ESKAYEF (NOW KNOWN AS SMITHKLINE BEECHAM PHARMACEUTICALS (INDIA) LTD. ETC. versus COMMISSIONER OF INCOME TAX, KARNATAKA-II, BANGALORE

Citation: [2000] SUPP. 1 S.C.R. 634 · Decided: 20-07-2000 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Dismissed
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Judgment (excerpt)

A 
ESKA YEF (NOW KNOWN AS SMITHKLINE BEECHAM 
B 
PHARMACEUTICALS (INDIA) LTD. ETC. 
v. 
COMMISSIONER OF INCOME TAX, KARNA TAKA-11, 
BANGALORE. 
JULY 20, 2000 
[S.P. BHARUCHA AND MS. RUMA PAL, JJ.] 
C 
Income Tax Act, 1961-Section 37-Liability to pay surtax-Whether 
an admissible deduction in computing total income-Held, not deductible. 
Section 37(3A)-Expenditure incurred on distribution of free samples 
of prescription drugs to doctors-Whether in the nature of advertisement or 
publicity or sales promotion falling within the restrictive provisions of the 
D section-Held yes. 
Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954-
Section 3-Prohibition of publication of advertisement of a drug-Held, 
prohibition not applicable to physician's samples. 
E 
In these appeals, the following two questions were raised: 
F 
I. 
Whether the surtax liability is an admissible deduction under 
section 37 of the Income Tax Act, 1961? 
2. 
Whether ex.penditure incurred on distribution of free samples of 
prescription drugs to doctors is in nature of advertisement falling 
within the restrictive provisions of section 37(3A) of the Act? 
Appellant-assessee contended that the expenditure incurred on 
distribution of free samples of prescription drugs to doctors did not amount 
to advertisement or publicity or sales promotion and thereby not subjected to 
G restrictions under sub-section 3A of section 37. The Income Tax Appellate 
Tribunal and the High Court rejected the contention of the assessee. 
In appeal to this Court, the assessee submitted that the purpose of the 
distribution of drugs was to obtain a feedback from the medical profession as 
to the efficacy of the distributed drugs. The assessee further submitted that 
H section 3 of the Drugs and Magic Remedies (Objectionable Advertisements) 
634 
ESKA YEF (NOW KNOWN AS SMITHKLINE BEECHAM PHARMACEUTICALS(INDIA) LTD. ETC."· C.I. T. 635 
Act, 1954, prohibits the publication of any advertisement of the drugs. 
A 
Dismissing the appeals, this Court 
HELD: 1. With regard to the first question, i.e. whether the surtax 
liability is an admissible deduction, the master is no longer res integra. 
1636-GI B 
Smith Kline and French (India) ltd & Ors. v. Commissioner of Income 
Tax, (1996) 219 ITR 581, relied on. 
2. The target for any advertisement or publicity or sales promotion of C 
the drugs could only be the doctors who would prescribe them. The object of 
distribution of the samples of the drugs to the doctors is to make them aware 
that such drugs are available in the market in relation to the cure of a 
particular affliction and therefore to persuade them to prescribe the same in 
appropriate cases. So doing is tantamount to publicity and sales promotion. 
The assessee has not produced filled up questionnaires or letters from doctors D 
in support of its claim that the free samples of prescription drugs were 
distributed to doctors for obtaining feedback from them. 1639-D-El 
3. The prohibition under the Drugs and Magic Remedies (Objectionable 
. Advertisements) Act, 1954 is not applicable to physician's samples. What is 
barred thereby is publication and that is amply clear when one refers to the E 
definition of"advertisement" in the Act.1639-H; 640-AI 
Smith Kline and French (India). Ltd v. Commissioner of Income Tax, 
(1992) 193 ITR 582, approved. 
Commissioner of Income Tax v. J & J Dechane laboratories (P) ltd., F 
(1996) 222 ITR 11, distinguished. 
Commissioner of Income Tax v. Ampro Food Products, (1995) 215 ITR 
904, referred to. 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2717of1996. G 
From the Judgment and Order dated 11.3.91 of the Kamataka High Court 
in l.T.R.C. No. 182of1985. 
WITH 
Civil Appeal Nos. 4545-4577 /1996. 
H 
636 
SUPREME COURT REPORTS [2000] SUPP. I S.C.R. 
A 
D.A. Dave, Ms. Pratibha M. Singh, Ms. Kavita Wadia, Ramesh Singh, 
B 
Maninder Singh and S. Syal for the Appellant. 
M.L. Venna, G. Venkatesh Rao and Ms. Sushma Suri for the Respondent. 
The Judgment of the Court was delivered by 
BHARUCHA, J. Civil Appeal No. 2717 of 1996 : 
The appeal relates to the Assessment year 1980-81. It is on a certificate 
of fitness to appeal granted by the High Court. The certification was only in 
respect of one question which read thus: 
C 
"Whether on the facts and in the circumstances of the case, the 
liability to pay surtax is an admissible deduction in computing the 
total income?" 
The answer to this question is covered against the assessee by
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