The Supreme Court said when doctors are prohibited under the law from accepting gifts, pharma companies cannot defeat the objective behind the legal provision NEW DELHI: Pharmaceutical companies cannot be allowed to misuse a gap in the law to perpetuate the offence of giving freebies and expensive gifts to doctors, the Supreme Court said on Tuesday as it ruled that the companies must pay full taxes on these expenses without any concession. A bench of justices Uday U Lalit and S Ravindra Bhat underlined that it is not just an issue of taxation but “a matter of great public importance” 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, ranging from gifts such as gold coins, fridges and LCD TVs to international trips. “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,” said the court, emphasising that medical practitioners have a quasi-fiduciary relationship with their patients, who take doctor’s prescriptions as final words even if the cost of medication is unaffordable or barely within their economic reach. When doctors are prohibited under the law from accepting gifts, the court said, pharma companies cannot defeat the objective behind the legal provision by arguing that donors have not been forbidden under the law from giving gifts. Under the 2002 Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, receiving emoluments in the form of gifts, travel facilities, hospitality, cash, etc., can lead to suspension of a medical practitioner’s right to practice for up to one year. “The 2002 Regulations, applicable to all medical practitioners (including doctors in private practice), was introduced from December 14, 2009. Thus, pharmaceutical companies’ gifting freebies to doctors is clearly ‘prohibited by law’, and not allowed to be claimed as a deduction under Section 37(1) of the Income Tax Act (as business expenditure). Doing so would wholly undermine public policy,” said the bench. “That the medical practitioners were forbidden from accepting such gifts or freebies was no less a prohibition on the part of their giver or donor...it is but logical that when acceptance of freebies is punishable, pharmaceutical companies cannot be granted the tax benefit for providing such freebies, and thereby (actively and with full knowledge) enabling the commission of the act which attracts such opprobrium,” it added. The court order came while dismissing an appeal by Apex Laboratories Pvt Ltd, which claimed a full tax benefit on the expenditure of ?4.72 Crore incurred by it during the financial year 2009-10 towards hospitality, conference fees, gold coins, LCD TVs, fridges, laptops, etc., to medical practitioners for creating awareness about its health supplement ‘Zincovit’. Noting that “pharmaceutical companies have misused a legislative gap to actively perpetuate the commission of an offence”, the top court upheld the previous decisions of the Madras high court and the tax tribunals that only the expenses incurred till December 14, 2009 (the date on which the 2002 Regulations came into force) were eligible for the tax benefit and not for the entirety of the amount. “It is also a settled principle of law that no court will lend its aid to a party that roots its cause of action in an immoral or illegal act, meaning that no one should be allowed to profit from any wrongdoing,” stated the bench, adding a comprehensive view must be adopted to regulate the conduct when doctors and pharmacists are complementary and supplementary to each other in the medical profession. “Denial of the tax benefit cannot be construed as penalizing 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...One arm of the law cannot be utilised to defeat the other arm of law – doing so would be opposed to public policy and bring the law into ridicule,” it held. The bench further noted that agreements between pharma companies and the medical practitioners in gifting freebies for boosting sales of prescription drugs is also violative of Section 23 of the Contract Act because the consideration involved in such pacts are unlawful and opposed to public policy.