Kalpesh Classes

Section 37(1) of the Income-tax Act provides for deduction of any revenue expenditure in the computation of business income, if such expense is laid out or expended wholly or exclusively for the purpose of business or profession. However, the Explanation to this sub-section clarifies that claim of such expense shall not be allowed, if the same has been incurred for a purpose, which is either an offence or is prohibited by law.​​ 

Referring to the above law, the CBDT (Circular No. 5/2012, dated 1-8-2012,) has opined that the claim of any expense for providing any gift, travel facility, hospitality, cash or monetary grant or similar freebies to medical practitioners​​ in violation of the provisions of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, shall be inadmissible expenditure under section 37(1),​​ being an expense prohibited by law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector industry or other entity, which has provided such freebies and claimed these as deductible expenses in its accounts against income.

Under the aforesaid Circular, the Board has also clarified that the sum equivalent to the value of such freebies enjoyed by the medical practitioner or professional association is also taxable as business income or income from other sources, as the case may be, depending on the facts of each case.​​ 

In the above regard, a careful note needs to be taken of section 28( iv) of the Income-tax Act, which prescribes that "the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession" shall be chargeable to tax as income from business or profession. Similarly, section 56(2)(vii) of the Income-tax Act provides for taxing gifts of money or specified gifts in kind, aggregating to Rs. 50,000 or more, received during the financial year from a person who is not a relative, as taxable income under the head 'income from other sources' in the hands of the recipient individual or HUF. As per the directions of the CBDT, the Assessing Officers of doctors are likely to invoke the above provisions, keeping in view the facts of the case.

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