Expenditure on giving freebies to doctors not allowable as deduction u/s 37(1) of Income-tax Act, 1961
The Supreme Court has recently held that since acceptance of freebies by doctors was 'prohibited by law', the expenditure incurred by pharma companies on giving such freebies was to be disallowed as expenditure.
The Supreme Court of India has in a recent decision interpreted section 37(1) of the Income-tax Act, 1961 in the context of freebies given by pharma companies to doctors. The Supreme Court has interpreted the words 'prohibited by law' as occurring in the section and held that the acceptance of such freebies was prohibited by law under the Medical Council of India Regulations, 2002 and it undermines public policy. As such, the expenditure incurred by such pharma companies on giving such freebies was not allowable for deduction under the Act.
The Court referred to CBDT Circular No. 05/2012 and a spate of other judicial authorities to reach the aforesaid conclusion.