Supreme Court judgment
The Supreme Court held that a narrow interpretation of Explanation 1 to Section 37(1) as canvassed by the appellants would defeat the purpose for which it was inserted – to disallow an assessee from claiming a tax benefit for its participation in an illegal activity.
The Court said that doctors and pharmacists being complementary and supplementary to each other in the medical profession, a comprehensive view must be adopted to regulate their conduct in view of the contemporary statutory regimes and regulations.
“It is a matter of great public importance and concern, when it is demonstrated that a doctor’s prescription can be manipulated, and driven by the motive to avail the freebies offered to them by pharmaceutical companies, ranging from gifts such as gold coins, fridges and LCD TVs to funding international trips for vacations or to attend medical conferences,” the judgment stated.
Thus, these freebies are technically not ‘free’, the Court said.
“The cost of supplying such freebies is usually factored into the drug, driving prices up, thus creating a perpetual publicly injurious cycle,” the judgment stated.
Such freebies given by Apex to the doctors had a direct result of exposing the recipients to the odium of sanctions, leading to a ban on their practice of medicine.
“Those sanctions are mandated by law, as they are embodied in the code of conduct and ethics, which are normative, and have legally binding effect. The conceded participation of the assessee- i.e., the provider or donor- was plainly prohibited, as far as their receipt by the medical practitioners was concerned,” the top court stated.
Thus, the bench dismissed the appeal concluding that medical practitioners being forbidden from accepting such gifts, or freebies was no less a prohibition on the part of their giver, or donor, i.e., Apex.
“It is but logical that when acceptance of freebies is punishable by the MCI (the range of penalties and sanction extending to ban imposed on the medical practitioner), pharmaceutical companies cannot be granted the tax benefit for providing such freebies, and thereby (actively and with full knowledge) enabling the commission of the act which attracts such opprobrium,” the Bench concluded.
Source: Barandbench
