Pharma firms cannot claim tax benefit for freebies offered to doctors: SC

“It will wholly undermine public policy and result in an absurdity”

February 23, 2022 12:37 am | Updated 12:41 am IST - NEW DELHI

The Supreme Court on Tuesday held that “extravagant freebies” given to doctors, obviously in exchange for prescribing expensive medicine, cannot be used by pharmaceutical companies to claim benefits under the Income Tax Act. The practice of receiving expensive gifts for prescribing costly branded medication over its equally effective generic counterparts, thereby burdening patients with unnecessary costs, is prohibited under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. Emoluments in the form of gifts, travel facilities, hospitality, cash or monetary grants are prohibited for doctors. Accepting such freebies could result in a range of sanctions against medical practitioners, from ‘censure’ for incentives received up to ₹5,000 to removal from the Indian Medical Register or State Medical Register for periods ranging from three months to one year. Besides, the practice is a crime under the Prevention of Corruption Act, 1988, for government doctors. Again, an agreement between pharmaceutical companies and medical practitioners in gifting freebies for boosting sales of prescription drugs violates Section 23 of the Contract Act, 1872. If so many laws treat such gifts as illegal, how can a Pharma company claim tax benefits for offering them to doctors, a Bench of Justices U.U. Lalit and S. Ravindra Bhat asked in its judgment. Claiming such a tax benefit “would wholly undermine public policy” and would result in an “absurdity”. Justice Bhat, who authored the judgment, said it was very important that the right message be sent out that any manipulation of a doctor’s prescription, driven by a desire to avail freebies, would not be tolerated. The court asked whether gifts ranging from gold coins, fridges and LCD TVs to funding international trips for vacations or to attend medical conferences were worth more than the patient’s trust. “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,” Justice Bhat observed. The top court reminded doctors that these freebies were 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 court noted.

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