| Court: | Supreme Court |
| Head Notes: | S. 37(1) : Business expenditure-Explanation 1-Freebies given to doctors-Prohibited by law-Disallowed as expense-Interpretation-Taxing statutes to be interpreted strictly. [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] 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) Apex Laboratories Pvt. Ltd. v. DCIT (SC) www.itatonline.org [Coram : Hon’ble Justice Shri Uday Umesh Lalit, and Hon’ble Justice Shri S. Ravindra Bhat] |
| Law: | Income-Tax Act |
| Section(s): | 37(1) |
| Counsel(s): | S. Ganesh, Senior Advocate |
| Dowload Pdf File | Click here to download the file in pdf format |
| Uploaded By | ITAT ONLINE |
| Date of upload: | February 25, 2022 |
The point of ISSUE has been whether or not ‘freebies’ given to medical doctors is eligible “for the benefit of Explanation 1 to Section 37(1), which denies the application of the benefit” for any purpose which is an ‘offence’ or ‘prohibited by law’.
Both sides have virtually gone to town to make out a case to support their respective stance.
If critically gone through the discussion/arguments advanced by either party , one is not sure but has reasons to doubt whether the ISSUE could be regarded as having been decided , conclusively once for all, with no scope for any more litigation !?
To be precise:
Sec 37 (1) is, in terms, a residuary (not a self-contained) section; in that, for deciding upon the admissibility /allowability of any expenditure, in any given case, the opening words “ Any expenditure (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTION 30 TO 36 …” need to be kept in focus and duly taken into consideration< (FONT supplied).
Further, the Explanation 1 regarded and concluded to have a clinching effect, it appears, suffers from a not-so-obvious but certain deficiency in drafting. These two main aspects of no less relevance ought not to be bypassed but require to be inevitably made a conscious note of.
On the first blush, the above stated propositions do not seem to have been duly addressed and sufficiently stressed in the court proceedings. Premised /granting so, one cannot rule out the possibility of the issue being taken on and continuing to be debated /deliberated in this very case in further proceedings, or in any other like cases pending at any stage for a final judicial adjudication.
For MORE clues for guidance, the detailed discussion on the above indicated material aspects, in the published Articles, –
(2004) 270 ITR 33
(2006) 156 TAXMAN 121
(2006) 160 TAXMAN 145
may be gone through.
To ADD: Premised that the points of view as set out above, are not without merits hence deserve to be looked into,-if so intent upon and really convinced , the Govt. (FM) could have plugged in the lacunae by suitable amendments of the law; thereby made sure that its stance taken to put an end to such practices is sustainable on better and well reasoned ‘high ground’; unlike hitherto !?