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Freebies, Hospitality, Cash/Monetary Grant To Doctors By Pharma Companies And Diagnostic Centres Is Prohibited By Law And Against Public Policy

Recently there was news of the alleged scam of unethically prescribing Dolo-650, an analgesic & antipyretic tablet widely used in Covid-19, which is another example of doctors trapping the common man in hunger for freebies. In a writ filed in the Apex Court by the Federation of Medical & Sales Representatives Association of India, it transpired that during Income Tax searches it was revealed that accused Micro Labs, manufacturers of Dolo 650 had distributed Rs. 1,000 crore freebies to doctors for prescribing the medicine, thereby confirming the Pharma-Doctor nexus.

The matter is to come up before the Apex Court on September 29 for further hearing, when the Government is likely to come up with it's stand to meet this menace of illegal graft to doctors.

Earlier on 11 March, the Apex court had agreed to examine a plea seeking direction to the Centre for formulating a Uniform Code of Pharmaceutical Marketing Practices to curb alleged unethical practices of Pharma companies and ensure an effective monitoring mechanism, transparency, accountability as well as consequences for violations.

It would be relevant to refer to a report titled 'Promotional Practices of the Pharmaceutical Industries and the Implementation Status of Related Regulatory Codes in India', which highlighted the government's kid-glove treatment of pharma companies. The six-city study conducted interviews with over 75 doctors and nearly 40 medical representatives revealed the pharma-doctor nexus.

It is a matter of grave concern that less than 20% of doctors follow the ethical guidelines notified by the Medical Council of India that prohibit them from accepting graft from pharma companies. Although, the Medical Council of India notified ethical guidelines for doctors in February, 2016, which seek to punish doctors who accept gifts or travel favours from pharma companies and provide procedure for punishment for violating them but it is a matter of dismay that not a single doctor has been punished under these guidelines.

It cannot be denied that Medical profession is a noble profession and those in profession are required to take Hippocrates' Oath before they commence practice. The original Hippocrates' Oath translated in English by W.H.S. Jones reads as under:

"I swear by Apollo Healer, by Asclepius, by Hygieia, by Panacea, and by all the gods and goddesses, making them my witnesses, that I will carry out, according to my ability and judgment, this oath and this indenture.

To hold my teacher in this art equal to my own parents; to make him partner in my livelihood; when he is in need of money to share mine with him; to consider his family as my own brothers, and to teach them this art, if they want to learn it, without fee or indenture; to impart precept, oral instruction, and all other instruction to my own sons, the sons of my teacher, and to indentured pupils who have taken the Healer's oath, but to nobody else.

I will use those dietary regimens which will benefit my patients according to my greatest ability and judgment, and I will do no harm or injustice to them. Neither will I administer a poison to anybody when asked to do so, nor will I suggest such a course. Similarly I will not give to a woman a pessary to cause abortion. But I will keep pure and holy both my life and my art. I will not use the knife, not even, verily, on sufferers from stone, but I will give place to such as are craftsmen therein.

Into whatsoever houses I enter, I will enter to help the sick, and I will abstain from all intentional wrong-doing and harm, especially from abusing the bodies of man or woman, bond or free. And whatsoever I shall see or hear in the course of my profession, as well as outside my profession in my intercourse with men, if it be what should not be published abroad, I will never divulge, holding such things to be holy secrets.

Now if I carry out this oath, and break it not, may I gain for ever reputation among all men for my life and for my art; but if I break it and forswear myself, may the opposite befall me."

The said Hippocrates Oath lays down the code of conduct for the doctors. It spells out the duties of those involved in medical profession for being humane, not to harm or do injustice to the patients, help the sick, and above all to abstain from all intentional wrong-doing. But in modern world, doctors are not following the spirit of the Hippocrates Oath. It is common knowledge that the doctors are accepting Freebies, Gifts, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries & hospitals.

