Samples given to Doctors as Free can be Business Deduction for Pharma Company
Reetu | Dec 26, 2022 |
Samples given to Doctors as Free can be Business Deduction for Pharma Company: ITAT
The Income Tax Appellate Tribunal (ITAT) Mumbai bench has distinguished between the distribution of free samples of pharmaceutical products to doctors and other freebies offered, such as conferences that are typically held in exotic locations.
The tax tribunal determined that expenses incurred for the distribution of free samples of goods are directly related to business promotion and should be recognised by the pharmaceutical company as a business deduction.
Section 37(1) of the Income Tax Act, which addresses the tax deductions of business expenses, was amended by the Finance Act of 2022. One of the goals was to close gaps in the custom of giving doctors freebies, always with conditions attached.
The claim of any expense incurred in providing benefits that are contrary to the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be ineligible as a deduction as it is a prohibited expense, according to the explanatory memorandum.
A company’s taxable profits increase and its tax burden increases if an expense is disallowed. The cost of freebies in the hands of the pharmaceutical company had also been disallowed by the Supreme Court in the case of Apex Labs.
In this case, which the ITAT heard, Merck Limited incurred a cost of Rs.3 crore for the financial year 2010–2011 in order to provide free samples of its pharmaceutical products to doctors.
The ITAT panel, which was made up of judges Sandeep Singh Karhail and Prashant Maharishi, an accountant, noted that the Indian Medical Council’s ethics rules and the Department of Pharmaceuticals’ code of pharmaceutical marketing practises do not specifically forbid giving away free samples of pharmaceutical products. Further, these samples are clearly marked as ‘not for sale’.
The ITAT determined that the Supreme Court’s order covers expenses of nearly Rs 63 lakh that the company incurred for various conferences, so Merck Limited will not be reimbursed for those costs.
In case of any Doubt regarding Membership you can mail us at [email protected]
Join Studycafe's WhatsApp Group or Telegram Channel for Latest Updates on Government Job, Sarkari Naukri, Private Jobs, Income Tax, GST, Companies Act, Judgements and CA, CS, ICWA, and MUCH MORE!"
