Gujarat High Court
Commissioner Of Income Tax vs Torrent Laboratories (P) Ltd. on 29 November, 1999
Equivalent citations: [2000]245ITR29(GUJ)
ORDER B.C. Patel, J.
1. The CIT Gujarat (Central), Ahmedabad has preferred this application under s. 256(2) of the IT Act, 1961 (hereinafter referred to as "the Act'). The applicant moved Income-tax Appellate Tribunal (hereinafter referred to as the "Tribunal") inter alia requesting to make a reference under s. 256(1) of the Act for the opinion of the Court on the question which reads as under.
"Whether the Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the addition of Rs. 1,57,149 made under s. 37(3A) in respect of expenditure incurred on literature distributed to doctors ?"
2. Mr. Nayak, learned counsel appearing for the Revenue submitted that the expenditure for printing of calenders and literature ought not to have been allowed. He was of the view that the AO on reading the Explanation has rightly come to a conclusion that the amount spent for literature is not permissible. He called for the files from the AO. The assessee vide its reply, dt. 22nd January, 1992 in para 3 with regard to art work expenses of Rs. 1,57,149 submitted as under.
"All the details regarding art work expenses are enclosed herewith. Even the specimen zerox copies of the work done is also enclosed herewith. These (are) neither sales promotion expenses nor advertisement expenses. The said expenditure has been incurred on product's literature blocks, product's literature art, product's literature photography and other literature expenses. Few specimen of the literature are enclosed herewith to bring to your notice out of number of such literature. Literature in medicine is necessary when any product is to be consumed or used by the doctors. Literature is used for using of the medicines rather than using the same for sales promotion. Take an example of literature 'Amlin-75' it gives education to the doctors, compounders, nurses and other users of the drugs. It gives knowledge about the chemistry of the medicines, how it is absolved in the body and what will be the mode of action and also gives technical data which has nothing to do with sale but it has definitely to do with the health of the patients or users of the medicine. It gives indication about the side effects and it has to be used strictly by the registered medical practitioners or hospitals or laboratories. Thus, law suggests that such information is to be provided to all the users of the medicine."
3. We have perused the literature annexed with the reply. In all five pamphlets were produced along with the reply. The CIT(A) as well as the Tribunal were of the view, that the literature which contains basic information about the contents of the products/medicine, its side effects etc. clinical pharmacology, indications and contra-indications and medical references which are meant for the limited use of the medical practitioners and the laboratories and the same cannot be said to be an advertisement. Hence, the case of the assessee cannot be said to be covered by mischief of s. 37(3A). The amount spent whether should be considered as revenue expenditure or not, one must bear in mind that merely because informative literature in attractive print is in the circulation for the doctors, nurses or the laboratories, it would not amount to advertisement, publicity or sales promotion. Medical practitioners are required to be informed about day-to-day inventions in the pharmaceutical world. They are also required to be informed about the effect of one or the other combinations of the drug together. As regards the expenditure incurred to test the efficacy of the drug by giving free samples to the medical practitioners, the Andhra Pradesh High Court held that the expenditure would be within the ambit of carrying on business and held that the expenditure on physicians samples distributed to doctors is outside the scope of s. 37(3A) of the Act. The Andhra Pradesh High Court referred the decisions in the case of CIT vs. Ampro Food Products (1995) 215 ITR 904 (AP) : TC S17.1926, and also the decision of Calcutta High Court in the case of CIT vs. Bata India Ltd. (1993) 201 ITR 884 (Cal) : TC 17R.1407. Considering all these decisions, the Andhra Pradesh High Court in the case of CIT vs. Ampro Food Products (supra) held as under.
"From the above discussion what follows is that the expenditure of the nature which is essential to the running of the business-bare minimum to carry on trade would not fall within the meaning of the three expressions i.e., advertisement, publicity and sales promotion. The other expenditure incurred under any of the three heads would be within the mischief of the provisions of sub-s. (3A) of s. 37 of the Act and, therefore, will have to be scaled down."
4. Distribution of informative and explanatory literature to doctors, nurses, hospitals and laboratories is essential for running of the business and bare minimum to carry on trade. The Tribunal relied on the decision of the Andhra Pradesh High Court in the case of CIT vs. J & J Dechane Laboratories (P) Ltd. (1996) 222 ITR 11 (AP) : TC S17.1927 which has considered the aforesaid decisions and held that the appellate authority as well as the Tribunal were right in directing the exclusion of the expenditure of free samples supplied to the doctors in working out disallowance under s. 37(3A) of the Act.
5. The Court in CIT vs. J & J Dechane Laboratories (P) Ltd. (supra) distinguished on facts the decision of Karnataka High Court in Smith Kline & French (India) Ltd. vs. CIT (1997) 193 ITR 582 (Kar) : TC 17R.804, the Karnataka High Court was of the view that if the object of supplying free samples is only to find out the reaction of the medical practitioners about the efficacy of the curative value of the drug, the supply of free samples would have been confined to the initial stages of the production of the new drug. The assessee had not contended that the free samples were distributed only when a drug was introduced for the first time. Moreover, in the original return, the assessee had shown these sums under the head "advertisement". It is under these circumstances, the Court held that the expenditure incurred amounts to an expenditure on advertisement, publicity and sales promotion falling within the restrictive provisions of s. 37(3A) of the Act.
6. The Tribunal also distinguished the decision of the Karnataka High Court by pointing out that the case on hand was pertaining to the expenditure which as incurred on literature which was meant for dissemination of knowledge/information and was educative in nature.
7. CIT(A) adverted to "advertisement" and indicated rightly what advertisement means. It was specific case that literature was for doctors, nurses, hospitals and laboratories. When a doctor is supplied with literature there is no inducement to prescribe or buy a particular drug as literature is meant for supplying basic information about the drug i.e. one or more or several combinations of drugs. The CIT(A) has recorded in the order that on going through the literature placed on record what is found is conveying information and knowledge and the commonman cannot make use of this literature. Therefore CIT(A) held that the literature is not in the nature of advertisement. This finding recorded by the CIT(A) has been confirmed by the Tribunal and therefore also, no substantial question of law can be said to have been raised. On this ground also, the appeal must fail.
8. It is required to be noted that the doctors are experts in human anatomy and they have expertise in curing the disease with the aid of medicine. So far as the medicines are concerned, that is the subject-matter of a pharmacist who has to explain to the doctors about the contents of the medicine with greater detail so as to make them aware about the real use of the medicine and its effects and its effects on human being. In view of what we have stated hereinabove, there is no reason to entertain this application and hence, the same stands rejected.