LexM/S APEX LABORATORIES PVT. LTD. versus DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAX PAYER UNIT - II
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A B C D E F G H 126 SUPREME COURT REPORTS [2022] 2 S.C.R. [2022] 2 S.C.R. 126 126 M/S APEX LABORATORIES PVT. LTD. v. DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAX PAYER UNIT- II (Civil Appeal No. 1554) FEBRUARY 22, 2022 [UDAY UMESH LALIT AND S. RAVINDRA BHAT, JJ.] Income Tax Act, 1961: s.37(1), Explanation 1 – Pharmaceutical companies gifting freebies to doctors etc. is clearly prohibited by law and not allowed to be claimed as a deduction under s.37(1) of the Act – An amendment to the Medical Council Act, 1956 (now repealed) through the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 published in the Official Gazette on 14.12.2009, disallowed medical practitioners from accepting emoluments in the form of inter alia gifts, travel facilities, hospitality, cash or monetary grants – On 01.08.2012, CBDT also issued a circular, which clarified that expenses incurred by pharmaceutical and allied health sector industries for distribution of incentives (i.e., “freebies”) to medical practitioners are ineligible for the benefit of Explanation 1 to s.37(1), which denies the application of the benefit for any purpose which is an ‘offence’ or ‘prohibited by law’ – 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 – 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 – Therefore, denial of the tax benefit cannot be construed as penalizing the assessee pharmaceutical company – Only its participation in what is plainly an action prohibited by law, precludes the assessee from claiming it as a deductible expenditure – Medical practitioners have a quasi-fiduciary relationship with their patients – Therefore, it is a matter of great public importance and concern, when it is A B C D E F G H 127 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 – These freebies are technically not ‘free’ – The cost of supplying such freebies is usually factored into the drug, driving prices up, thus creating a perpetual publicly injurious cycle – The 2002 Regulations, applicable to all medical practitioners (including doctors in private practice), was introduced w.e.f. 14.12.2009 – Thus, pharmaceutical companies’ gifting freebies to doctors, etc. is clearly “prohibited by law”, and not allowed to be claimed as a deduction under s.37(1) – Doing so would wholly undermine public policy. Interpretation of statutes: Interpretation of taxing statutes – Taxing statutes need to be interpreted strictly – Income Tax Act, 1961. Jamal Uddin Ahmad v. Abu Saleh Najmuddin & Anr. (2003) 4 SCC 257 : [2003] 2 SCR 473 - relied on. Dy. CIT 8(2) Mumbai v PHL Pharma P. Ltd. 20 ITA No. 4605/Mum/2014, dated 12.01.2017; Max Hospital Pitampura v. Medical Council of India Income Tax Appeal No. 485/2008 decided on 18.07.2017; Max Hospital Pitampura v. Medical Council of India W.P. (C) No. 1334/2014 / ILR (2014) 1 Delhi 620, dated 10.01.2014; Dr. Anil Gupta v. Addl. Commissioner of Income Tax, Income Tax Appeal No. 485/2008, decided on 18.07.2017; Berger Paints Ltd. v Commissioner of Income Tax (2004) 12 SCC 42 : [2004] 2 SCR 502; South India Bank Ltd. v Commissioner of Income Tax, Civil Appeal No. 9606 of 2011 / 2021 SCC Online SC 692, dated 09.09.2021; T.A. Quereshi v. Commissioner of Income Tax, Bhopal (2007) 2 SCC 759 : [ 2006] 10 Suppl. SCR 311; Commissioner of Income Tax v. M/s Khemchand Motilal Jain 2011 (4) MPLJ 691; Director of Income-tax v. S.R.M.B Dairy Farming (P.) Ltd., (2018) 13 SCC 239 : [2017] 11 SCR 1118; Kanwarjit Singh Kakkar v. State of Punjab (2011) 13 SCC 158 : [2011] M/S APEX LABORATORIES PVT. LTD. v. DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAX PAYER UNIT- II A B C D E F G H 128 SUPREME COURT REPORTS [2022] 2 S.C.R. 6 SCR 895; P.V. Narasimha Rao v. State (CBI/SPE) (1998) 4 SCC 626 : [1998] 2 SCR 870; Biharilal Jaiswal v. CIT
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