M/S BOSTON SCIENTIFIC INDIA PVT. LTD.,,NEW DELHI vs. ACIT, NEW DELHI

This is an appeal by the assessee against the order dated 30.11.2015 passed by the AO u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act).

Earlier this appeal was disposed off by this Bench of the ITAT vide order dated 30.11.2016. Against the said order, the assessee preferred an appeal in before the Hon’ble Jurisdictional High Court u/s 260A of the Act on the following question of law: “whether the ITAT was justified in law in upholding the entire disallowance of Rs.40,20,548/- while discussing the disallowance of only Rs.13,14,548/- and not the other two disallowances in the sums of Rs.19,06,000/- and Rs.8,00,000/-.”

Facts related to this issue has been incorporated in paras 40 to 42 of the original order dated 30.11.2016. Therefore, for the cost of repetition, the same are not reproduced herein. The ld. Counsel for the assessee submitted that the assessee had raised objections against the order of ld. DRP and stated that CBDT Circular No. 5/2012 does not apply. It was further submitted that the expenditure incurred was not prohibited by MCI Regulations and therefore, the claim made, did not fall within the purview of CBDT Circular No. 5/2012. It was further submitted that the MCI Guidelines are applicable only to medical practitioners and not to Pharma Companies. It was stated that the CBDT Circular No. 5/2012 was issued on 01.08.2012 and hence it was applicable from assessment year 2013-14 and not for the year under consideration i.e. the assessment year 2011-12. It was also stated that the issue under consideration is covered by the decision of the ITAT Mumbai Bench in the case of DCIT-8(2), Mumbai Vs PHL Pharma (P.) Ltd. reported at 163 ITD 10.

In his rival submissions, the ld. Sr. DR supported the order of the AO and the ld. DRP, and further submitted that the Circular No. 5/2012 issued by the CBDT was applicable and it was placed before the DRP, therefore, the ld. DRP rightly directed to disallow the honorarium fee paid to the Doctors. It was further submitted that the expenses of Rs.13,14,548/- were incurred by the assessee on travel, lodging, conveyance and registration fees on behalf of the Doctors and as per the Indian Medical Council Regulation, 2002 amended on 10.12.2009, a 3 Boston Scientific India Pvt. Ltd. prohibition was imposed on the medical practitioner and their professional associates who were prohibited from taking any gift, travel facility, hospitality, cash or monetary grant from the pharmaceutical and allied health sector industries. It was further submitted that the expenses incurred on seminar and conference amounting to Rs.19,06,000/- and payment of Rs.8,00,000/- made towards Care Hospital were not eligible for deduction u/s 37(1) of the Act.

We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is not in dispute that the assessee incurred expenses of Rs.13,14,548/- for conducting a seminar/conference of the Doctors and provided the travelling facilities to the participant Doctors in the seminar. The AO disallowed the expenses for the reasons that the expenditure incurred on consultant Doctors was covered within the purview of CBDT Circular No. 5/2012 dated 01.08.2012. The present case, relates to the assessment year 2011-12 and the previous year ended on 31.03.2011. Therefore, the circular issued by the CBDT on 01.08.2012 was not applicable for the year under consideration.

