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MUMBAI: The “nexus†between pharmaceutical companies and doctors is often the subject of tax disputes. Evolutis India, a private company based in Mumbai, had filed an appeal with the Income Tax Appeals Tribunal (ITAT) because a sum of Rs 12.79 lakh, incurred by it during the fiscal year 2014 -15, had been rejected by the income- tax agent. These expenses largely related to a workshop organized by her in France and included the travel and hotel expenses of the doctors who attended.
The ITAT bench in Mumbai, which recently heard the case, ruled that the income tax (IT) officer was not justified in refusing this expense. It was incurred by the pharmaceutical company, a distributor of ortho implants, “entirely and exclusively in the normal course of business” and should be allowed as a trade deduction.
The consequence of any refusal to spend is that taxable income increases, resulting in a higher tax outflow. Or, if the business is in deficit, it reduces the loss that can be carried forward for the next eight years. Any loss carried forward reduces tax payable in future years.
The IT manager relied on a circular published in 2012 by the Central Board of Direct Taxes (CBDT) which stated that all expenses incurred by a pharmaceutical company to offer “free” to doctors violate regulations issued by the Medical Council of India (MCI) will not be authorized in the hands of the company.
The ITAT bench ruled that the travel, hotel and fees paid to doctors for attending the workshop abroad could not be qualified as gifts or gifts and fall within the scope application of the CBDT circular.
The crux of the order, which will have a huge impact in similar cases, is that the ITAT bench said that it is the doctors registered with the MCI who are bound by its code of conduct. The CBDT is stripped of its powers to expand the scope of MCI regulation by extending it to pharmaceutical companies without any enabling provisions under the Income Tax Act or Indian medical regulations. If so, it interferes with the conduct of pharmaceutical companies in the course of their business. In arriving at its decision, ITAT also relied on decisions handed down by various high courts.
In an earlier case, from Liva Healthcare, reported by TOI on September 20, 2016, ITAT Mumbai found that the purpose of sponsored overseas travel for doctors and their spouses was to recommend its pharmaceuticals. He had refused such expenses in the hands of the company.
The ITAT formation, in its order of 23 September, noted that the tax court, in the previous ruling, had incorporated the MCI regulation but had not developed or insisted on the question of how this MCI regulation, which was intended strictly for physicians and physicians, could apply to pharmaceutical companies and other actors in the health sector.
The ITAT bench in Mumbai, which recently heard the case, ruled that the income tax (IT) officer was not justified in refusing this expense. It was incurred by the pharmaceutical company, a distributor of ortho implants, “entirely and exclusively in the normal course of business” and should be allowed as a trade deduction.
The consequence of any refusal to spend is that taxable income increases, resulting in a higher tax outflow. Or, if the business is in deficit, it reduces the loss that can be carried forward for the next eight years. Any loss carried forward reduces tax payable in future years.
The IT manager relied on a circular published in 2012 by the Central Board of Direct Taxes (CBDT) which stated that all expenses incurred by a pharmaceutical company to offer “free” to doctors violate regulations issued by the Medical Council of India (MCI) will not be authorized in the hands of the company.
The ITAT bench ruled that the travel, hotel and fees paid to doctors for attending the workshop abroad could not be qualified as gifts or gifts and fall within the scope application of the CBDT circular.
The crux of the order, which will have a huge impact in similar cases, is that the ITAT bench said that it is the doctors registered with the MCI who are bound by its code of conduct. The CBDT is stripped of its powers to expand the scope of MCI regulation by extending it to pharmaceutical companies without any enabling provisions under the Income Tax Act or Indian medical regulations. If so, it interferes with the conduct of pharmaceutical companies in the course of their business. In arriving at its decision, ITAT also relied on decisions handed down by various high courts.
In an earlier case, from Liva Healthcare, reported by TOI on September 20, 2016, ITAT Mumbai found that the purpose of sponsored overseas travel for doctors and their spouses was to recommend its pharmaceuticals. He had refused such expenses in the hands of the company.
The ITAT formation, in its order of 23 September, noted that the tax court, in the previous ruling, had incorporated the MCI regulation but had not developed or insisted on the question of how this MCI regulation, which was intended strictly for physicians and physicians, could apply to pharmaceutical companies and other actors in the health sector.
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