Business Expenditure Inadmissibility of Expenses Incurred in Providing Freebies to Medical Practitioners by Pharmacy Engaged in Trading of Medicine

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers Income Tax--Business Expenditure Inadmissibility of Expenses Incurred in Providing Freebies to Medical Practitioners by Pharmacy Engaged in Trading of Medicine CA. Nisha Bhandari Recently an issue arose as to whether Circular No. 5/2012 providing restriction on admissibility of expenses incurred on freebies to Medical Practitioner by pharmaceutical and allied health sector industry is applicable in case of pharmacy engaged in trading of medicine. The learned author tries to make an analytical study of admissibility or inadmissibility of expenses incurred in providing freebies to medical practitioners by pharmaceutical and allied health sector industry. 1. Circular No. 5/2012 providing restriction on admissibility of expenses incurred on freebies to Medical Practitioner by pharmaceutical and allied health sector industry The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries. section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under Sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebies in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under Section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebies and claimed it as a deductible expense in its accounts against income. It is also clarified that the sum equivalent to value of freebies enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The assessing officers of such medical practitioner or professional associations should examine the same and take an appropriate action.--Vide Circular No. 5/2012, dt. 1-8-2012. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Business Expenditure

Inadmissibility of Expenses Incurred in Providing Freebies to Medical Practitioners by Pharmacy Engaged in Trading of Medicine

CA. Nisha Bhandari

Recently an issue arose as to whether Circular No. 5/2012 providing restriction on admissibility of expenses incurred on freebies to Medical Practitioner by pharmaceutical and allied health sector industry is applicable in case of pharmacy engaged in trading of medicine. The learned author tries to make an analytical study of admissibility or inadmissibility of expenses incurred in providing freebies to medical practitioners by pharmaceutical and allied health sector industry.

1. Circular No. 5/2012 providing restriction on admissibility of expenses incurred on freebies to Medical Practitioner by pharmaceutical and allied health sector industry

The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries.

section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under Sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law.

Thus, the claim of any expense incurred in providing above mentioned or similar freebies in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under Section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebies and claimed it as a deductible expense in its accounts against income.

It is also clarified that the sum equivalent to value of freebies enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The assessing officers of such medical practitioner or professional associations should examine the same and take an appropriate action.--Vide Circular No. 5/2012, dt. 1-8-2012.