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TMI BlogPharmaceutical companies’ gifting freebies to doctors, etc. - whether Allowable Business expenditure under Section 37(1)?X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2012. Origin of the issue: Appellant ("Apex") is aggrieved by a judgment of the High Court of Judicature of Madras 2019 (5) TMI 110 - MADRAS HIGH COURT upheld an order of the Income Tax Appellate 2018 (1) TMI 1671 - ITAT CHENNAI which in turn upheld an order of the Commissioner of Income Tax (Appeals who partly allowed an appeal from an order of the respondent Deputy Commissioner of Income Tax which partially allowed amounts claimed by Apex as 'business expenditure' under Section 37(1) of the Income Tax Act, 1961 Contentions of assessee: 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. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncil (Professional Conduct, Etiquette and Ethics) Regulations, 2002 under which receiving of the same by the medical practitioner is prohibited and violation of which invites punishment and disciplinary proceedings against doctors. In my considered opinion petitioner being a participant in an act which is an offence and is prohibited by law is not entitled for any deduction under Section 37 (1) of the Income Tax Act, 1961, and the aforesaid nature of expenses are disallowable under Explanation 1 to Section 37. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal 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 cycle. Pharmaceutical companies' gifting freebies to doctors, etc. is clearly "prohibited by law", and not allowed to be claimed as a deduction under Section 37(1). Doing so would wholly undermine public policy. The well-established principle of interpretation of taxing statutes - that they need to be interpreted strictly - cannot sustain when it results in an absurdity contrary to the intentions of the Parliament. In our case the incentives (or "freebies") given by Apex, to the doctors, had a direct resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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