Referral commission paid to doctors is not allowable as Business expenditure

Stemade Biotech Private Limited Vs DCIT (ITAT Mumbai)

ITAT held that Referral commission paid to doctors in Violation of the professional conduct is Not allowable as Business Expenditure.

ITAT held that When an unsuspecting client walks into the consulting chamber of a dentist who advises him to go for stem banking from his dental plump, one cannot be sure whether it is the doctor’s genuine advice on its merits of what the doctor actually believes to be beneficial to the client or it is a piece of advice influenced by the financial inducement by way of ^„referral fee’ that the doctor will get for his client being referred to the service provider in question. Such a situation de facto amounts to receipt of cash or monetary grant by the medical professional from the allied healthcare industry, on the pretext of referral fees- in clear violation of rule 6.8.1(d) of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. The true consideration for this referral fee is the advice given to the doctor’s patient, and a potential customer of the service provider, in favour of stem cell banking. The fiduciary relationship between the doctor and patient is, or has the potential of being, compromised as such by the extraneous considerations. That is clearly contrary to the letter, as also the spirit, of the code of conduct for the medical practitioners. The acceptance of such a referral fee by a medical practitioner is thus forbidden by the legally enforceable code of conduct, which renders it an expense for a purpose that is ^„prohibited by law’ depriving the assessee company to claim a tax deduction in respect of the said expenditure. We, therefore, approve the conclusions arrived at by the learned Commissioner (Appeals) on this issue, and decline to interfere in the matter.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

1. By way of this appeal, the appellant has challenged the correctness of the order dated 30^th September 2009, passed by the learned Commissioner (Appeals) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2015­16.

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