Pharma companies can't claim deduction for prohibited 'freebies' to doctors, Supreme Court says

The top court said it is a matter of concern when it is demonstrated that a doctor’s prescription can be manipulated

The Supreme Court on Tuesday expressed its concern over pharmaceutical companies manipulating doctors prescription by gifts such as gold coins, fridges and LCD TVs to funding international trips for vacations or to attend medical conferences, in lieu of suggesting drugs manufactured by them.

A bench of Justices U U Lalit and S Ravindra Bhat said pharmaceutical companies’ gifting freebies to doctors, etc., is clearly “prohibited by law”, and not allowed to be claimed as a deduction.

The top court 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.

"These freebies are technically not ‘free’ – the cost of supplying such freebies is usually factored into the drug, driving prices up, thus creating a perpetual publicly injurious cycle. The threat of prescribing medication that is significantly marked up, over effective generic counterparts in lieu of such a quid pro quo exchange was taken cognizance of by the Parliamentary Standing Committee on Health and Family Welfare," the bench pointed out.

The top court dismissed an appeal filed by M/s Apex Laboratories Pvt Ltd against a Madras High Court's judgement which declined to intervene into Income Tax authorities' decision against the company to claim benefit of business expenditure towards gifting freebies to medical practitioners for creating awareness about the health supplement ‘Zincovit'.

Justice Bhat, who authored the order, said doctors and pharmacists being complementary and supplementary to each other in the medical profession, a comprehensive view must be adopted to regulate their conduct in view of the contemporary statutory regimes and regulations.

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

The bench also pointed out that medical practitioners have a quasi-fiduciary relationship with their patients.

"A doctor’s prescription is considered the final word on the medication to be availed by the patient, even if the cost of such medication is unaffordable or barely within the economic reach of the patient –such is the level of trust reposed in doctors," it said.

In the present case, the incentives or freebies by the company, to the doctors, had a direct result of exposing them to the "odium of sanctions, leading to a ban on their practice of medicine". Those sanctions are mandated by law, as embodied in the code of conduct and ethics, and have legally binding effect. The conceded participation of the assessee - the provider or donor- was plainly prohibited, as far as their receipt by the medical practitioners was concerned. That medical practitioners were forbidden from accepting such gifts, or “freebies” was no less a prohibition on the part of their giver, or donor, the court added.

Watch latest videos by DH here: