The Pr. Commissioner Of Income ... vs M/S Goldline Pharmaceuticals, ...
2022 Latest Caselaw 502 Bom

ITL 41-19                                      1                       Judgment

              IN THE HIGH COURT OF JUDICATURE AT BOMBAY,
                        NAGPUR BENCH, NAGPUR.
                      INCOME TAX APPEAL NO. 41/2019
The Pr.Commissioner of Income Tax-3, Nagpur,
Aayakar Bhawan, Civil Lines, Nagpur.                                APPELLANT
                                  -VERSUS-
M/s Goldline Pharmaceuticals Pvt. Ltd.
R/o Jain Mandir Road, Aath Rasta Square,
Laxminagar, Nagpur - 22.                                     RESPONDENT
__________________________________________________________________________
     Shri S.N. Bhattad with Shri Abhishek Bhoot, counsel for the appellant.
      Shri S.C. Thakar with Shri R.S. Thakar, counsel for the respondent.

CORAM : A. S. CHANDURKAR AND G.A. SANAP, JJ.
DATE ON WHICH ARGUMENTS WERE HEARD : 06TH DECEMBER, 2021.
DATE ON WHICH JUDGMENT IS PRONOUNCED : 14TH JANUARY, 2022.
JUDGMENT         (PER : A.S. CHANDURKAR, J.)

This appeal filed under Section 260A of the Income Tax Act, 1961

(for short, 'the Act of 1961') has been admitted by following substantial

questions of law:

(i) Whether the Tribunal was justified in deleting the dis- allowance made on account of payments by Pharmaceutical Companies in view of Circular No.5 of 2012 as well as regulations framed by the Medical Council of India?

(ii) In the light of Judgment of Himachal Pradesh High Court in the case of Confederation of Indian Pharmaceutical Industry (SSI) Vs. The Central Board of Direct Taxes (CBDT) and orders dated 26.12.2012, whether the Tribunal was justified in allowing the appeal of the assessee?

2. The facts giving rise to the aforesaid substantial questions of law

are that the appellant is engaged in the business of manufacturing and

trading of medicines. With regard to Assessment Year 2010-11 it was ITL 41-19 2 Judgment

noted by the Assessing Officer that the appellant had debited an amount

of Rs.3,11,52,609/- towards tour and travel expenses. According to the

appellant these expenses were incurred on medical practitioners to enable

them to attend various conferences held in different parts of the world.

The Assessing Officer disallowed proportionate expenditure to the tune of

Rs.17,83,844/-. Being aggrieved by the aforesaid dis-allowance the

appellant filed an appeal before the Commissioner of Income Tax

(Appeals) who by his order dated 30.09.2014 dismissed the said appeal

by upholding the additions made by the Assessing Officer. The appellant

then filed an appeal before the Income Tax Appellate Tribunal, Nagpur

and by the judgment dated 29.03.2019 the appeal was partly allowed by

holding that the dis-allowance of expenditure as made on the basis of

C.B.D.T. Circular No.5 of 2012 was without merit. The order passed by

the Commissioner of Income Tax (Appeals) was modified and the dis-

allowance was restricted to the additions made in the Assessment order.

Being aggrieved the Revenue has preferred the present appeal.

3. Shri S.N. Bhattad, learned counsel for the Revenue submitted that

in view of the provisions of Section 37(1) of the Act of 1961 alongwith

C.B.D.T. Circular No.5 of 2012 the dis-allowance as made on account of

expenditure incurred on tour and travel of medical practitioners was

legally correct. The Tribunal erred by taking a view that pharmaceutical

companies were beyond the scope of the regulations made by the Medical

Council of India. Circular No.5 of 2012 being clarificatory in nature it ITL 41-19 3 Judgment

was applicable to the case in hand and even if such expenses were

incurred prior to 01.08.2012 the Assessee was not entitled for the

deduction as claimed. Since it was not permissible for a medical

practitioner to accept any travel facility or hospitality from

pharmaceutical companies, the appellant which was a pharmaceutical

company could not seek deduction of business expenditure in that regard.

The learned counsel referred to the judgment of the Himachal Pradesh

High Court dated 26.12.2012 in CWP No.10793 of 2012-J [Confederation

of Indian Pharmaceutical Industry (SSI) Versus The Central Board of

Direct Taxes (CBDT) & Another] in that regard. He further placed

reliance on the decisions in Overseas Trading & Shipping Co.(P) Ltd.

Versus Assistant Commissioner of Income Tax [(2013) 38 taxmann.com

86] which judgment of the Gujarat High Court was affirmed by the

Hon'ble Supreme Court in [2014(51) taxmann.com 374], Commissioner

of Income-tax Versus Bhor Industries (P) Ltd. [2006 (284) ITR 319], J.K.

Panthaki & Co. Versus Income-tax Officer [2012 (344) ITR 329],

Commissioner of Income Tax Versus Kap Scan and Diagnostic Centre P.

Ltd. [2012 (344) ITR 476] and Assistant Commissioner of Income-tax,

Circle 6(3), Mumbai Versus Liva Healthcare Ltd. [(2016) 73

taxmann.com 171 (Mumbai-Trib.)]. It was thus submitted that the

judgment of the Tribunal be set aside and the order passed by the

Commissioner of Income Tax (Appeals) be restored.

ITL 41-19 4 Judgment

4. Shri R.S. Thakar, learned counsel appearing for the respondent-

Assessee supported the impugned judgment. According to him, the travel

expenses incurred by the Assessee did not result in any monetary

payment to medical practitioners and such amounts were directly paid to

the other parties from whom services were availed. Referring to the

Medical Council of India regulations dated 10.12.2009 as well as C.B.D.T.

Circular No.5 of 2012 it was submitted that for attracting the explanation

to Section 37(1) of the Act of 1961, the expenditure incurred by an

assessee for any purpose should be one which is prohibited by law. Since

the Medical Council of India had no jurisdiction to issue any directions to

pharmaceutical companies like the assessee there was no question of such

companies being prohibited by law in incurring expenditure towards tour

and travel of medical practitioners. The said regulations were binding

only on medical practitioners and not on persons who were not governed

by the Indian Medical Council Act, 1956 (for short, the Act of 1956').

Without prejudice to aforesaid it was submitted that Circular No.5 of

2012 having been issued on 01.08.2012 it would apply prospectively and

would have no retrospective effect. Since the expenditure in question

pertained to Assessment Year 2010-11 it was not open for the Revenue to

rely upon that Circular. It was further submitted that various Tribunals in

the State had taken a consistent view that Circular No.5 of 2012 would

not be applicable to pharmaceutical companies and the Revenue had

accepted those decisions as a result of which such view was binding on

the Tribunal. The Tribunal therefore followed the same and there was no ITL 41-19 5 Judgment

reason to interfere with the impugned order. To substantiate his

contentions the learned counsel placed reliance on the decisions of High

Court of Delhi in W.P. (C) 1334/2013 [Max Hospital, Pitampura Versus

Medical Council of India]. He further placed reliance on the decisions in

Deputy Commissioner of Income Tax Versus PHL Pharma (P) Ltd.

[(2017) 146 D.T.R. 0149], S.R.F. Finance Ltd. Versus Central Board of

Direct Taxes [(1995) 211 ITR 0861], Radhasoami Satsang Versus

Commissioner of Income Tax [(1992) 193 ITR 321], Shree Ganesh Steel

Rolling Mills & Another Versus Union of India & Others [AIR 1989 Cal

230] and Emcure Pharmaceuticals Ltd. Versus Deputy Commissioner of

Income Tax [(2018) 62 ITR 0744], ITA No.6222/Mum/2018 dated

18.09.2019 [DCIT Circle-1, Thane Versus M/s Bayer Pharmaceuticals

Pvt. Ltd.] and ITA No.5807/Mumbai/2017 dated 28.06.2019 [Aristo

Pharmaceuticals P. Ltd. Versus ACIT, Range-2(1)(1), Mumbai ]. It was

thus submitted that the substantial questions of law ought to be answered

in favour of the assessee.

