TMI Blog2022 (2) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... n prohibited by law, precludes the assessee from claiming it as a deductible expenditure. The incentives (or freebies ) given by Apex, to the doctors, had a direct result of exposing the recipients to the odium of sanctions, leading to a ban on their practice of medicine. Those sanctions are mandated by law, as they are embodied in the code of conduct and ethics, which are normative, and have legally binding effect. The conceded participation of the assessee- i.e., the provider or donor- was plainly prohibited, as far as their receipt by the medical practitioners was concerned. That medical practitioners were forbidden from accepting such gifts, or freebies was no less a prohibition on the part of their giver, or donor, i.e., Apex. In view of the foregoing discussion, the impugned judgment cannot be faulted with. The appeal is dismissed without order on costs - CIVIL APPEAL NO… /2022 (@ SPECIAL LEAVE PETITION (CIVIL) NO. 23207 OF 2019) - - - Dated:- 22-2-2022 - [UDAY UMESH LALIT, J.] And [S. RAVINDRA BHAT, J.] For the Petitioner : Mr. S. Ganesh, Sr. Adv. Mr. T. Sundar Ramanathan, Adv. Mr. M. P. Devanath, AOR Mr. Vivek Pandey, Adv. Mr. Ishaan Chakrabarti, Adv. Ms. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia gifts, travel facilities, hospitality, cash or monetary grants. Id., Regulation 6.8, Code of Conduct for Doctors in their Relationship with Pharmaceutical and Allied Health Sector Industry Acceptance of such freebies could result in a range of sanctions against the medical practitioners, from censure for incentives received up to ₹ 5,000/-, to removal from the Indian Medical Register or State Medical Register for periods ranging from three months to one year. Regulation 6.8.1, inserted by Notification No. MCI-211(1)/2010(Ethics)/163013, issued on 01.02.2016 Therefore, only the expenses incurred till 14.12.2009 were eligible for the benefit of Section 37(1), and not for the entirety of the Assessment Year 2010-2011, as claimed by Apex. Contentions of Apex 5. It was argued by the counsel for Apex, Mr. S. Ganesh, Senior Advocate, that the amended 2002 Regulations were not applicable to Apex, i.e., pharmaceutical companies were not bound by them. While medical practitioners were expressly prohibited from accepting freebies, no corresponding prohibition in the form of any binding norm was imposed on the pharmaceutical companies gifting them. In the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e court on legal principles and not on one's own moral views. Law is different from morality, as the positivist jurists Bentham and Austin pointed out. 8. It was argued that similarly, in Commissioner of Income Tax v. M/s Khemchand Motilal Jain 2011 (4) MPLJ 691 , a Division Bench of the Madhya Pradesh High Court allowed ransom money paid to the kidnappers of an employee of the respondent company on a business trip as business expenditure under Section 37(1), holding that: The aforesaid section provides that kidnapping a person for ransom is an offence and any person doing so or compelling to pay is liable for the punishment as provided in the Section, but nowhere it is provided that to save a life of the person if a ransom is paid, it will amount to an offence. No provision is brought to our notice that payment of ransom is prohibited by any law. In absence of it, the Explanation of sub-section (1), section 37 will not be applicable in the present case. *** Sukhnandan Jain remained in custody for a period of nearabout 20 days. The police were also informed and after waiting 20 days for the police action. If the respondents to save his life paid the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 239 Contentions of Revenue Authorities 11. Mr. Sanjay Jain, Additional Solicitor General appearing for the respondent revenue authorities, submitted that while the act of pharmaceutical companies gifting freebies to medical practitioners for promotion of their products may not be classified as an offence under any statue, it was squarely covered within the scope of Explanation 1 to Section 37(1) by use of the words prohibited by law , as it was specifically prohibited by the amended 2002 Regulations. While Apex could not be punished , it should not be allowed to benefit by claiming a tax exemption on the freebies distributed. 12. Further, the ASG submitted that Parliament s intention to disincentivize the practice of receiving extravagant freebies in exchange for prescribing expensive branded medication over its equally effective generic counterparts, thereby burdening patients with unnecessary costs, was apparent not only from the amended 2002 Regulations, but also the Prevention of Corruption Act, 1988 (hereinafter, PC Act ). A government doctor receiving any illegal gratification amounting to malpractice or any other offence was liable to be charged under PC Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1872 (hereinafter, Contract Act ) to hold the consideration or object of the agreement between the assessee and private doctors as unlawful, and the agreement therefore void, as it was opposed to public policy. 