Expenditure in the form of Commission to the Doctors is Prohibited by Law and not Entitled .

The Calcutta High Court has held that expenditure in the form of commission to the doctors is prohibited by law and not entitled to deduction u/s 37.

The petitioner, Peerless Hospitex Hospital and Research Center Limited engaged in the business of running a multi-speciality hospital. The petitioner relates to a payment of Rs. 51,76,992/- as ‘referral to doctors’ which was claimed by it as business expense in its return of income filed for the assessment year 2011-12 and the same in course of regular assessment proceeding the Assessing Officer had allowed.

The assessee approached the High Court against the reopening of the assessment in question after expiry of four years from the end of relevant assessment year and held that the aforesaid expenditure ‘referral to doctors’ being an expense prohibited by law and is disallowable under explanation 1 to Section 37 (1) of the Income Tax Act, 1961 in relevant assessment years and in view of regulation under the amended Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation, 2002 introduced w.e.f. 10th December, 2009 and Circular No. 5/2012 issued by the Central Board of Direct Taxes (CBDT) by applying the same retrospectively.

The High Court after considering the object of the amended Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, Explanation 1 to Section 37 (1) of the Income Tax Act, 1961, Circular No. 5/2012 issued by Central Board of Direct Taxes which is retrospective in nature and the judgment of the Supreme Court in the case of M/s Apex Laboratories Pvt. Ltd. observed that Petitioner hospital is not eligible and not entitled to get deduction on expenditure by way of commission to the doctors as ‘referral to doctors’ for referring patients for treatment in its hospital as business expenditure under Section 37 (1) of the Income Tax Act, 1961.

The single bench presided by Mr. Justice Muhammad. Nizamuddin has held that “in my considered opinion petitioner being a participant in an act which is an offence and is prohibited by law is not entitled for any deduction under Section 37 (1) of the Income Tax Act, 1961, and the aforesaid nature of expenses are disallowable under Explanation 1 to Section 37 of the Income Tax Act, 1961”.