On a similar issue, the ITAT Mumbai Bench in the case of DCIT- 8(2), Mumbai Vs PHL Pharma (P.) Ltd. (supra) held as under: “From the perusal of the Board Circular No.5 of 2012 dated 1-8-2012, it can be seen that heavy reliance has been placed by the CBDT on the Circulars issued by the Medical Council of India, which is the regulatory body constituted under the 'Medical Council Act, 1956'. One such regulation has been issued is 'Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002'. The said regulation deals with the professional conduct, etiquette 4 Boston Scientific India Pvt. Ltd. and ethics for registered medical practitioners only. Chapter 6 of the said regulation/notification deals with unethical acts, whereby a physician or medical practitioners shall not aid or abet or commit any of the acts illustrated in clauses 6.1 to 6.7 of the said regulation which shall be construed as unethical. Clause 6.8 has been added (by way of amendment dated 10-12-2009) in terms of notification published on 14-12-2009 in Gazette of India laying down the code of conduct for doctors and professional association of doctors in their relationship with pharmaceutical and allied health sector industry. [Para 5] On a plain reading of the aforesaid notification, which has been heavily relied upon by the department, it is quite apparent that the code of conduct enshrined therein is meant to be followed and adhered by medical practitioners/doctors alone. It illustrates the various kinds of conduct or activities which a medical practitioner should avoid while dealing with pharmaceutical companies and allied health sector industry. It provides guidelines to the medical practitioners of their ethical codes and moral conduct. Nowhere the regulation or the notification mentions that such a regulation or code of conduct will cover pharmaceutical companies or health care sector in any manner. The department has not brought anything on record to show that the aforesaid regulation issued by Medical Council of India is meant for pharmaceutical companies in any manner. On the contrary, the assessee has brought to the notice of the Court the judgment of the Delhi High Court in the case of Max Hospital v. MCI in [WPC 1334 of 2013, dated 10-1-2014], wherein 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. From the aforesaid decision, 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 5 Boston Scientific India Pvt. Ltd. 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. If Medical Council regulation does not have any jurisdiction upon pharmaceutical companies and it is inapplicable upon Pharma companies like assessee then, where is the violation of any of law/regulation? Under which provision there is any offence or violation in incurring of such kind of expenditure. The relevant provision of section 37(1) applies to an assessee who is claiming deduction of expenditure while computing his business income. The Explanation provides an embargo upon allowing any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law. This means that there should be an offence by an assessee who is claiming the expenditure or there is any kind of prohibition by law which is applicable to the assessee. Here in this case, no such offence of law has been brought on record, which prohibits the pharmaceutical company not to incur any development or sales promotion expenses. A law which is applicable to different class of persons or particular category of assessee, same cannot be made applicable to all. The regulation of 2002 issued by the Medical Council of India (supra), provides limitation/curb/prohibition for medical practitioners only and not for pharmaceutical companies. Here the maxim of 'Expressio Unius Est Exclusio Alterius' is clearly applicable, that is, if a particular expression in the statute is expressly stated for particular class of assessee then by implication what has not been stated or expressed in the statute has to be excluded for other class of assessee. If the Medical Council regulation is applicable to medical practitioners then it cannot be made applicable to Pharma or allied health care companies. If section 37(1) is applicable to an assessee claiming the expense then by implication, any impairment caused by Explanation 1 will apply to that assessee only. Any impairment or prohibition by any law/regulation on a different class of 6 Boston Scientific India Pvt. Ltd. person/assessee will not impinge upon the assessee claiming the expenditure under this section. [Para 6]” It has further been held as under: “From the perusal of the nature of expenditure incurred by the assessee, it is seen that under the head 'Customer Relationship Management', the assessee arranges national level seminar and discussion panels of eminent doctors and inviting of other doctors to participate in the seminars on a topic related to therapeutic area. It arranges lectures and sponsors knowledge upgrade course which helps pharmaceutical companies to make aware of the products and medicines manufactured and launched by it. Under Key Account Management, the assessee makes endeavour to create awareness amongst certain class of key doctors about the products of the assessee and the new developments taking place in the area of medicine and providing correct diagnosis and treatment of the patients. The said activities by the assessee are to make the doctors aware of its products and research work carried out by it for bringing the medicine in the market and its results are based on several levels of tests and approvals. Unless the pharmaceutical companies make aware of such kind of products to key doctors or medical practitioners, then only it can successfully launch its products/medicines. This kind of expenditure is definitely in the nature of sales and business promotion, which has to be allowed. Coming to the gift articles and free samples of medicines, it is seen that the assessee gives various kind of articles like, diaries, pen sets, calendars, paper weights, injection boxes etc. embossed with bold logo of its brand name and the product name so that the doctors remembers the brand of the assessee and also the name of the medicine. All the gift articles, as pointed out by the assessee are very cheap and low cast articles which bears the name of assessee and it is purely for the promotion of its product, brand reminder, etc. These articles cannot be reckoned as freebies given to the doctors. Even the free sample of medicine is only to prove the efficacy and to establish the trust of the doctors on the quality of the drugs. This again cannot be reckoned 7 Boston Scientific India Pvt. Ltd. as freebies given to the doctors but for promotion of its products. The pharmaceutical company, which is engaged in manufacturing and marketing of pharmaceutical products, can promote its sale and brand only by arranging seminars, conferences and thereby creating awareness amongst doctors about the new research in the medical field and therapeutic areas, etc. Every day there are new developments taking place around the world in the area of medicine and therapeutic, hence in order to provide correct diagnosis and treatment of the patients, it is imperative that the doctors should keep themselves updated with the latest developments in the medicine and the main object of such conferences and seminars is to update the doctors of the latest developments, which is beneficial to the doctors in treating the patients as well as the pharmaceutical companies. Further as pointed out and concluded by the Commissioner (Appeals) there is no violation by the assessee in so far as giving any kind of freebies to the medical practitioners. Thus, such kind of expenditures by a pharmaceutical companies are purely for business purpose which has to be allowed as business expenditure and is not impaired by Explanation 1 to section 37(1). [Para 10]”