15. A Division Bench of the Himachal Pradesh High Court decided along similar lines in Confederation of Indian Pharmaceutical Industry (SSI) v. Central Board of Direct Taxes (2013) 353 ITR 388 (HP HC) ( hereinafter, Confederation ), holding: This regulation is a very salutary regulation which is in the interest of the patients and the public. This court is not oblivious to the increasing complaints that the medical practitioners do not prescribe generic medicines and prescribe branded medicines only in lieu of the gifts and other freebies granted to them by some particular pharmaceutical industries. Once this has been prohibited by the Medical Council under the powers vested in it, section 37(1) of the Income-tax Act comes into play The High Court also upheld the legality of the CBDT circular dated 01.08.2012, stating that it was for the assessee to establish to the Assessing Officer that the expenditure incurred was not in violation of 2002 Regulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.] (emphasis supplied) Section 37 is a residuary provision. Any business or professional expenditure which does not ordinarily fall under Sections 30-36, and which are not in the nature of capital expenditure or personal expenses, can claim the benefit of this exemption. But the same is not absolute. Explanation 1, which was inserted in 1998 with retrospective effect from 01.04.1962, restricts the application of such exemption for any purpose which is an offence or which is prohibited by law . The IT Act does not provide a definition for these terms. Section 2(38) of the General Clauses Act, 1897 defines offence as any act or omission made punishable by any law for the time being in force . Under the IPC, Section 40 defines it as a thing punishable by this Code , read with Section 43 which defines illegal as being applicable to everything which is an offence or which is prohibited by law, or which furnishes ground for a civil action . It is therefore clear that Explanation 1 contains with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 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 sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry provisions. CBDT circulars act like 'contemporanea expositio' in interpreting the statutory provisions and to ascertain the true meaning enunciated at the time when statute was enacted. However the CBDT in its power cannot create a new impairment adverse to an assessee or to a class of assessee without any sanction of law. The circular issued by the CBDT must confirm to tax laws and for purpose of giving administrative relief or for clarifying the provisions of law and cannot impose a burden on the assessee, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by reason of the provisions of Article 105(2), the alleged bribe-takers had committed no offence, the alleged bribe-givers had also committed no offence. Article 105(2) does not provide that what is otherwise an offence is not an offence when it is committed by a Member of Parliament and has a connection with his speech or vote therein. What is provided thereby is that a Member of Parliament shall not be answerable in a court of law for something that has a nexus to his speech or vote in Parliament. If a Member of Parliament has, by his speech or vote in Parliament, committed an offence, he enjoys, by reason of Article 105(2), immunity from prosecution therefor. Those who have conspired with the Member of Parliament in the commission of that offence have no such immunity. They can, therefore, be prosecuted for it. *** 147. Mr Rao submitted that the alleged bribe-givers had breached Parliament's privilege and been guilty of its contempt and it should be left to Parliament to deal with them. By the same sets of acts the alleged bribe-takers and the alleged bribe-givers committed offences under the criminal law and breaches of Parliament's privileges and its contemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court to administer election petitions by invoking the rule of implied prohibition. The Court observed that: Dealing with Statutes conferring power; implied conditions, judicial review , Justice G.P. Singh states in the Principles of Statutory Interpretation (Eight Edition 2001, at pp. 333, 334) that a power conferred by a statute often contains express conditions for its exercise and in the absence of or in addition to the express conditions there are also implied conditions for exercise of the power. An affirmative statute introductive of a new law directing a thing to be done in a certain way mandates, even if there be no negative words, that the thing shall not be done in any other way. This rule of implied prohibition is subserved to the basic principle that the Court must, as far as possible, attach a construction which effectuates the legislative intent and purpose. Further, the rule of implied prohibition does not negative the principle that an express grant of statutory power carries with it by necessary implication the authority to use all reasonable means to make such grant effective. To illustrate, an Act of Parliament conferring jurisdiction over an offence i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory regimes and regulations. Therefore, denial of the tax benefit cannot be construed as penalizing the assessee pharmaceutical company. Only its participation in what is plainly an action prohibited by law, precludes the assessee from claiming it as a deductible expenditure. 28. This Court also notices that medical practitioners have a quasi-fiduciary relationship with their patients. A doctor s prescription is considered the final word on the medication to be availed by the patient, even if the cost of such medication is unaffordable or barely within the economic reach of the patient such is the level of trust reposed in doctors. Therefore, it is a matter of great public importance and concern, when it is demonstrated that a doctor s prescription can be manipulated, and driven by the motive to avail the freebies offered to them by pharmaceutical companies, ranging from gifts such as gold coins, fridges and LCD TVs to funding international trips for vacations or to attend medical conferences. These freebies are technically not free the cost of supplying such freebies is usually factored into the drug, driving prices up, thus creating a perpetual