By Jagdish T. Punjabi
Bhadresh Doshi
Chartered Accountants
[2018] 89 taxmann.com 249 (Mumbai – Trib.)
Solvay Pharma India Ltd. vs. Pr.CIT
ITA No. : 3585 (Mum) of 2016
A.Y.: 2011-12 Date of Order: 11th January, 2018
Medical Council of India Regulations do not
apply to pharma companies.
FACTS
The assessee company incurred Advertisement
expense of Rs. 25,02,929 and Publicity and Propaganda Expense of Rs.
15,94,99,360. The assessee in his letter
informed the Assessing Officer (AO) that Advertisement expenses are in
compliance with CBDT Circular No. 5/2012 dated 1.8.2012 but did not furnish any
further details. The AO neither called
for the books of accounts nor called for any evidence such as invoices,
vouchers, etc. The assessee was neither asked
to file by the AO nor did it suo moto file any corroborative details in respect
of Publicity and Propoganda Expenses.
The CIT was of the view that if any
expenditure incurred is claimed u/s. 37 especially those expenditure which the
business entity incurs on items which may broadly be classified as
`Advertisement, Marketing and Business Promotion’ (in short AMP), the
possibility of incurring expenditure on prohibited items as per Explanation
below section 37(1) of the Act exists which must be ruled out by some
examination of corroborative evidence called for and produced before the
AO. Since the AO did not make any
inquiry, the CIT held the assessment order to be erroneous and prejudicial to
the interest of the revenue. He rejected
the contentions of the assessee that the MCI regulations are not applicable to
pharma companies but only to medical practitioners. He also rejected the contention that
expenditure so incurred is not in the nature of freebies to the doctors.
Aggrieved, the assessee preferred an appeal
to the Tribunal.
HELD
The Tribunal held that the MCI Regulations
are not applicable to the assessee, the question of assessee incurring
expenditure in alleged violation of the regulation does not arise.
CBDT Circular No. 5 of 2012 seeks to
disallow expenditure incurred by pharmaceutical companies interalia in providing
`freebies’ to doctors in violation of the MCI Regulations. The term “freebies” has neither been defined
in the Income-tax Act nor in the MCI Regulations. However, the expenditure so incurred by
assessee does not amount to provision of `freebies’ to medical
practitioners. The expenditure incurred
by it is in the normal course of its business for the purpose of marketing of
its products and dissemination of knowledge etc. and not with a view to giving
something free of charge to the doctors.
The act of giving something free of charge is incidental to the main
objective of product awareness.
Accordingly, it does not amount to provision of freebies. Consequently, there is no question of
contravention of the MCI Regulations and applicability of Circular No. 5 of
2012 for disallowance of the expenditure.
Explanation to section 37(1) provides an
embargo upon allowing any expenditure incurred by the assessee for any purpose
which is an offence or which is prohibited by law. This means that there should be an offence by
an assessee who is claiming the expenditure or there is any kind of prohibition
by law which is applicable to the assessee.
Here in this case, no such offence of law has been brought on record, which
prohibits the pharmaceutical company not to incur any development or sales
promotion expenses.
CBDT Circular
dated 1.8.2012 in its clarification has enlarged the scope and applicability of
`Indian Medical Council Regulation, 2002’ by making it applicable to the
pharmaceutical companies or allied health care sector industries. Such an enlargement of scope of MCI
regulation to the pharmaceutical companies by the CBDT is without any enabling
provisions either under the provision of the Income-tax Law or by any
provisions under the Indian Medical Council Regulations. The CBDT cannot
provide casus omissus to a statute or notification or any regulation
which has not been expressly provided therein.
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 to have retrospective effect. The free
sample of medicine is only to prove the efficacy and to establish the trust of
the doctors on the quality of the drugs. This again cannot be reckoned as
freebies given to the doctors but for promotion of its products.
The pharmaceutical company, which is engaged
in manufacturing and marketing of pharmaceutical products can promote its sale
and brand only by arranging seminars, conferences and thereby creating
awareness among doctors about the new research in the medical field and
therapeutic areas, etc. Every day there are new developments taking
place around the world in the area of medicine and therapeutic, hence in order
to provide correct diagnosis and treatment of patients, it is imperative that
the doctors should keep themselves updated with the latest developments in the
medicine and the main object of such conferences is to update the doctors of
the latest developments, which is beneficial to the doctors in treating the
patients as well as the pharmaceutical companies.
The Tribunal did not find any merit in the
order passed u/s. 263. It allowed the appeal filed by the assessee.
