Indian Kanoon - Search engine for Indian Law

4.3 On the contrary, the learned AR before us filed a containing the gist of his arguments running from pages 1 to 9 and contended that the issue regarding the freebies to the doctors has already been decided in its favour by the ITAT in its own case in the earlier assessment years. The learned AR in support of his contention drew our attention to the order of the ITAT bearing ITA No. 2458/AHD/2017, 939 and 1129/AHD/2019 for the assessment years 2010-11 to 2012-13.

4.4 The learned AR also pointed out that disallowance on account of freebies to the doctors was brought under the statute by the Finance Act 2022 applicable from 01-04-2022. Furthermore, the Hon'ble Supreme Court delivered the judgement in the case of Apex laboratories prior to such amendment. Therefore, the learned AR contended that the principles laid down by the Hon'ble Supreme Court cannot be applied in the given case for the year in dispute.

5.1 However, the CBDT Circular No. 5 of 2012, forbids medical professionals and their professional associates from accepting any form of incentives or "freebies" from the pharmaceutical and allied health sector industries. In the said circular, it was also made clear that any costs incurred in providing the freebies or those like them would be considered illegal expenses in violation of Regulation 6.8.1 of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the Regulations) in pursuance to the explanation attached to section 37(1) of the Act. Accordingly, the deductions for having supplied freebies and written them off as business expenses by the companies in the pharmaceutical and allied health industries, as well as any other assesses will be denied.

5.2 Earlier there was a confusion as to whether the Circular will be applicable to pharmaceutical companies or not but after the judgment of Hon'ble Supreme Court in the case of M/s Apex Laboratories (P.) Ltd. (P.) Ltd. v. Dy. CIT reported in 135 taxmann.com 286, there remains no confusion that the same would apply to pharmaceutical companies. In the case of M/s Apex Laboratories (P.) Ltd. despite the Hon'ble Supreme Court making the Circular applicable on pharmaceutical companies and holding the judgment against the assessee, highlighted on the essence where the freebies or gifts have the potential to ITA nos.107/AHD/2020 With C.O.No.71/Ahd/2020 Asstt. Year 2013-14 influence or manipulate the prescription of a medical practitioner which can be incentivize the doctor's intention to avail more luxurious and expensive freebies offered by the pharmaceutical companies. The relevant extract of the judgment is extracted below:

33. Thus, 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.

5.3 The meaning of gift/freebie has not been defined in the Circular. Generally, the word gift refers to the transfer of certain existing movable or immovable property voluntarily and without any direct or indirect consideration. A gift is understood to be something that neither the donee ever demanded nor for which the donee can be compelled to give back something in return to the donor. However, the intent behind giving gifts to a medical practitioner has been observed to be for the motive and purpose to influence the prescription of the medical practitioner with the intention of seeding the medicines/products of such donor pharmaceutical companies to the patients at a preferential level. Thus, in view of the above, we hold that the assessee is not entitled to the deduction on account of the freebies given to the doctors.