Income Tax Appeal v. M/S Goldline Pharmaceuticals Pvt. Ltd

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. CHANDURKARAND G.A. SANAP,JJ.THDATE ON WHICH ARGUMENTS WERE HEARD : 06DECEMBER, 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 substantialquestions of law: (i)Whether the Tribunal was justified in deleting the dis-allowance made on account of payments by PharmaceuticalCompanies in view of Circular No.5 of 2012 as well asregulations framed by the Medical Council of India? (ii)In the light of Judgment of Himachal Pradesh HighCourt in the case of Confederation of Indian PharmaceuticalIndustry (SSI) Vs. The Central Board of Direct Taxes (CBDT)and orders dated 26.12.2012, whether the Tribunal wasjustified in allowing the appeal of the assessee? 2.The facts giving rise to the aforesaid substantial questions of laware that the appellant is engaged in the business of manufacturing andtrading of medicines. With regard to Assessment Year 2010-11 it was noted by the Assessing Officer that the appellant had debited an amountof Rs.3,11,52,609/- towards tour and travel expenses. According to theappellant these expenses were incurred on medical practitioners to enablethem to attend various conferences held in different parts of the world.The Assessing Officer disallowed proportionate expenditure to the tune ofRs.17,83,844/-. Being aggrieved by the aforesaid dis-allowance theappellant filed an appeal before the Commissioner of Income Tax(Appeals) who by his order dated 30.09.2014 dismissed the said appealby upholding the additions made by the Assessing Officer. The appellantthen filed an appeal before the Income Tax Appellate Tribunal, Nagpurand by the judgment dated 29.03.2019 the appeal was partly allowed byholding that the dis-allowance of expenditure as made on the basis ofC.B.D.T. Circular No.5 of 2012 was without merit. The order passed bythe 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 thatin view of the provisions of Section 37(1) of the Act of 1961 alongwithC.B.D.T. Circular No.5 of 2012 the dis-allowance as made on account ofexpenditure incurred on tour and travel of medical practitioners waslegally correct. The Tribunal erred by taking a view that pharmaceuticalcompanies were beyond the scope of the regulations made by the MedicalCouncil of India. Circular No.5 of 2012 being clarificatory in nature it 3.Shri S.N. Bhattad, learned counsel for the Revenue submitted thatin view of the provisions of Section 37(1) of the Act of 1961 alongwithC.B.D.T. Circular No.5 of 2012 the dis-allowance as made on account ofexpenditure incurred on tour and travel of medical practitioners waslegally correct. The Tribunal erred by taking a view that pharmaceuticalcompanies were beyond the scope of the regulations made by the MedicalCouncil of India. Circular No.5 of 2012 being clarificatory in nature it was applicable to the case in hand and even if such expenses wereincurred prior to 01.08.2012 the Assessee was not entitled for thededuction as claimed. Since it was not permissible for a medicalpractitioner to accept any travel facility or hospitality frompharmaceutical companies, the appellant which was a pharmaceuticalcompany could not seek deduction of business expenditure in that regard.The learned counsel referred to the judgment of the Himachal PradeshHigh Court dated 26.12.2012 in CWP No.10793 of 2012-J [Confederationof Indian Pharmaceutical Industry (SSI) Versus The Central Board ofDirect Taxes (CBDT) & Another] in that regard. He further placedreliance on the decisions in Overseas Trading & Shipping Co.(P) Ltd.Versus Assistant Commissioner of Income Tax [(2013) 38 taxmann.com86] which judgment of the Gujarat High Court was affirmed by theHon’ble Supreme Court in [2014(51) taxmann.com 374], Commissionerof 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) 73taxmann.com 171 (Mumbai-Trib.)]. It was thus submitted that thejudgment of the Tribunal be set aside and the order passed by theCommissioner of Income Tax (Appeals) be restored. 4.Shri R.S. Thakar, learned counsel appearing for the respondent-Assessee supported the impugned judgment. According to him, the travelexpenses incurred by the Assessee did not result in any monetarypayment to medical practitioners and such amounts were directly paid tothe other parties from whom services were availed. Referring to theMedical 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 explanationto Section 37(1) of the Act of 1961, the expenditure incurred by anassessee for any purpose should be one which is prohibited by law. Sincethe Medical Council of India had no jurisdiction to issue any directions topharmaceutical companies like the assessee there was no question of suchcompanies being prohibited by law in incurring expenditure towards tourand travel of medical practitioners. The said regulations were bindingonly on medical practitioners and not on persons who were not governedby the Indian Medical Council Act, 1956 (for short, the Act of 1956’).Without prejudice to aforesaid it was submitted that Circular No.5 of2012 having been issued on 01.08.2012 it would apply prospectively andwould have no retrospective effect. Since the expenditure in questionpertained to Assessment Year 2010-11 it was not open for the Revenue torely upon that Circular. It was further submitted that various Tribunals inthe State had taken a consistent view that Circular No.5 of 2012 wouldnot be applicable to pharmaceutical companies and the Revenue hadaccepted those decisions as a result of which such view was binding onthe Tribunal. The Tribunal therefore followed the same and there was no reason to interfere with the impugned order. To substantiate hiscontentions the learned counsel placed reliance on the decisions of HighCourt of Delhi in W.P. (C) 1334/2013 [Max Hospital, Pitampura VersusMedical Council of India]. He further placed reliance on the decisions inDeputy Commissioner of Income Tax Versus PHL Pharma (P) Ltd.