2019 (5) TMI 110 - HC - Income Tax

Allowable expenditure u/s 37(1) - expenditure incurred towards 'sales promotion expenses' and 'other selling expenses' by providing gifts and freebies to Doctors and Medical Practitioners - expenditure contrary to the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 - scope of amendment - applicability of explanation to Section 37(1) - CBDT Circular No.5/2012, dated 1st August 2012 - HELD THAT - The Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations were amended with effect from 14.12.2009 and therefore, the expenditure incurred after 14.12.2009 to 31.3.2010 for relevant Assessment Year 2010-2011 was disallowed. We find that no substantial question of law arises for our consideration in the present case as the findings of facts of the Appellate Authority below are based on relevant Regulations and Amendment thereafter and the expenditure on such items prior to the Amendment have already been allowed in favour of the Assessee and they have been disallowed after 14.12.2009. We find no error in the order passed by the Tribunal. Appeal is devoid of merit and the same is liable to be dismissed and accordingly, it is dismissed.

Summary

Issues:
1. Allowability of expenditure under Section 37(1) of the Act for violating Medical Council regulations.
2. Disallowance of sales promotion expenses for providing gifts and freebies to doctors.
3. Interpretation of expenditure as advertising and awareness creation outside Medical Council regulations.
4. Obligation of the appellant to comply with Medical Council regulations.
5. Impact of CBDT Circular No.5/2012 on disallowance of expenditure for providing freebies to doctors.

Analysis:
1. The Assessee appealed under Section 260A of the Act, questioning the disallowance of expenditure by the Tribunal for violating Indian Medical Council regulations. The Tribunal held that the expenditure, including sales promotion expenses for providing gifts and freebies to Doctors, was not allowable under Section 37(1) of the Act due to the violation of the Amendment to the Indian Medical Council Regulations. The Tribunal reasoned that such actions were against public policy and unethical, inducing professionals to violate the Medical Council Act. The Amendment, effective from 14.12.2009, was found to be prospective and not clarificatory, leading to the disallowance of expenditure incurred post the Amendment.

2. The Tribunal's decision was based on the Amendment to the Indian Medical Council Regulations, which prohibited acceptance of gifts and freebies by Doctors. The Appellate Authority and the Tribunal concurred that the expenditure on sales promotion activities involving gifts and freebies was illegal post the Amendment. The Tribunal cited precedents and the intention behind the regulations to support its decision. The Assessee's argument that the expenses were for advertising and creating awareness outside the Regulations' purview was not accepted, leading to the disallowance of such expenditure.

3. The Assessee contended that they were not bound by the Medical Council regulations, citing an undertaking by the Medical Council of India in a previous case. However, the Tribunal held that the Assessee's expenditure, which violated the regulations, was not allowable under Section 37(1) of the Act. The Tribunal dismissed the appeal, emphasizing that no substantial question of law arose as the findings were based on relevant regulations and amendments, allowing the expenditure pre-Amendment and disallowing it post the effective date of the Amendment.

4. The Tribunal's decision was final, finding no error in the orders passed by the lower authorities. The Appeal was deemed devoid of merit and dismissed with no costs. The judgment highlighted the importance of complying with regulatory frameworks, especially in the context of expenditures that contravene established regulations. The impact of the CBDT Circular No.5/2012 on disallowance of expenditure for providing freebies to doctors was also considered, reinforcing the Tribunal's decision to disallow such expenses based on the prevailing regulations and legal provisions.