CBDT cannot issue a circular without enabling provision under the Income Tax Act

Tribunal Observations on CBDT powers to issue Circulars

• We observe that the CBDT circular dated 01-08-2012 in its clarification has enlarged the scope and applicability of ‘Indian Medical Council Regulation 2002’ by making it applicable to the pharma companies and allied health care sector industries.
• Such an enlargement of scope of MCI regulation to the pharma companies by the CBDT is without any enabling provisions either under the Income Tax Act or by a provision under the Indian Medical Council Regulations. The CBDT cannot provide casus omissus to a statue or notification or any regulation which has not been expressly provided therein.
• The CBDT can tone down the rigours of law and ensure a fair enforcement of the provisions by issuing circulars and by clarifying the statutory provisions. CBDT circulars act like ‘contemporanea expositio’ in interpreting the statutory provisions and to ascertain the true meaning enunciated at the time when statue was enacted.
• However, the CBDT in its power cannot create a new impairment adverse to an assessee or to a class of assessee without any sanction of law. The circular issued by the CBDT must confirm to tax laws and for purpose of giving administrative relief or for clarifying the provisions of law and cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a different regulation issued under a different Act so as to impose any kind of hardship or liability to the assessee.
• In any case, it is trite law that the CBDT circular which creates a burden or liability or impose a new kind of imparity, same cannot be reckoned retrospectively, the beneficial circular may apply retrospectively but a circular imposing a burden has to be applied prospectively only.

Observation of Tribunal on the issue involved in the case

• In this case, the CBDT has enlarged the scope of ‘Indian Medical Council Regulation, 2002’ and made it applicable for the pharma companies. Therefore, such a CBDT circular cannot be reckoned to have a retrospective effect.
• The free sample of medicine is only to prove the efficacy and to establish the trust of the doctors on the quality of the drugs. This again cannot be reckoned as freebies given to the doctors but for promotion of its products.
• The pharma company, which is engaged in manufacturing and marketing of pharma products, can promote its sale and brand only by arranging seminars, conferences and thereby creating awareness amongst doctors about the new research in the medical field and therapeutic areas etc.
• Every day there are new developments taking place around the world in the area of medicine and therapeutic, hence in order to provide correct diagnosis and treatment of the patients, it is imperative that the doctors should keep themselves updated with the latest developments in the medicine and the main object of such conferences and seminars is to update the doctors of the latest developments, which is beneficial to the doctors in treating the patients as well as the pharma companies.

Tribunal Ruling:

In view of the above, free samples of medicines given to physicians by pharma companies, cannot be treated as freebies. We do not find any merit in the order passed u/s 263. The assessment framed by the Ld. A.O. read with section 263 is not a valid assessment. Hence, all the grounds raised by the Appellant are allowed.

Author’s Note:

The Tribunal has meticulously analysed the powers of CBDT of issuing circulars and has ruled that CBDT cannot issue a circular imposing restriction on the assessees without any enabling provision in the Income Tax Act. The circular issued by the CBDT must confirm to tax laws and for the purpose of giving administrative relief or for clarifying the provisions of law. Further, the beneficial circular may apply retrospectively but a circular imposing a burden has to be applied prospectively only.

Read complete judgement: ACIT vs. Solvay Pharma India LImited

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