CBDT Circular disallowing expenditure on freebies to medical practitioners is valid

The explanation to Section 37(1) makes it clear that any expenditure incurred by an assessee for any purpose which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession. The sum and substance of the circular is also the same. In case the assessing authorities are not properly understanding the circular then the remedy lies for each individual assessee to file appeals under the Income-tax Act but the circular which is totally in line with Section 37(1) cannot be said to be illegal.

In fact para 4 of the circular quoted hereinabove itself clarifies that the value of the freebies enjoyed by the medical practitioner is also taxable as business income or income from other sources depending on the facts of each case.Therefore, if the assessee satisfies the assessing authority that the expenditure is not in violation of the regulations framed by the medical council then it may legitimately claim a deduction, but it is for the assessee to satisfy the assessing officer that the expense is not in violation of the Medical Council Regulations referred to above.

HIGH COURT OF HIMACHAL PRADESH SHIMLA

CWP No. 10793 of 2012-J.

Date of Decision: 26.12.2012

Confederation of Indian Pharmaceutical Industry (SSI)

Vs.

1. The Central Board of Direct Taxes (CBDT)