|(Date of pronouncement)
|February 20, 2013 (Date of publication)
|Click here to download the judgement (CBDT_Circular_freebies_disallowance.pdf)
CBDT Circular disallowing expenditure on freebies to medical practitioners is valid
The CBDT issued Circular No. 5/2012 dated 1.8.2012 stating that as the Indian Medical Council had imposed a prohibition on medical practitioners taking any Gift, Travel facility, Hospitality, Cash or monetary grant from pharmaceutical and allied health sector Industries, the expenditure incurred by the assessee in providing such “freebies” had to be regarded as incurred “for a purpose which is either an offence or prohibited by law” and disallowed under the Explanation to s. 37(1) of the Act. The assessees challenged the validity of the Circular on the basis that it went beyond s. 37(1) and was invalid. HELD by the High Court rejecting the contention:
The regulation of the Medical Council prohibiting medical practitioners from availing of freebies is a very salutary regulation which is in the interest of the patients and the public. This Court is not oblivious to the increasing complaints that the medical practitioners do not prescribe generic medicines and prescribe branded medicines only in lieu of the gifts and other freebies granted to them by some particular pharmaceutical industries. Once this has been prohibited by the Medical Council under the powers vested in it, s. 37(1) comes into play. The Petitioner’s contention that the circular goes beyond the section is not acceptable. In case the assessing authorities are not properly understanding the circular then the remedy lies for each individual assessee to file an appeal but the circular which is totally in line with s. 37(1) cannot be said to be illegal. If the assessee satisfies the assessing authority that the expenditure is not in violation of the regulations framed by the medical council then it may legitimately claim a deduction, but it is for the assessee to satisfy the AO that the expense is not in violation of the Medical Council Regulations.