Exp. incurred on doctor’s travel isn’t ‘commission’ if he isn’t bound to prescribe medicines suggested by assessee: HC

CIT (TDS) v. Intas Pharmaceuticals Ltd. – [2021] 129 taxmann.com 347 (Gujarat)

Assessee was a company engaged in the business of manufacturing and trading pharmaceuticals.

During the survey carried out at assessee’s premises, various E-mails were found, suggesting that the services provided to the doctors such as taxi services, booking of air-tickets, cost of souvenir and cost of registration for the conference for doctors, etc., and certain facilities provided to the doctors were in lieu of business provided by them. 

Assessee claimed a deduction for these expenses under various heads as its own expenses, and no TDS was deducted. Assessing Officer (AO) took cognizance of the Notification issued by the Indian Medical Counsel dated 10-12-2009, which barred medical practitioners from taking gifts, travel facilities, hospitality, cash, and monitory grants from any pharmaceutical industry. 

He observed that assessee had incurred the expenditure on the doctors for various conferences/workshops/camps etc., for which no TDS was deducted under section 194H.

AO believed that the relationship between assessee and the doctors was that of the principal and agent.

 Therefore, the payments made under different heads for a regional conference, scientific conference, sale promotion expenditure, etc., would fall within the definition of “commission”. 

AO, therefore, treated assessee as an assessee in default under Section 201(1) for non-deduction of TDS under Section 194H and raised the demand.

On appeal, Gujrat High Court held that the doctors were not bound to prescribe the medicines as suggested by assessee. 

As such, there was no legal compulsion on the part of the doctors to prescribe a particular medicine suggested by assessee, and therefore, the doctors could not be said to have acted as the agent of assessee. 

In the absence of the element of agency between assessee and the doctors, the provisions contained in Section 194H could not be invoked.