‘Referral Fee’ paid to doctors for referring patients, not deductible; HC follows ‘Apex Lab’

Case Details: Peerless Hospitex Hospital and Research Centre Ltd. v. PCIT - [2022] 137 taxmann.com 359 (Calcutta)

Judiciary and Counsel Details

• • Md. Nizamuddin, J.
  • Abhijit Chatterjee, Sr. Adv. and Gopal Ram Sharma, Adv. for the Appellant. 
  • P.K. Bhowmick and Radhamohan Roy, Advs. for the Respondent.

Facts of the Case

Assessee-company is engaged in the business of running a multi-specialty hospital. A notice under section 148 was served on the assessee as it claimed ‘referral payment to doctors’ as a business expense. The assessee filed an objection against such notice and such objection was rejected by the AO.

AO opined that the aforesaid expenditure is prohibited by law and disallowable under section 37(1). The aggrieved assessee filed writ petition before the High Court.

High Court Held

The High Court held that the receiving of any freebies, bonus or commission, etc. by physician/medical practitioners from the allied health industry including hospitals for referring any patient by them for medical investigation, surgical, or other treatment purposes is prohibited under Regulation 6.4.1. and 6.4.2. of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and violation of the same is a punishable offence and invites disciplinary action under Regulation 8 of said Indian Medical Council Regulations.

Further, the High Court followed the judgment of the Hon’ble Supreme Court in the case of Apex Laboratories (P.) Ltd. v. Deputy Commissioner of Income-tax LTU [2022] 135 taxmann.com 286 (SC) to held that allowing deduction of such expenses would encourage and cause proliferation of corruption in the medical field and will frustrate the very purpose and object of the aforesaid Indian Medical Council Regulations, 2002 and Explanation 1 of Section 37(1) of the Income Tax Act, 1961, and the CBDT’s Circular No. 5, dated 01-08-2012.