Income Tax Department Reiterates Rejection of Drug Company Spending on Physicians

With the Supreme Court expected to resume deliberations later this month on a public interest litigation (PIL) related to alleged unethical practices, such as gifts to doctors by pharmaceutical companies, the Central Council direct taxes (CBDT) highlighted the provisions of the 2022 finance law prohibiting such expenditure by companies.

This case made headlines after the plaintiff’s lawyer told the Court that the CBDT had alleged that the manufacturers of paracetamol tablets, Dolo-650 distributed gifts is worth about ₹1,000 crore to doctors in return for prescribing the tablet. This case is expected to be scheduled for the next hearing on November 15.

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In a circular dated November 3, explaining various provisions of the Finance Act 2022, CBDT said the legal position is clear that claiming any expense incurred to provide various benefits is in breach of the provisions of the Indian Medical Council (Professional Conduct , Etiquette and Ethics) Regulations, 2002. Accordingly, the claim will be barred under the Income Tax Act as such expenditure is prohibited by law.

In addition, some taxpayers claim a deduction on expenses incurred for a purpose, which is an offense under a foreign law or to aggravate an offense for violation of a foreign law, claiming that the provisions of “Explanation 1 of subsection (1) of section 37 of the Act applies only to offenses prohibited by the domestic law of the country”. This view has been accepted by some benches of the Income Tax Appeal Tribunal. income. However, the CBDT takes a different view. “These judgments also run counter to the intent of the legislation because the legislation does not say that Explanation 1 applies only to the violation of the right internal,” the CBDT said.

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In order to clarify the intention of the law and to make it free from any misinterpretation, another explanation has been inserted in paragraph (1) of article 37 of the income tax law by the finance law . Explaining this, Anita Basrur, Partner (Direct Taxes) at Sudit K Parekh & Co, said: “This is intended to clarify the intent of the legislation to avoid disputes due to misinterpretation in the eligibility of expenses undertaken by an assessee for any purpose, which constitutes an offense or which is prohibited by law”. This amendment came into force on April 01, 2022.

Basrur explained that here expenditure means for any purpose, which is an offense or which is prohibited by any law currently in force, in India or outside India. Or it could be “providing any benefit or benefit in any form to any person, whether or not he is carrying on a business or practicing a profession, and the acceptance of such benefit or benefit by that person is in violation of any law or rule or regulation or guidelines, as the case may be, currently in effect, governing the conduct of that person.”

Now the important thing is that there are Indian Medical Council regulations, which prescribe a code of conduct for doctors in their dealings with the pharmaceutical and paramedical sector, and prohibit them from accepting gifts and entertainment, travel facilities, hospitality, money, etc. , which does not apply to pharmaceutical companies. Thus, doctors’ licenses are revoked for misconduct instigated, encouraged, aided and abetted by pharmaceutical companies.

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