In the present case also, the assessee incurred the expenses and arranged the seminar, those expenses were not prohibited by law. So, respectfully following the aforesaid referred to order of the Co- ordinate bench, we are of the view that the disallowance made by the AO was not justified.

A similar view has been taken by the ITAT Mumbai Bench in the case of Solvay Pharma India Ltd. Vs Pr. CIT, Range-2, Mumbai (2018) 169 ITD 13 wherein it has been held as under: “The CBDT Circular dated 1-8-2012 (supra) in its clarification has enlarged the scope and applicability of 'Indian Medical Council Regulations, 2002' by making it applicable to the pharmaceutical companies or allied 8 Boston Scientific India Pvt. Ltd. healthcare sector industries. Such an enlargement of scope of MCI Regulation to the pharmaceutical companies by the CBDT is without any enabling provisions either under the provisions of Income Tax Law or by any provisions under the Indian Medical Council Regulations. The CBDT cannot provide casus omissus to a statute or notification or any regulation which has not been expressly provided therein. The CBDT can tone down the rigours of law and ensure a fair enforcement of the provisions by issuing circulars and by clarifying the statutory provisions. CBDT circulars act like 'contemporanea expositio' in interpreting the statutory provisions and to ascertain the true meaning enunciated at the time when statute was enacted. However, the CBDT in its power cannot create a new impairment adverse to an assessee or to a class of assessee without any sanction of law. The circular issued by the CBDT must confirm to tax laws and for purpose of giving administrative relief or for clarifying the provisions of law and cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a different regulation issued under a different Act so as to impose any kind of hardship or liability to the assessee. In any case, it is trite law that the CBDT circular which creates a burden or liability or imposes a new kind of imparity, same cannot be reckoned retrospectively. The beneficial circular may apply retrospectively but a circular imposing a burden has to be applied prospectively only. Here in this case the CBDT has enlarged the scope of 'Indian Medical Council Regulations, 2002' and made it applicable for the pharmaceutical companies. Therefore, such a CBDT circular cannot be reckoned to have retrospective effect. The free sample of medicine is only to prove the efficacy and to establish the trust of the doctors on the quality of the drugs. This again cannot be reckoned as freebies given to the doctors but for promotion of its products. The pharmaceutical company, which is engaged in manufacturing and marketing of pharmaceutical products, can promote its sale and brand only by arranging seminars, conferences and thereby creating awareness amongst doctors about the new research in the medical field and therapeutic areas, etc.

In the present case also, the assessee incurred a sum of Rs.13,14,548/- on account of travelling, lodging, conveyance and registration fees on behalf of Doctors who attended the seminar, the assessee incurred expenses being a promoter of medical education and to train Doctors/medical practitioner for providing best available care to the patient and better quality medical services. The assessee also incurred Rs.12,78,000/- towards Kerala HRS and Rs.6,28,000/- towards India Live Event under the head meetings/seminar/convention expenses. The assessee also made the payment of Rs.8,00,000/- towards Care Hospital, these two disallowances of Rs.19,06,000/- and Rs.8,00,000/- were made by the AO in the absence of any details and evidences furnished for incurring those expenses. We, therefore, considering the totality of the facts and in view of the aforesaid discussion, delete the addition of Rs.13,14,548/- being a reimbursement of expenses incurred by the assessee on travelling, lodging and registration fees on behalf of the Doctors and restore the issue relating to incurring of expenses of Rs.19,06,000/- and Rs.8,00,000/- to the AO to decide the same in accordance with law, after providing due and reasonable opportunity of being heard to the 10 Boston Scientific India Pvt. Ltd. assessee, for the reasons that the requisite details and evidences asked by the AO were not furnished by the assessee.

In the result, the appeal of the assessee is partly allowed for statistical purposes. (Order Pronounced in the Court on 31/08/2018)