[(2017) 146 D.T.R. 0149], S.R.F. Finance Ltd. Versus Central Board ofDirect Taxes [(1995) 211 ITR 0861], Radhasoami Satsang VersusCommissioner of Income Tax [(1992) 193 ITR 321], Shree Ganesh SteelRolling Mills & Another Versus Union of India & Others [AIR 1989 Cal230] and Emcure Pharmaceuticals Ltd. Versus Deputy Commissioner ofIncome Tax [(2018) 62 ITR 0744], ITA No.6222/Mum/2018 dated18.09.2019 [DCIT Circle-1, Thane Versus M/s Bayer PharmaceuticalsPvt. Ltd.] and ITA No.5807/Mumbai/2017 dated 28.06.2019 [AristoPharmaceuticals P. Ltd. Versus ACIT, Range-2(1)(1), Mumbai]. It wasthus submitted that the substantial questions of law ought to be answeredin favour of the assessee. 5.We have heard the learned counsel for the parties at length and wehave given due consideration to the respective submissions. The factualaspects not being in dispute, the question of applicability of Circular No.5of 2012 as well as regulations framed by the Medical Council of Indiabeing the Indian Medical Council (Professional Conduct, Etiquette andEthics) Regulations 2002 as amended on 10.12.2009 is required to beconsidered. As per these regulations the Medical Council of India imposed a prohibition on medical practitioners and their professionalassociations from taking any gift, travel facility, hospitality, cash ormonetary grant from pharmaceutical and allied health sector industries.As per Circular No.5 of 2012 dated 01.08.2012 claim of any expenseincurred in providing the aforesaid or similar freebees in violation of theprovisions of the said regulations were held inadmissible under Section37(1) of the Act of 1961 being an expense prohibited in law. It wasfurther stated that such dis-allowance would be made in the hands ofsuch pharmaceutical or allied health sector industries or other assesseewhich have provided such freebees and claim the same as a deductibleexpense in its account against income. 6.Before considering the contention as raised on the applicability ofthe Medical Council of India Regulations dated 10.12.2009 and theC.B.D.T. Circular No.5 of 2012 to pharmaceutical companies like theassessee, it would be necessary to consider the aspect of retrospectiveapplication of the said Circular for the period prior to 01.08.2012. In thepresent case, the Assessment Year is 2010-11. If it is found that theCircular cannot be given retrospective effect it would not be necessary tothen go into the question of its applicability to pharmaceutical companiesfrom 01.08.2012 onwards. It is seen that the Tribunal through its various benches hasconsistently held that C.B.D.T. Circular No.5 of 2012 would not have anyretrospective effect but would operate prospectively from 01.08.2012. 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 reliedupon by the learned counsel for the Revenue has been distinguished bythe Tribunal itself in Bayer Pharmaceuticals Pvt. Ltd. and AristoPharmaceuticals P. Ltd. by observing the peculiar facts therein. Thecontention of the assessee that all these decisions of the Tribunal were notassailed before the High Court has not been countered by the Revenue. 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 reliedupon by the learned counsel for the Revenue has been distinguished bythe Tribunal itself in Bayer Pharmaceuticals Pvt. Ltd. and AristoPharmaceuticals P. Ltd. by observing the peculiar facts therein. Thecontention of the assessee that all these decisions of the Tribunal were notassailed 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 aburden or liability or imposes a new kind of imparity has thus to beapplied prospectively, reliance has been placed by the Tribunal on thedecision of the Hon’ble Supreme Court in Director of Income Tax VersusSRMB Dairy Farming Pvt. Ltd. [(2018) 400 ITR 9 (SC)]. It has been heldtherein that while beneficial circulars have to be applied retrospectively,oppressive circulars would have prospective application. In view of this itis clear that C.B.D.T. Circular No.5 of 2012 imposes a new kind ofimparity and thus the view taken in the aforesaid decisions by theTribunal is in consonance with the law laid down by the Hon’ble SupremeCourt. It is thus clear that the said Circular could not have beenapplied retrospectively and especially to Assessment Year 2010-11 in thepresent case. On this count it is not necessary to interfere with theimpugned order passed by the Tribunal in this appeal. Substantialquestion of law no.(i) is answered accordingly by holding that the Tribunal was justified in deleting the dis-allowance as made by theCommissioner of Income Tax (Appeals). 7.In view of the answer to substantial question of law no.(i) theimpugned order of the Tribunal does not deserve to be interfered with.Hence, we do not find it necessary to answer substantial question of lawno.(ii) which can be considered in an appropriate case. The contentionsof both parties in that regard are kept open. 8.In view of aforesaid, Income Tax Appeal No.41 of 2019 standsdismissed with no order as to costs. (G.A. SANAP, J.) (A.S. CHANDURKAR, J.) APTE