In Brief
Apex Laboratories, a pharmaceutical company, claimed a tax deduction of Rs. 4.73 crore for expenditure on supplying freebies (gifts, hospitality, gadgets) to doctors to promote its health supplement. The Supreme Court dismissed its appeal, holding that such expenditure cannot be deducted under Section 37(1) of the Income Tax Act. Although the Medical Council regulations expressly prohibit doctors from accepting these freebies—with sanctions including practice bans—the Court found that a prohibition on the recipient necessarily implies a prohibition on the giver. The freebies are 'prohibited by law' because they would undermine public policy by incentivizing costly branded drug prescriptions over generics, harming patients. Strict tax interpretation cannot override statutory coherence and public interest.
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