutions, in a transparent manner. It shall always be fully disclosed. (e) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly. 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 companies or health care sector in any manner. The department has not brought anything on record to show that the aforesaid regulation issued by Medical Council of India is meant for pharmaceutical companies in any manner. On the contrary, before us the learned senior counsel, Shri Mistry brought to our notice the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 allied health sector industry, then such a regulation cannot have any prohibitory effect on the pharmaceutical company like the assessee. If Medical Council regulation does not have any jurisdiction upon pharmaceutical companies and it is inapplicable upon Pharma companies like assessee then, where is the violation of any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aused 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 said notification as relied upon by him is reproduced hereunder: 6.8. Code of conduct for doctors in their relationship with pharmaceutical and allied health sector industry. The Section 68.1(b) shall be substituted in terms of Notification published on 01.02.2016 in Gazette of India, as under: (b) Travel facilities: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three) months. Expenses for travel facilities more than ₹ 10,000/-to ₹ 50,000/-: Removal from Indian Medical Register or State medical Register for 6 (six) months. Expenses for travel facilities more than ₹ 50,000/- to ₹ 1,00,000/-: Removal from Indian Medical Register or State Medical Register for 1 (one) year. Expenses for travel facilities more than ₹ 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 ₹ 1,000/- upto ₹ 5,000/-: Censure Expenses for Hospitality more than ₹ 5,000/- upto ₹ 10,000/-: Removal from Indian Medical Register or State Medical Register for 3 (three) months. Expenses for Hospitality more than ₹ 10,000/- to Expenses for Hospitality more than ₹ 10,000/- to months. Expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 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 en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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, 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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