publicly injurious cy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution of multiple source brands would have resulted in total spending on generic drugs of $39.9 billion, saving the Part D program and its beneficiaries $2.8 billion in 2016. These estimates do not account for manufacturer rebates paid to Part D plans or pharmacy benefit managers (PBMs) or statutory discounts paid by manufacturers for brand name drugs, and thus may overstate savings to the program after accounting for the effects that rebates often have on premiums. See Figure 1. *********** Of this $2.8 billion, $2.25 billion is for brand name drugs that have faced generic competition for at least a full year (e.g. the first generic was available in 2015 or earlier). A further $584 million in savings is estimated for substituting generics that were first launched in 2016 and therefore on the market for less than a full year. These 12 Single source includes payments for brand drugs prior to generic entry, e.g. $1.13 billion of Crestor spending in the example used in the Methods section. savings are likely to grow as additional generic competitors enter the market. Beneficiaries spent $1.1 billion out-of-pocket in cost-sharing for brand drugs with comparable generics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Doctors: Now There s Proof: Docs who Get Company Cash Tend to Prescribe More Brand-Name Meds (dated 17.03.2016) https://www.propublica.org/article/doctors-who-take-company-cash-tend-to-prescribe-more-brand-name-drugs accessed at 16:45 on 13.02-2022 stated that: doctors who receive payments from the medical industry do indeed tend to prescribe drugs differently than their colleagues who don t. And the more money they receive, on average, the more brand-name medications they prescribe. Data is now available publicly, in the United States, by reason of the Physician Payment Sunshine Act, 2010 i.e., Section 6002 of the Affordable Care Act, 2010. This law compels manufacturers of drugs, devices, biologics, and medical supplies covered by Medicare, Medicaid, or the Children's Health Insurance Program to report to the Centers for Medicare Medicaid Services on three broad categories of payments or transfers of value . These categories cover general payments or transfers of value such as meals, travel reimbursement, and consulting fees. These include expenses borne by manufacturers, such as speaker fees, travel, gifts, honoraria, entertainment, charitable contri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful, is void. (emphasis supplied) 32. Before us, Apex has continually stressed on the need to divorce interpretation of tax provisions from a perceived immorality / violation of public policy. Apex repeatedly relied on T.A. Quereshi (supra), M/s K.M. Jain (supra) and CIT v. Pt. Vishwanath Sharma I.T.R. No. 27 of 1999, Allahabad HC, dated 21.02.2008 . We find that none of these judgments find much favour with the case of the appellant. T.A. Quereshi addressed a business loss , not a business expenditure as envisioned under Section 37(1). In M/s K.M. Jain, the ransom money paid to kidnappers of the employee of the assessee company was allowed deduction primarily based on the fact that the assessee was helpless and coerced to pay the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t should be adopted even if it leads to a discriminatory or incongruous result. Interpretation of statutes cannot be a mechanical exercise. Object of all the rules of interpretation is to give effect to the object of the enactment having regard to the language used . Justice Oliver Wendell Holmes had once said: A word is not a crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in colour and content according to the circumstances and the time in which it is used. Tomne v. Eispzer, 245 U.S. 418 (1918) Holmes thus summed up the elusive nature of words, which lies at the heart of the many issues concerning interpretation of statutes. 34. Interpretation of law has two essential purposes: one is to clarify to the people governed by it, the meaning of the letter of the law; the other is to shed light and give shape to the intent of the law maker. And, in this process the courts' responsibility lies in discerning the social purpose which the specific provision subserves. Thus, the cold letter of the law is not an abstract exercise in semantics which practitioners are wont to indulge in. So viewed the law has birthed various id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement being genuine cannot, therefore, arise. It is also a known principle that what cannot be done directly, cannot be achieved indirectly. As was said in Fox v. Bishop of Chester (1824) 2 B C 635, quoted and applied in Jagir Singh v. Ranbir Singh Ors. 1979 (2) SCR 282 that it is a: Well-known principle of law that the provisions of an Act of Parliament shall not be evaded by shift or contrivance And that: To carry out effectually the object of a Statute, it must be construed as to defeat all attempts to do, or avoid doing, in an indirect or circuitous manner that which it has prohibited or enjoined This Court, in an appeal arising from an action for specific performance, in G.T. Girish v. Y. Subba Raju (D) by L. Rs Ors 2022 SCC Online SC 60, held that giving the relief would imply doing something prohibited by law (bar against conveyance, for a specific period) it had the effect of defeating the provisions of the law. It was held that: Taking the agreement as it is, it necessarily would be in the teeth of the obligation in law of the first Respondent to put up the construction. The agreement to sell involved clearly terms which are implie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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