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The issue that is canvassed at the bar relates to the physician's samples that the assessee, a pharmaceutical company, distributes to the medical profession. It is the assessee's case that these are all samples of prescription drugs, and we proceed upon that the distribution of physician's samples to doctors did not amount to advertisement or publicity or sales promotion and therefore all the expenditure incurred by the appellants on such distribution was exempt, under the provisions of sec. 37 of the I.T.Act, 1961 (for short the Act) as expenditure incurred wholly and exclusively for the purpose of the appellants business and not subject to the restrictions on allowability contained in sub-section (3A) thereof.

Learened counsel for the assessee submitted that the physician's samples were distributed only to doctors and therefore, the expenditure incurred thereon could not be said to be for advertisement or publicity or sales promotion. He submitted that the purpose of such distribution was to obtain a feedback from the medical profession as to the efficacy of the distributed drugs. As to the first point, we are entirely in agreement with the view taken in the judgment under appeal. Having regard to the fact that these are prescription drugs, the traget for any advertisement or publicity or sales promotion thereof could only be the doctors who would prescribe them. The object, we have no doubt, of distribution of the samples of the drugs to the doctors is to make them aware that such drugs are available in the market in relation to the cure of a particular affliction and therefore, to persuade them to prescribe the same in appropriate cases. So doing is, in our view tantamount to publicity and sales promotion. Regarding the submission that the distrubution of the physician's samples of the drugs is meant only for obtaining feedback from the doctors, we should have thought that the assessee would have backed it up by the production of such feedback in the form of filled up questionnaires or letters as it might have received from doctors in the past, if any. It is an eloquent answer to the submission that there has been no such production.

In the instant case, the assessee claimed expenditure on distribution of physicians samples under sec 37 general head. In view of the principles settled by this court in the aforesaid decision, if the expenditure falls within the bare minimum it will not be caught by sub-section (3A) of sec 37, but if it is of the nature which is not essential to the carrying of the business, it will be within the net of sub-section (3A). Physicians' samples are necessary to ascertain the efficacy of the medicine and to introduce it in the market for circulation and it is only by this method the purpose is achieved. In such cases giving physicians samples for a reasonable period is essential to the business of manufacture and sales of the medicine. But if a particular medicine has been introduced into the market and its uses are established, giving of free samples could only be as a measure of sales promotion and advertisement and would thus be hit by sub-section (3A). As in this case there is a finding of the Commissioner (Appeals) and confirmed by the Tribunal that the expenditure was incurred to test the efficacy of the drug, the expenditure would be within the ambit of bare minimum to carry on the business. for these reasons, it has to be held that the expenditure on physicians' samples distributed to doctors is outside the scope of sub-section (3A) of section 37 of the Act. Therefore, the appellante authority as exclusion of the expenditure on free samples supplied to the doctors in working out disallowance under section 37 (3A) of the Act."

We find it difficult to draw the distinction that the A.P. High Court made between expenditure that is essential to the running of the business and other expendditure, all this expenditure being incurred for the same purpose. If all this expenditure on distribution of physician's samples is incurred for the purposes of publicity or sales promotion as we think it is it falls within the scope of sec 37 (3A) of the Act and would be subject to the limitations as to allowability therein contained. Further, it should be noted that in the case of J & J Dechane Laboratories (P) Ltd. (supra), the Commissioner (Appeals) and the the Tribunal had found as a fact that some expenditure had been incurred to test the efficacy of the concerned drug. There is no such finging in the case before us.