ITAT recommends constitution of larger bench to decide allowability of exp. on freebies to medical professionals

Case Details: DCIT v. Macleods Pharmaceuticals Ltd - [2021] 131 taxmann.com 154 (Mumbai - Trib.)

Judicial and Counsel Details

• • Pramod Kumar, Vice-President and Saktijit Dey, Judicial Member
  • Mamta Bansal, DR. for the Appellant. Ashok Bansal, CA for the Respondent.

Facts of the Case

The PHL Pharma decision [2017] 78 taxmann.com 36 (Mumbai-Trib.) was the first decision dealing with the period post insertion of rule 6.8.1 in the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and the reasoning adopted therein is also followed by a large number of other coordinate bench decisions- including many decisions cited at the bar as well.

The Tribunal in PHL Pharma has ruled that expenditure incurred by Pharma Company for customer relationship management, key account management, gift articles, free medicine sample, advertisement, and sales promotion could not be considered freebies given to doctors. They were purely for brand recognition, allowable as business expenditure, and were not impaired by Explanation 1 to section 37(1).

ITAT Held

However, conclusions arrived in the said decision do not reflect correct legal position. The same is the position with respect to many other co-ordinate bench decisions following said decision or following line of reasoning in said decision. Hence, the decision in PHL Pharma (supra) calls for reconsideration by a larger bench.
Accordingly, the constitution of a bench of three or more Members was to be recommended to consider the question as to whether or not an item of expenditure on account of freebies to medical professionals, which is hit by rule 6.8.1 of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 as amended from time-to-time, read with section 20A of Indian Medical Council Act, 1956, could be allowed as a deduction under section 37(1) read with Explanation thereto, in the hands of pharmaceutical companies.