Drug co allowed cost of docs’ France meet as tax deduction | India News – Times of India

MUMBAI: The ‘relationship’ between pharma companies and doctors is often the subject of tax lawsuits. Mumbai-based private company Evolution India had filed an appeal with the Income Tax Appeal Tribunal (ITAT), alleging that it had made Rs 12.7 lakh in FY2015-15, which was denied by the Income Tax Officer. These costs were primarily towards one of its workshops in France and included travel and hotel costs for attending physicians.
The Mumbai ITAT bench, which recently held a hearing on the matter, said the income tax (IT) officer was not justified in denying the expenditure. The pharma company that distributes Ortho Implants carried it “completely and exclusively in the normal course of its business” and it should be approved as a business discount.
As a result of any non-approval of expenditure, taxable income increases, resulting in higher tax amount. Or, if the company suffers a loss, it reduces the losses it could incur over the next eight years. Any loss that is carried forward reduces the tax liability for the coming year.
The IT officer relied on a circular issued by the Central Board of Direct Taxes (CBDT) in 2012 stating that any cost incurred by the pharma company (MCI) in providing “free” to doctors in violation of the rules issued by the Medical Council of India. Will not be allowed.
The ITAT bench was of the view that the travel, hotel and honorarium fees paid to doctors for attending workshops abroad could not be dubbed as gifts or free and could not be covered by the CBDT notification.
The key point of the order, which will have far-reaching implications in similar cases, is that the ITAT bench said that medical doctors registered with the MCI are bound by its code of conduct. The CBDT is deprived of the power to extend the scope of the MCI Regulation by extending it to pharmaceutical companies without any active provision under the Income Tax Act or the Indian Medical Regulation. If it does, it disrupts the behavior of pharma companies in conducting business. In reaching its decision, ITAT also relied on the decisions taken by various high courts.
In a previous case of Liva Healthcare reported by TOI on September 20, 2016, Mumbai ITAT said that the purpose of the trip sponsored abroad for doctors and their spouses was to recommend its pharmaceutical products. It prohibited such spending at the hands of the company.
The ITAT bench commented in its order dated 23 September that the tax tribunal in its earlier decision had included MCI regulations but did not elaborate or explain the MCI regulations, which were strictly for medical practitioners and doctors. Pharma companies and others in the healthcare industry may apply.

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