Payment of Referral Fees to Doctors and Nursing Homes Violative of laws: IT tribunal slams Diagnostic center, denies approx Rs 1 crore relief

Pune: Condemning the act of referral fee paid to doctors and nursing home by a diagnostic center, the Pune bench of the Income Tax Appellate Tribunal recently disallowed to provide it relief as a deduction on IT return on expenditure made to the tune of approximately Rs 1 crore.

With the decision, the bench has also sent a strong message on the unethical practice clearly noting that the payment of referral fees to doctors and nursing homes as an excuse on the income tax return as it violates the provisions of the Medical Council (Professional Conduct, Etiquettes and Ethics) Regulations Act, 2002 and Income Tax Act, 1961.

The decision was given the case of one M/s Fidelity Diagnostics Pvt. Ltd (a diagnostic center) who filed a plea in the Income Tax Appellate Tribunal in the year 2021. The diagnostic cente in its plea alleged that they had filed an income tax return in the year 2015 for the assessment year 2015-2016 proclaiming to have gone through a loss of Rs 1,97,90,141/-.

For the said income tax return filed, an assessment was completed by the assessing officer, and an order was passed in the year 2017, only considering a sum of Rs.97,44,751/- for the loss.

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The sum of Rs 99,79,768/- was disallowed by the assessing officer in the income tax return filed by the aggrieved as it was the referral fees which was paid to the doctors and nursing homes stating that it violated the provisions of the Medical Council (Professional Conduct, Etiquettes and Ethics) Regulations Act, 2002 and the Income Tax Act, 1961.

Hearing both sides and considering the material facts on record, the bench while referring to a similar case related to the gifting of freebies to doctors, decided by the Hon'ble Supreme Court confirmed the decision of the assessing officer for disallowing the referral fee paid to doctors and nursing homes to be regarded as a deduction while computing the business income of the assessee as it violates the provisions of the Medical Council (Professional Conduct, Etiquettes and Ethics) Regulations Act, 2002 and cannot be regarded as a deduction U/S 37(1) of the Income Tax Act, 1961. Thus, prohibited by the law.

"In the light of authoritative pronouncement of law by the Hon'ble Supreme Court on the issue on hand, we are of the considered opinion that referral fees paid to doctors and nursing home cannot be allowed as deduction while computing the business income of an assessee. Accordingly, we confirm the orders of the lower authorities. Thus, we do not find any merit in the ground of appeal filed by the appellant-assessee"

To read the full judgment, click below:

https://medicaldialogues.in/pdf_upload/18924514-rsa-2021-190657.pdf