A bench comprising judicial member Ravish Sood and accountant member G Manjunatha ruled that a Central Board of Direct Taxes circular and the IMC’s regulations could not be relied upon to disallow a drug company’s expenditure claims. The IMC’s code of conduct applies only to medical practitioners and doctors and not to pharmaceutical companies and the healthcare sector, it said.
“The CBDT has no power to extend the scope of the IMC regulation to pharmaceutical companies without any enabling provision either under the Income Tax Act or the IMA regulations,” the bench observed.
The ITAT said CBDT circulars cannot impose a burden on an assessee, let alone create a new burden, by enlarging the scope of a regulation issued under another act. ET has reviewed a copy of the order.
The matter pertained to tax returns filed by Mumbai-based Medley Pharmaceuticals Ltd. in September 2012, declaring total income of Rs 29.29 crore. An income tax official assessed the company’s income at Rs 49.23 crore in March 2015, after disallowing expenses of Rs 5.37 crore in freebies to doctors as a deduction.
The scope and ambit of statutory provisions in the Indian Medical Council Act, 1956, related to professional conduct are restricted to medical practitioners registered with the State Medical Council and those whose names are entered in the Indian Medical Register, the bench said.
The scheme of the Indian Medical Council Act, 1956, deals only with the conduct of individual registered medical practitioners, the ITAT said in the order.
“Even otherwise, the enlargement of the scope of MCI regulation to the pharmaceutical companies by the CBDT is dehors (outside the scope of) any enabling provision either under the Income Tax Act or under the Indian Medical Council regulations,” it said.
The ITAT said that though the CBDT can tone down the rigours of law in an order to ensure fair enforcement of the provisions by issuing circulars for clarifying statutory provisions, “it is divested of its powers to create a new impairment adverse to an assessee, or to a class of assesses, without any sanction or authority of law.”