Khushi Doshi
Published On : February 23, 2022 at 15:07 IST
The Supreme Court ruled that pharmaceutical companies providing freebies to doctors is clearly illegal and thus cannot be claimed as a deduction under Section 37(1) of the Income Tax Act. A Bench of Justices UU Lalit and S Ravindra Bhat ruled that allowing such pharmaceutical companies to claim tax breaks would “completely undermine public policy.”
“Pharmaceutical companies’ gifting freebies to doctors, etc. is clearly “prohibited by law”, and not allowed to be claimed as a deduction under Section 37(1). Doing so would wholly undermine public policy,” the judgment said.
The well-established concept of interpretation of taxing statutes – that they must be strictly interpreted – cannot be sustained when it results in an absurdity contrary to the intentions of Parliament, according to the Court.
Acceptance of such freebies could result in a variety of sanctions against medical practitioners, ranging from ‘censure’ for up to 5,000 in incentives to removal from the Indian Medical Register or State Medical Register for periods ranging from three months to one year. The Deputy Commissioner of Income Tax allowed Apex to claim certain amounts as ‘business expenditure’ under Section 37(1) of the Income Tax Act of 1961.
The Commissioner of Income Tax (CIT) granted the revenue’s appeal in part. The CIT’s decision was upheld by the Income Tax Appellate Tribunal and the Madras High Court, prompting Apex Laboratories (appellant) to file this appeal with the Supreme Court.