Honourable Supreme Court held that 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) of the Act. Doing so would wholly undermine public policy. The well-established principle of interpretation of taxing statutes is that they need to be interpreted strictly and cannot sustain when it results in an absurdity contrary to the intentions of the Parliament. (SLP (Civil) 23207 of 2019 dated February 22, 2022) ( AY. 2010 -11 )
Apex Laboratories Pvt. Ltd. v. DCIT (2022)442 ITR 1 / 286 Taxman 200 / 211 DTR 73/ 325 CTR 121 (SC) .www.itatonline .org Editorial : Finance Act , 2022 amended the section 37 (1) provision with effect from 1-4 -2022 clarifying that the expression “ expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law .
S. 37(1): Business expenditure – Explanation 1 – Freebies given to doctors – Prohibited by law – Disallowed as expense – Interpretation -Taxing statutes to be interpreted strictly.-Strict interpretation should not result in absurdity contrary to intention of Parliament [Medical Council Act, 1956, S. 20A , Medical Council (professional Conduct, Etiquette and Ethics) Regulations, 2002, R. 6.8 , Contract Act , 1872 , S. 23 , General Clauses Act , 1897, S.2(38) , Indian Penal Code ,1860, S. 40, 43 ]