SC hits out at pharma companies' "freebies" to doctors; no tax exemption

New Delhi: The Supreme Court of India has robustly criticised the practise of pharmaceutical companies offering "freebies" and incentives to doctors in order to get them to prescribe their medications, stating that companies are not entitled to claim tax exemption on the expenditure incurred in giving incentives.

The apex court made these observations while dismissing an appeal filed by Apex Laboratories Pvt Ltd challenging a Madras High Court verdict, declining to interfere with the Income Tax authorities' decision against the firm to claim benefit of business expenditure of over ₹4 crores towards gifting freebies to medical practitioners for creating awareness about health supplement 'Zincovit'.

The bench of Justices U.U. Lalit and S Ravindra Bhat said: "It is a matter of great public importance and concern, when it is demonstrated that a doctor's prescription can be manipulated, and driven by the motive to avail the freebies offered to them by pharmaceutical companies, ranging from gifts such as gold coins, fridges and LCD TVs to funding international trips for vacations or to attend medical conferences."

It said the denial of the tax benefit cannot be construed as penalising the assessee pharmaceutical company and only its participation in what is plainly an action prohibited by law, precludes the assessee from claiming it as a deductible expenditure.

Additional Solicitor General Sanjay Jain, representing the government, submitted though gifting freebies to doctors may not be classified as an 'offence' under any statute but it was specifically prohibited. He added that pharma companies should not be allowed to benefit by claiming a tax exemption on the freebies.

The court said that no one should be allowed to profit off an act of wrongdoing and that doctors and pharmacists who work together and supplement each other's role should be held to standards of ethical conduct that are congruent with existing regulations.

"The incentives (or 'freebies') given by Apex, to the doctors, had a direct result of exposing the recipients to the odium of sanctions, leading to a ban on their practice of medicine. Those sanctions are mandated by law, as they are embodied in the code of conduct and ethics, which are normative, and have legally binding effect," it added.