5. We have heard the learned counsel for the parties at length and we

have given due consideration to the respective submissions. The factual

aspects not being in dispute, the question of applicability of Circular No.5

of 2012 as well as regulations framed by the Medical Council of India

being the Indian Medical Council (Professional Conduct, Etiquette and

Ethics) Regulations 2002 as amended on 10.12.2009 is required to be

considered. As per these regulations the Medical Council of India ITL 41-19 6 Judgment

imposed a prohibition on medical practitioners and their professional

associations from taking any gift, travel facility, hospitality, cash or

monetary grant from pharmaceutical and allied health sector industries.

As per Circular No.5 of 2012 dated 01.08.2012 claim of any expense

incurred in providing the aforesaid or similar freebees in violation of the

provisions of the said regulations were held inadmissible under Section

37(1) of the Act of 1961 being an expense prohibited in law. It was

further stated that such dis-allowance would be made in the hands of

such pharmaceutical or allied health sector industries or other assessee

which have provided such freebees and claim the same as a deductible

expense in its account against income.

6. Before considering the contention as raised on the applicability of

the Medical Council of India Regulations dated 10.12.2009 and the

C.B.D.T. Circular No.5 of 2012 to pharmaceutical companies like the

assessee, it would be necessary to consider the aspect of retrospective

application of the said Circular for the period prior to 01.08.2012. In the

present case, the Assessment Year is 2010-11. If it is found that the

Circular cannot be given retrospective effect it would not be necessary to

then go into the question of its applicability to pharmaceutical companies

from 01.08.2012 onwards.

It is seen that the Tribunal through its various benches has

consistently held that C.B.D.T. Circular No.5 of 2012 would not have any

retrospective effect but would operate prospectively from 01.08.2012.

ITL 41-19 7 Judgment

These decisions are in M/s Bayer Pharmaceutical Ltd. (Mumbai Bench),

UCB India Private Ltd. (Mumbai Bench), Aristo Pharmaceutical P. Ltd.

(Mumbai Bench) and M/s Solvay Pharma India Ltd. (Mumbai Bench).

The decision in Liva Healthcare Ltd. (Mumbai Bench) that was relied

upon by the learned counsel for the Revenue has been distinguished by

the Tribunal itself in Bayer Pharmaceuticals Pvt. Ltd. and Aristo

Pharmaceuticals P. Ltd. by observing the peculiar facts therein. The

contention of the assessee that all these decisions of the Tribunal were not

assailed before the High Court has not been countered by the Revenue.

While holding that C.B.D.T. Circular No.5 of 2012 which creates a

burden or liability or imposes a new kind of imparity has thus to be

applied prospectively, reliance has been placed by the Tribunal on the

decision of the Hon'ble Supreme Court in Director of Income Tax Versus

SRMB Dairy Farming Pvt. Ltd. [(2018) 400 ITR 9 (SC)]. It has been held

therein that while beneficial circulars have to be applied retrospectively,

oppressive circulars would have prospective application. In view of this it

is clear that C.B.D.T. Circular No.5 of 2012 imposes a new kind of

imparity and thus the view taken in the aforesaid decisions by the

Tribunal is in consonance with the law laid down by the Hon'ble Supreme

Court. It is thus clear that the said Circular could not have been

applied retrospectively and especially to Assessment Year 2010-11 in the

present case. On this count it is not necessary to interfere with the

impugned order passed by the Tribunal in this appeal. Substantial

question of law no.(i) is answered accordingly by holding that the ITL 41-19 8 Judgment

Tribunal was justified in deleting the dis-allowance as made by the

Commissioner of Income Tax (Appeals).

7. In view of the answer to substantial question of law no.(i) the

impugned order of the Tribunal does not deserve to be interfered with.

Hence, we do not find it necessary to answer substantial question of law

no.(ii) which can be considered in an appropriate case. The contentions

of both parties in that regard are kept open.

8. In view of aforesaid, Income Tax Appeal No.41 of 2019 stands

dismissed with no order as to costs.

              (G.A. SANAP, J.)           (A.S. CHANDURKAR, J.)

APTE




                                                     Signed By: Digitally signed
                                                     byROHIT DATTATRAYA
                                                     APTE
                                                     Signing Date:14.01.2022 16:49