It will be apropos to refer to Chapter 6 of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 which states as follows:

Chapter 6:
6. Unethical Acts:

A physician shall not aid or abet or commit any of the following acts which shall be construed as unethical -

6.4 Rebates and Commission:
6.4.1 A physician shall not give, solicit, or receive nor shall he offer to give solicit or receive, any gift, gratuity, commission or bonus in consideration of or return for the referring, recommending or procuring of any patient for medical, surgical or other treatment. A physician shall not directly or indirectly, participate in or be a party to act of division, transference, assignment, subordination, rebating, splitting or refunding of any fee for medical, surgical or other treatment.

6.4.2 Provisions of para 6.4.1 shall apply with equal force to the referring, recommending or
procuring by a physician or any person, specimen or material for diagnostic purposes or other study / work. Nothing in this section, however, shall prohibit payment of salaries by a qualified physician to other duly qualified person rendering medical care under his supervision.

6.8. Code of conduct for doctors in their relationship with pharmaceutical and allied health sector industry.

6.8.1 In dealing with Pharmaceutical and allied health sector industry, a medical practitioner shall follow and adhere to the stipulations given below:
  1. Gifts:
    A medical practitioner shall not receive any gift from any pharmaceutical or allied health care industry and their sales people or representatives.
     
  2. Travel facilities:
    A medical practitioner shall not accept any travel Facility inside the country or outside, including rail, road, air, ship, cruise tickets, paid vacation, etc. from any pharmaceutical or allied healthcare industry or their representatives for self and family members for vacation or for attending conferences, seminars, workshops, CME Programme, etc. as a delegate.]
  3. Hospitality:
    A medical practitioner shall not accept individually any hospitality like hotel accommodation for self and family members under any pretext.
     
  4. Cash or monetary grants:
    A medical practitioner shall not receive any cash or monetary grants from any pharmaceutical and allied healthcare industry for individual purpose in individual capacity under any pretext."
     
The question that arises is what is the mode/quantum of punishment mandated by the Indian Medical Council. Any violation of code of conduct, unethical act or misconduct shall lead to removal of his/her name from the register of the Council permanently or temporarily and shall publicise the name of physician in local press as well in the publications of different medical associations/societies/bodies. It is appropriate to refer to the wide scope of punishment & disciplinary action under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002.

8. Punishment And Disciplinary Action

"8.1 It must be clearly understood that the instances of offences and of Professional misconduct which are given above do not constitute and are not intended to constitute a complete list of the infamous acts which calls for disciplinary action, and that by issuing this notice the Medical Council of India and/or State Medical Councils are in no way preclude from considering and dealing with any other form of professional misconduct on the part of a registered practitioner.

Circumstances may and do arise from time to time in relation to which there may occur questions of professional misconduct which do not come within any of these categories. Every care should be taken that the code is not violated in letter or spirit. In such instances as in all others, the Medical Council of India and/or State Medical Councils have to consider and decide upon the facts brought before the Medical Council of India and/or State Medical Councils."

It would be appropriate to refer to the Parliamentary Standing Committee on Health and Family Welfare which made the following observations:

"The Committee also notes that despite there being a code of ethics in the Indian Medical Council Rules introduced in December 2009 forbidding doctors from accepting any gift, hospitality, trips to foreign and domestic destinations etc from healthcare industry, there is no let-up in this evil practice and the pharma companies continue to sponsor foreign trips of many doctors and shower with high value gifts like air conditioners, cars, music systems, gold chains etc. to obliging prescribers who then prescribe costlier drugs as quid pro quo. Ultimately all these expenses get added up to the cost of drugs.

The Committee's attention was drawn to a news item in Times of India dated July 1, 2010 by Reema Nagarajan giving specific instances of violations of MCI code. The Committee calls upon the Government to take strict and speedy action on such violations. Since MCI has no jurisdiction over drug companies, the Government should take parallel action through DCGI and the Income Tax Department to penalize those companies that violate MCI rules by cancelling drug manufacturing licences and/or disallowing expenses on unethical activities."

