Case Law Details
DCIT Vs Macleods Pharmaceuticals Ltd. (ITAT Mumbai)
ITAT recommends constitution of larger bench to decide allowability of freebies to medical professionals as a deduction
In this case ITAT Mumbai has recommended constitution of a larger bench to decide on whether expenditure for providing freebies to medical professionals can be allowed as a deduction in accordance with Section 37(1) of the Income Tax Act, 1961 (the Act).
Macleods Pharmaceuticals Ltd. (“the Respondent”) had preferred an appeal before the Commissioner of Income Tax (Appeals) (“the CIT (A)”) against the order of the Assessing Officer whereby a deduction of Rs 111,11,70,500 for the assessment year 2011-12 and of Rs 137,62,61,659 for the assessment year 2012-13 was disallowed on account of the expenditure being for providing freebies to the doctors. The CIT (A) had overturned the said order and had allowed the expenditure as a deduction. As a result, the Assessing Officer preferred the present Appeal.
The Assessing Officer had based his decision to deny deduction on the basis of Central Board of Direct Taxes (“the CBDT”) Circular No. 05/2012 dated 01.08.2012, the amendment in the Medical Council of India regulations vide Gazette notification dated 10.12.2009, and the Explanation 1 to Section 37(1) of the Act. It was stated that a combined reading of the Explanation 1 to Section 37 of the Act, the guidelines issued by Medical Council of India and the Circular issued by the Central Board of Direct Taxes explain that the sales promotion expenses made by the Respondent are prohibited in law as the medical practitioners have been barred from accepting freebies and consequentially, these expenses shall be deemed to have been not incurred for the purpose of business and profession making them non-deductible.
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