Pharma
firm gets tax relief on Rs 23cr freebies to docs
May Cast
Shadow On Ties Between Medicos, Company
Deviating
from an earlier decision which barred doling out of freebies to doctors as a
legitimate business expense, the I-T appellate tribunal has allowed a pharma
company to claim tax benefits of up to Rs 23 crore.
Deviating
from an earlier decision which barred the doling out of freebies and expensive
gifts to doctors as a legitimate business expense, theIncome-tax Appellate
Tribunal (ITAT) has now allowed a pharma company to claim tax benefits against
funds spent on sponsoring trips for doctors, providing them with costly medical
journals, and buying them stationery and pens.
The
decision dated January 12 was in the case of PHL Pharma. The ITAT has allowed
the firm to deduct Rs 23 crore for expenses incurred towards `freebies' for
doctors.These range from travel and accommodation expenses for seminars,
subscriptions for journals, gifts like stationery bearing the logo of the
pharma company and lastly free samples.
ITAT
makes a distinction about the facts in this case as opposed to the facts in the
earlier order, which had enthused patients and consumer activists because it
was viewed as nipping in the bud the practice of distributing gifts in return
for favours from the medical fraternity .
Two key
takeaways emerge from the order. First, the ITAT held that the code of conduct
laid down by the Medical Council of India (MCI) which debar or limit freebies
are meant to be followed by the medical fraternity alone.It does not cover
pharma companies. Reference was also drawn by ITAT to a Delhi High Court
decision, which made a similar observation.
Second,
the ITAT also examined a circular dated August 1, 2012, issued by the Cen tral
Board of Direct Taxes (CBDT), which said that any expense in providing freebies
in violation of the MCI's code shall not be allowed as a business deduction.
ITAT in its decision pointed out that as the code of conduct did not cover the
pharma company , the expenditure of Rs 23 crore did not violate this code.
The
decision is being hailed as a shot in the arm for pharma companies by tax
experts. But activists would view it as a handle for unscrupulous firms,
allowing them to offer inducements to doctors and hospitals for promoting their
products.
PHL
Pharma's benefits in this case pertain to expenses incurred in 2009-10.
Section
37 of the I-T Act permits a business entity to claim as a deduction revenue
expenditure incurred `for the purpose of the business'. However, expenses
incurred for any purpose which is an offence or is prohibited by law is not accepted.
Thus, if funds spent on freebies was to be denied exemption, it would have
inflated the taxable profits of the entity and resulted in higher income-tax
outgo. This, in turn, would have deterred the practice of doling freebies.
Source: TIMES OF INDIA-16th January,2017
