By TIOL News Service

MUMBAI, JUNE 12, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether Regulations of Indian Medical Council have the jurisdiction to prohibit pharma companies from distributing petty stationary items with their logo to doctors for advertisement purposes. NO IS THE ANSWER.

Facts of the case:

The assessee company is engaged in the business of manufacturing of pharmaceuticals and trading in oral health care products. During the assessment year under consideration, the assessee debited Rs.1,67,59,406/- in its P&L A/c as sales promotional expenses and claimed them as allowable business expenditure. Out of the total promotion expenses, the AO disallowed expenses of Rs.33,76,162/- u/s 37, on the ground that the payment made by assessee was covered by CBDT Circular No.5/2012. In response, it was submitted that the item distributed were not of high value and their invoices were provided to the AO. Thus, as per the assessee, such promotional material could not be considered as gift or expenses prohibited by law. Though, the AO treated such expenses as giving gifts to the doctors, in violation of Indian Medicine Regulation, 2002. On appeal, the FAA confirmed the order of AO that such expenditure was not incurred for the purpose of advertising of product, but for the purpose of gift.

Tribunal held that,

++ it is seen that the Delhi High Court in Max Hospital v. MCI, has held the Medical Council of India admitted that the Indian Medical Council Regulation of 2002 has jurisdiction to take action only against the medical practitioners and not to health sector industry. The High Court further held that it is ostensibly clear that the Medical Council of India has no jurisdiction to pass any order or regulation against any hospital or any health care sector under its 2002 regulation. So once the Indian Medical Council Regulation does not have any jurisdiction nor has any authority under law upon the pharmaceutical company or any allied health sector industry, then such a regulation cannot have any prohibitory effect on the pharmaceutical company like the assessee. Thus, considering the factual and the legal position, expenditure incurred by assessee on distributing glass, face mask, pen, writing pad, towel set, wall clock, paper cups except 'Voltas Cooler and stabilizer' cannot be regarded as freebies given to the Doctors. Hence, except the cost of the Voltas Cooler and stabilizer of Rs.29,990/-, all the remaining expenditure incurred by assessee on account of sale promotion expenses, is allowable.

(See 2018-TIOL-837-ITAT-MUM)