Income Tax, Issue Update

Applicability of MCI circular (prohibiting the medical practitioners from taking any gift) to pharmaceutical companies: Consistency of the MCI circular with the circular issued by CBDT on this subject

Case: Indoco Remedies Ltd vs. Dy. CIT, Mumbai ITAT

The case deals with the issue: claim of expenditure towards gifts given to doctors.

The court ruled that neither MCI Regulations 2002 nor the CBDT Circular no.5 of 2012 would be applicable to the pharmaceutical companies. 

There are at least 2 pending cases in appeal at a higher forum. There are 4 recent judgements on this issue, AYs for which range from is 2010-11 to 2014-15. Apart from following this issue, if you are a tax professional that serves the pharma industry, you may also want to follow the Pharmaceutical industry tracker.


  • The Assessee had claimed expenditure of Rs. 1.45 Crs towards gift and presentation articles given to doctors.
  • However, the Assessing Officer disallowed the same stating that such gifts were in contravention of Medical Council of India (MCI) Regulations, wherein, it was provided that making such personal gifts to the doctors was an unethical act.
  • Hence, the expenditure claimed could not be allowed in view of Explanation to section 37(1) of the Act.

Key points

  • The Tribunal placed reliance on the decision in the case of PHL Pharma Ltd., wherein it was held that MCI Regulations were applicable only to the doctors/ medical practitioners and not to pharmaceutical companies.
  • It was observed that the CBDT Circular no.5 of 2012 dated 01.08.2012 cannot enlarge the scope of MCI Regulations de hors any enabling provision either under the Act or the MCI Regulations. Though CBDT can tone down the rigors of law in order to ensure a fair enforcement of the provisions by issuing circulars for clarifying the statutory provisions, however, it was divested of all its power to create a new impairment adverse to an Assessee or to a class of Assessees without any sanction or authority of law.
  • Thus, from the said ratio it could be concluded that neither the MCI Regulations 2002 nor the CBDT Circular no.5 of 2012 would be applicable to the pharmaceutical companies. Hence, in the present facts of the case the expenditure incurred by the Assessee could not be disallowed alleging infraction of law in terms of Explanation 1 to Section 37(1) of the Act.

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