Case Law Details
Torrent Pharmaceuticals Ltd. Vs DCIT (ITAT Ahmedabad)
The case of Torrent Pharmaceuticals Ltd. vs. Deputy Commissioner of Income Tax (ITAT Ahmedabad) revolves around the treatment of expenses incurred by pharmaceutical companies, particularly in relation to gifts, travel facilities, and sponsorships provided to doctors. The dispute arose due to conflicting views on whether such expenses should be allowed as deductions under Section 37(1) of the Income Tax Act, 1961.
The Indian Medical Council (MCI) issued regulations in 2002, prohibiting medical practitioners and their associations from accepting gifts or benefits from pharmaceutical companies. Subsequently, the Central Board of Direct Taxes (CBDT) clarified through a circular in 2012 that expenses incurred by pharmaceutical companies on gifts or freebies to doctors would not be allowed as deductions under Section 37(1) of the Act.
However, there were conflicting judicial views on whether such expenses should be allowed as deductions. Some courts held that MCI regulations only applied to medical practitioners and not to pharmaceutical companies. This led to uncertainty regarding the treatment of such expenses for tax purposes.
In the case of M/s Apex Laboratories (P.) Ltd. vs. Dy. CIT, the Supreme Court reversed the previous judicial trend, holding that the MCI regulations are statutory and carry legal weight. Therefore, expenses incurred by pharmaceutical companies on gifts to doctors violate these regulations and cannot be claimed as deductions under Section 37(1) of the Act.
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