The Apex Court in the case of Apex Laboratories Pvt. Ltd [(2022) 442 ITR 1 (SC) dealt with the regulations of Indian Medical Council and considered the issue as to why the expenditure of Rs. 4,72,91,159/- incurred towards gifting freebies such as hospitality, conference fees, gold coins, LCD TVs, fridges, laptops, etc. to medical practitioners for creating awareness about the health supplement 'Zincovit', should not be added back to the total income of the Appellant u/s 37(1) of the Income Tax Act. The Court examined extent & intent of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 and held thus:

27. It is also a settled principle of law that no court will lend its aid to a party that roots its cause of action in an immoral or illegal act (ex dolo malo non oritur action) meaning that none should be allowed to profit from any wrongdoing coupled with the fact that statutory regimes should be coherent and not self- defeating.

Doctors and pharmacists being complementary and supplementary to each other in the medical profession, a comprehensive view must be adopted to regulate their conduct in view of the contemporary statutory regimes and regulations. Therefore, denial of the tax benefit cannot be construed as penalizing the assessee pharmaceutical company. Only its participation in what is plainly an action prohibited by law, precludes the assessee from claiming it as a deductible expenditure.

28. This Court also notices that medical practitioners have a quasi-fiduciary relationship with their patients. A doctor's prescription is considered the final word on the medication to be availed by the patient, even if the cost of such medication is unaffordable or barely within the economic reach of the patient - such is the level of trust reposed in doctors.

Therefore, it is a matter of great public importance and concern, when it is demonstrated that a doctor's prescription can be manipulated, and driven by the motive to avail the freebies offered to them by pharmaceutical companies, ranging from gifts such as gold coins, fridges and LCD TVs to funding international trips for vacations or to attend medical conferences. These freebies are technically not 'free' the cost of supplying such freebies is usually factored into the drug, driving prices up, thus creating a perpetual publicly injurious cycle.... "

29. The impugned judgment, along with the judgments of Punjab & Haryana High Court (Kap Scan){Commissioner of Income-Tax v. Kap Scan and Diagnostic Centre P. Ltd.(2012) 344 ITR 476 (P&H HC) }and Himachal Pradesh High Court (Confederation) (supra) {Confederation of Indian Pharmaceutical Industry (SSI) v. Central Board of Direct Taxes (2013) 353 ITR 388 (HP HC)} have correctly addressed the important public policy issue on the subject of allowance of benefit for supply of freebies. The impugned judgment's reasoning is quoted as follows:

A perusal of the decision of Co-ordinate Bench of this Tribunal in the assessee's own case as also the decision of the Hon'ble Himachal Pradesh High Court clearly shows that the basic intention of the decision was that the receiving of the gifts/freebies by Professionals is against public policy as also against the law in so far as the amendment by the Medical Council Act, 1956 to the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, once receiving of such gifts have been held to be unethical obviously the corollary to this would also be unethical, being giving of such gifts or doing such acts to induce such Doctors and Medical Professionals to violate the Medical Council Act, 1956. (emphasis supplied)

The Apex Court further held that the said illegal acts are opposed to Public Policy. The Court held thus:
30. Thus, one arm of the law cannot be utilised to defeat the other arm of law

-doing so would be opposed to public policy and bring the law into ridicule. Biharilal Jaiswal v. CIT, (1996) 1 SCC 443. In Maddi Venkataraman & Co. (P) Ltd. v. CIT (1998) 2 SCC 95, a fine imposed on the assessee under the Foreign Exchange Regulation Act, 1947 was sought to be deducted as a business expenditure. This Court held:

Moreover, it will be against public policy to allow the benefit of deduction under one statute, of any expenditure incurred in violation of the provisions of another statute or any penalty imposed under another statute. In the instant case, if the deductions claimed are allowed, the penal provisions of FERA will become meaningless.
(emphasis supplied)

The Apex Court also inferred that gifting freebies is violative of Section 23 of the Contract Act, 1872. The Court held thus:

31. It is crucial to note that the agreement between the pharmaceutical companies and the medical practitioners in gifting freebies for boosting sales of prescription drugs is also violative of Section 23 of the Contract Act, 1872 (as also noted by the Punjab and Haryana High Court in Kap Scan (supra)). The provision is as follows:

23. What considerations and objects are lawful, and what not:
The consideration or object of an agreement is lawful, unless - it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy.In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful, is void.
(emphasis supplied)

36. In the present case too, the incentives (or freebies) given by Apex, to the doctors, had a direct result of exposing the recipients to the odium of sanctions, leading to a ban on their practice of medicine. Those sanctions are mandated by law, as they are embodied in the code of conduct and ethics, which are normative, and have legally binding effect.

The conceded participation of the assessee- i.e., the provider or donor- was plainly prohibited, as far as their receipt by the medical practitioners was concerned. That medical practitioners were forbidden from accepting such gifts, or freebies was no less a prohibition on the part of their giver, or donor, i.e., Apex."

It would be trite to refer to Section 37(1) of the Income Tax Act wherein Explanation 1 reads as under:

For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.

Thus, according to the Income Tax Act, any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by any law shall not be deemed to have been incurred for the purpose of the business or profession and no allowance or deduction shall be made in respect of such expenditure. This implies that any unlawful expenditure is not allowable as deduction.

The Central Government came out with a Circular No. 5/2012 dated 1-8-2012 issued by CBDT to enlarge the scope of disallowance in respect of inadmissibility of expenses incurred in providing freebees to Medical Practitioner by pharmaceutical and allied health sector Industry. The said circular reads as under:

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.

It will be trite to refer to the case of Peerless Hospitex Hospital & Research Centre Pvt Ltd Vs PCIT [(2022) 137 taxmann.com 359 (Cal)] wherein the Calcutta High Court expressed concern over the rising corruption in Medical field and need to contain the same through appropriate legislation. The Court observed thus:

(ix) Though under the aforesaid Regulations of Indian Medical Council Regulation, 2002, there are provisions for prohibition and punishing those doctors or medical practitioners who accept freebies, commission, bonus etc. from hospitals or other allied health care industry for referring patients to them but there are no similar regulations or provisions for prohibiting and penalising or punishing these hospitals, nursing homes or diagnostic centres or allied health care industry for curbing this act of indulgence or participation by them in such prohibited and penalizing offence resulting addition of these unnecessary expenses to the bill of the patients for their treatment and are recovered from them making the medical treatment costlier for the poor and middle class patients.

This Court expects that the Central Government and the State Government will take note of corruption in medical field by the hospitals, pathological laboratories, diagnostic centres and other allied health care industry as discussed in this judgment and in the interest of public and the society and to protect the poor and middle class patients from bearing the burden of these unnecessary hidden additional costs of these natures of commission, bonus, freebies etc. for their treatment, investigations etc.

Shall bring similar appropriate legislation or regulations like Indian Medical Council Regulations, 2002, to prevent or curb this misusing of legislative gap or loopholes by them including hospitals and to deter them from perpetuating commission of such offence since once receiving of such 'referral to doctors' have been held to be prohibited and unethical obviously the corollary to this would be unethical being giving of such commission/bonus/gifts etc.

To induce such doctors and medical practitioners to violate the Medical Council Act, 1956 and Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation, 2002, and they should also be equally penalized like medical practitioners who accept the same and only disallowance of such nature of expense under the Income Tax Act would not deter them from indulging and participating in these nature of prohibited, unethical and immoral act.

In view of the deliberations above, there appears urgent need for the Government to bring in the requisite legislation to put an end to the sinful & unethical game of the Pharma Industry, the Diagnostic Centres and the Hospitals and cleanse the Medical fraternity from existing vices for the benefit of so the common man.

Written By: Inder Chand Jain
Email: [email protected], Ph no: 8279945021

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