Stemade Biotech P.Ltd v. Dy .CIT (Mum) (Trib)

Case snapshot

Sections / provisions: 37(1)

Questions before the Court / Tribunal

• S.37(1): Business expenditure – Referral commission paid to doctors – Violation of the professional conduct- Not allowable as deduction. [Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations 2002, R. 6.8. 1(d)] The assessee is a company engaged in the business of ‘extraction, collection, preservation and banking of stem cells ‘mainly from dental pulp. The assessee company has paid referral service fee to the medical practitioners for availing of the steam cell banking services. The Assessing Officer disallowed the said expenses, which was affirmed by the CIT(A ).On appeal the Appellate Tribunal referred the rule 6. 8. 1(d)) of the Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations 2002 and held that the acceptance of such a referral fee by a medical Practitioner is forbidden by the legally enforceable code of conduct which renders it…
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

Stemade Biotech Private Limited .……………………..………………Appellant 501, Winfall Sahar Plaza, Andheri Kurla Road J B Nagar, Andheri East, Mumbai 400 059 [PAN: AANCS1957N]

1. By way of this appeal, the appellant has cha llenged the correctness of the order dated 30th September 2009, passed by the learned Commissioner (Appeals) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2015 - 16.

2. Notwithstanding the final word spoken by the Hon‟ble Supre me Court in the ca se of Apex Laboratories Pvt Ltd [(2022) 442 ITR 1 (SC)] on the issue of tax-deductibility of freebies etc to medical practitioners, and notwithstanding the amendment made in the related tax law provision by the Finance Act 2022, many would not let the litigation come to an end until the legal ingenuity is exhausted - which is always a good distance away. The amount involved in this appeal may be relatively small at Rs 9,61,140, but the issue raised in the appeal does seek to reignite, what many believe to b e, a controversy laid at r est. We must, therefore, deal with the issue in appeal in some detail.

3. Grievance of t he appellant , as r aised in grounds of appeal numbers 1 and 2 and in substance, is that the authorities below erred in holding that referral commission paid to doctors is in violation of the professional conduct under the Indian Medical Council (Professiona l Conduct, Etiquette and Ethics) Regulations 2002, and, as such, inadmissible as a tax deduction under section 37 of the Income Tax Act, 1961.

4. The assessee before us is a company engaged in the business of „extraction, collection, preservation and bank ing of stem cells‟- mainly from dental pulp. As its prod uct brochure, a

Appellant / petitioner / assessee submissions

8. Learned counsel ‟s defence is that the assessee cannot be treated as part of „allied healthcare industry‟ because the description of „allied healthcare i ndustries‟ in certain journals and even official websites does not fit on the assessee. This plea is only fit to be noted and rejected. The expressions used in any mode of communication, and particularly in the legal world, have to be interpreted in their context. Given the context in which the exp ression „allied healthcare industry‟ appears in rule 6.8.1, an industry that provides, on a commercial basis, a healthcare-related service or prod uct to a client, is part of the allied healthca re industry- more so when it could benefit from the advice given by the medical practitioner to his client.

16. The only other issue raised before us, in the ground no. 3, is against the alleged additional receipts of Rs 75,000 having been brought t o tax in the hands of the assess ee. Learned counsel of the assessee has n ow got some material to demonstrate that this receipt was already accounted for, but he fairly admits that this material was not ava ilable earlier, and, as such , authori ties below ha d no occasion to deal with the sa me. Learn ed Departmental Representative also fair ly accepts that thi s issue can be remitted to the file of the Assessing Officer for fresh examination, and taking an appropriate call in the light of such fresh examination. With the consent of the parties, therefore, the matter stands restored to the file of the Assessing Officer . Ground no. 3 is thus allowed for statistical purposes in the term s indicated above.

Revenue / respondent submissions

The judgment does not separately label the respondent’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Court / Tribunal analysis and reasoning

6. We have heard the parties, perused the m aterial on record and duly considered the facts of the case in the light of the applicable legal position.

