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Money spent on foreign trips of doctors cannot be claimed as expense: IT Tribunal

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Money spent on foreign trips of doctors cannot be claimed as expense: IT Tribunal

In what can be indeed termed as a landmark move, the Mumbai bench of the Income Tax Appellate tribunal, has taken head-on action against pharma companies, providing freebies and trips to medical practitioners to lure them to prescribe a specific medicines/formulations. As per the recent action of the tribunal, a pharma company has been disallowed to claim expenses made towards foreign trips of doctors and their spouses in its statements.

The case is that of Liva healthcare,a pharma company specializing in dermatology formulations which during the financial year 2008-09, incurred an expenditure of  Rs 76.55 lakh  towards overseas trips for doctors and their spouses. However, an I-T officer at the assessment stage disallowed the company to claim this as an expense, a decision, that has now been upheld by the Appellate tribunal, reports TOI

The ITAT’s September 12 order observes, “The payment of overseas trips of doctors and their spouses for entertainment, by the pharma company, in lieu of expectation of getting patient referrals from doctors for its products so as to generate more business and profits, by any stretch of imagination cannot be accepted as legal.Undoubtedly it is not a fair practice and has to be termed as against the public policy.”

Section 37 of the I-T Act, which is a residual section, permits a business entity to claim as a deduction revenue expenditure incurred by it, `wholly and exclusively for the purpose of the business’.However, an explanation to this section provides that expenses incurred for any purpose which is an offence or is prohibited by law shall not be deemed to have incurred for the purpose of the business.Consequently , such expenditure cannot be allowed as a deduction from taxable income adds TOI.


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The decision while having strong implications and higher tax liability for the company, will also set a precedence for other pharma companies that “invest” in foreign trips for doctors.
For the company, with the disallowance of the expenditure, the amount will be added back to the taxable component of income of the said financial year, with the company now liable to pay tax on the said amount.
The maximum rate of income tax on companies currently is 30% plus applicable surcharge and cess.


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4 comment(s) on Money spent on foreign trips of doctors cannot be claimed as expense: IT Tribunal

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  1. Because this is unethical according to mci ethical committee now if ima wants they can challenge this in the court of law but as a rule IMA wont do any thing regarding this also as all doctors are busy in saving patients life and no one left to fight for doctor\’s rights.

  2. user
    Dr Mohan Ranawade September 22, 2016, 9:18 am

    A pharma company\’s expense in arranging a foreign tour for doctors is deemed unethical , although I don\’t see the logic behind it , since a doctor rendered services have been deemed as a service industry covered under the CPA.
    Just as a Company can declare perks and bonuses both for its employees and it\’s dealers; mind you this expense is charged to the consumer , yet it is considered as an ethical business practice.
    If corporates stop bonuses and freebies to their dealers and staff, wouldn\’t their products be cheaper and wouldn\’t the customer benefit ? Why should a customer be paid for the dealers bonus?
    So why doctors can\’t take perks and bonuses ?
    Can anybody answer this question?

  3. First of all the Pharmac company is not your employer , the patient who is paying your fees in a private practice and the government in a government hospital is your employer. Get that straight and don\’t get confused about that. So you need to think about the patient first and sometimes same formulations come in different prices from different companies and if the hike is based only for foreign trip of doctors them that\’s just not unethical but Inhumane. And NO doctors are NOT eligible for Bonusses from Pharmac companies because as I have pointed out already that they are NOT EMPLOYED UNDER THEM.

  4. user
    Dr Mohan Ranawade September 22, 2016, 9:41 am

    Typing error:
    Please read; Why should a customer PAY for the dealers bonus?

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