Supreme Court rules that gifting of freebies by Pharmaceutical Companies to medical practitioners is not allowable expenditure under the Income Tax Act, 1961

Distribution of incentives (i.e. freebies) by pharmaceutical and allied health sectors industries to doctors, medical practitioners etc. and its allowability of claim as business expenditure in the light of Explanation 1 to section 37(1) of the Income-tax Act, 1961 (‘the Act’) has been one of most litigated issue. Central Board of Direct Taxes (‘CBDT’) vide circular number 05/2012 dated 01 August, 2012 (‘CBDT Circular’) had clarified that any freebies or payments in violation of guidelines issued by Indian Medical Council shall not be an admissible expenditure under section 37(1) of the Act. This view has also been supported by many Tribunals and High Courts. In a contrary set of rulings a principle has been laid that since guidelines of Indian Medical Council prohibit only medical practitioners to accept freebies and are not applicable on donor/ payer pharmaceutical companies, it cannot be said as violation of law on their part.


In a recent judgment dated 22 February 2022 in the case of M/s Apex Laboratories Private Limited vs. DCIT 135 286 (SC), Hon’ble Supreme Court has put end to the controversy and categorically held that freebies given by pharmaceutical companies to medical practitioners/ doctors is ‘prohibited by law’ and Explanation 1 to Section 37(1) shall get triggered.

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