7. As observed by Hon‟ble Supreme Court, in the case of Apex Laboratories (supra) and in the inimitable words of Hon ‟ble Justice Ravindra Bhatt , “medical prac titioners have a quasi-fiduciary relationship with their patients ” and “ 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 the trust reposed in doctors” It was then added that “Therefore, it is a matter of great public importance and concern when it is demonstrated that a doctor‟s prescription can be manipulated”. What essentially follows is that when the advice given by a medical professional to his client is influenced b y an inducement by someone else, who has a stake in the course of action to be then followed by the client as a result of this advice, it is this undesirable influence which vitiates the performance of medical practitioner‟s fiduciary duties to

doctor will get for his client being referred to the service provider in question. Such a situation de facto amounts to receipt of cash or monetary grant by the medical profess ional from the allied healthcare industry, on the pretext of referral fees - in clear violation of rule 6.8.1(d) of the Indian Medical Council (Professional Conduct , Etiquette and Ethics) Regulations, 2002. The true consideration for this referral fee is the advice given to the doctor‟s patient , and a potential customer of the service provider, in favour of stem cell banking. The fiduciary relationship between the doctor and p atient is, or has the pote ntial of being , compromised as such by the extraneous considerations. That is clearly contrary to the letter, as also the spirit, of the code of conduct for the medical practitioners. The acceptance of such a referral fee by a medical practitioner is thus forbidden by the legally enforceable code of conduct, which renders it an expense for a purpose that is „prohibited by law‟ depriving the assessee company to claim a tax deduction in respect of the said expendit ure. We, therefore, approve the con clusions arrived at by the l earned Commissioner (Appeals) on this issue, an d decline to interfere in the matter. 15. Ground nos. 1 and 2 are thus dismissed.

Operative decision and relief

The operative relief must be read from the final paragraphs of the complete packaged judgment.

Ratio and legal principle

The narrow proposition associated with Stemade Biotech P.Ltd v. Dy .CIT (Mum) (Trib) concerns s.37(1): business expenditure – referral commission paid to doctors – violation of the professional conduct- not allowable as deduction. [indian medical council (professional conduct etiquette and ethics) regulations 2002, r. 6.8. 1(d)] the assessee is a company engaged in the business of ‘extraction, collection, preservation and banking of stem cells ‘mainly from dental pulp. the assessee company has paid referral service fee to the medical practitioners for availing of the steam cell banking services. the assessing officer disallowed the said expenses, which was affirmed by the cit(a ).on appeal the appellate tribunal referred the rule 6. 8. 1(d)) of the indian medical council (professional conduct etiquette and ethics) regulations 2002 and held that the acceptance of such a referral fee by a medical practitioner is forbidden by the legally enforceable code of conduct which renders it… The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in ITA No. 7823/Mum/19.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Dismissed” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: S.37(1): Business expenditure – Referral commission paid to doctors – Violation of the professional conduct- Not allowable as deduction. [Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations 2002, R. 6.8. 1(d)] The assessee is a company engaged in the business of ‘extraction, collection, preservation and banking of stem cells ‘mainly from dental pulp. The assessee company has paid referral service fee to the medical practitioners for availing of the steam cell banking services. The Assessing Officer disallowed the said expenses, which was affirmed by the CIT(A ).On appeal the Appellate Tribunal referred the rule 6. 8. 1(d)) of the Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations 2002 and held that the acceptance of such a referral fee by a medical Practitioner is forbidden by the legally enforceable code of conduct which renders it… Its practical value lies in the way the ITAT Mumbai connected the governing provisions—37(1)—to the procedural posture and evidence before it.

The authority level is ITAT / Tribunal. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of 37(1) and the decision date 2022-05-20; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

Does this case match your facts?

Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is Stemade Biotech P.Ltd v. Dy .CIT (Mum) (Trib), the proceeding is ITA No. 7823/Mum/19, and the decision is dated 2022-05-20. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as Pramod Kumar (Vice President), and Sandeep S Karhail (Judicial Member). A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with 37(1). The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Dismissed. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is RECTIFICATION_HIGH_COURT_APPEAL_SLP_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• 37(1) — apply the exact version considered in the judgment.

Case network

• ITO 32(2)(3) VS MAYUR R KAMDAR — ITAT Mumbai · Dismissed
• Palmon Impex Pvt. Ltd. v. ITO — ITAT Mumbai · Dismissed
• JCIT v. Aries Agro Ltd. — ITAT Mumbai · Dismissed
• ACIT v. Ranu Vohra — ITAT Mumbai · Dismissed

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