Circular No. 05/2012

Inadmissibility of expenses incurred in providing freebees to Medical Practitioner by pharmaceutical and allied health sector Industry

What this is

Circular No. 05/2012 was issued by the Central Board of Direct Taxes on 1 August 2012. Its subject is Inadmissibility of expenses incurred in providing freebees to Medical Practitioner by pharmaceutical and allied health sector Industry.

What it does

Disallows expenditure on freebies given to medical practitioners and their professional associations by pharmaceutical and allied health sector businesses. The Medical Council of India amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 on 10 December 2009 to prohibit a medical practitioner or a professional association from taking any gift, travel facility, hospitality, cash or monetary grant from these industries. Since the Explanation to section 37(1) denies deduction for expenditure incurred for a purpose that is an offence or prohibited by law, expenditure on such freebies is inadmissible in the hands of the pharmaceutical or allied health sector business or other assessee that provided them and claimed the deduction. The circular also says the value of the freebies enjoyed by the practitioner or association is taxable in their hands as business income or income from other sources depending on the facts, and directs their Assessing Officers to examine it.

Why it was issued

It was brought to the Board's notice that some pharmaceutical and allied health sector businesses were providing freebies to medical practitioners and their professional associations in breach of the Medical Council's regulations.

Who it reaches

Pharmaceutical and allied health sector companies claiming sales promotion and hospitality expenditure
Medical practitioners receiving gifts, travel, hospitality or monetary grants
Professional associations of medical practitioners
Assessing Officers on both sides of the transaction

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.30	s.28
s.37	s.34

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

Inadmissibility of expenses incurred in providing freebees to Medical Practitioner by pharmaceutical and allied health sector Industry
Circular No. 5/2012 [F. No. 225/142/2012-ITA.II], dated 1-8-2012
It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India (the 'Council') which is a regulatory body constituted under the Medical Council Act, 1956.
2. The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries.
3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law.
Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees and claimed it as a deductable expense in its accounts against income.
4. It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The Assessing Officers of such medical practitioner or professional associations should examine the same and take an appropriate action.
This may be brought to the notice of all the officers of the charge for necessary action.
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What to watch

The disallowance is worked through the Explanation to section 37(1), so it bites only where the payment is prohibited by the Medical Council regulations as they stood.
The prohibition on the doctors dates from 10 December 2009, which matters for years before that.
The circular reaches 'other assessee' who provides such freebies, not only pharmaceutical companies.
There are two separate consequences: disallowance for the giver and taxability for the receiver, and each is decided in that person's own assessment on its own facts.

Where you meet it

You meet it in a section 37(1) disallowance of sales promotion, conference or travel expenditure in a pharmaceutical company's assessment, and in an addition in a doctor's assessment for the value of hospitality or gifts received.

An example

Ours, not the Board’s: a worked case built from the rule the instrument sets, to show how it falls out.

A pharmaceutical company pays for a doctor's overseas conference travel and stay and claims it as sales promotion expenditure. On the circular's reasoning the expenditure is prohibited by the Medical Council regulations and disallowed under the Explanation to section 37(1). The value of the travel and stay is separately examinable in the doctor's own assessment as business income or income from other sources.

What it names

It mentions. Circular No. 5/2012

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 81/2018 [F.No.370149/194/2017-TPL] / SO 5677(E) — New Delhi, the 12th November, 2018 12 November 2018
Circular No. 10/2012, dated 31-12-2012 — Section 132, read with section 132A of the income-tax Act, 1961 - search & seizure - Assessment of preceding years in se 31 December 2012
Notification No. 42/2012 — income-tax (fourteenth amendment) rules, 2012 - insertion of rule 112f 4 October 2012
Circular No. 287 — 307. Bonus - Whether it would be permissible for employers to claim deduction of bonus paid in excess of amount worked o 4 December 1980
Notification No. 38/2025 [F. No 370142/11/2025-TPL] / SO 1838(E) — 2 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 23 April 2025
Circular No. 727 — 372. Instructions regarding extent of expenditure incurred on food or beverages provided to employees by employers to be 27 October 1995

← Press Release [NO. 402/92/2006-MC (20 OF 2012)], dated 1-8-2012 · Press Release, dated 31-7-2012 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.