2005 (3) TMI 816 - HC - Income Tax

Court deems restrictions on tax audit assignments and fees for Chartered Accountants unconstitutional. Upholds professional freedom.

The Institute of Chartered Accountants of India Versus K. Bhagvatheeswaran and Ors.

The Institute of Chartered Accountants of India Versus K. Bhagvatheeswaran and Ors. - AIR 2005 Mad 287 Issues Involved:1. Validity of notifications dated 13.01.1989 and 25.05.1987.2. Alleged violation of fundamental rights under Article 19(1)(g) and Article 14 of the Constitution of India.3. Reasonableness of restrictions imposed on Chartered Accountants.Issue-wise Detailed Analysis:1. Validity of Notifications Dated 13.01.1989 and 25.05.1987:The petitioner, a practicing Chartered Accountant, challenged the notifications issued by the Union of India. The notification dated 13.01.1989 imposed a limit on the number of tax audit assignments a Chartered Accountant can accept in a financial year. Specifically, it stated that a member of the Institute in practice shall be deemed guilty of professional misconduct if he accepts more than the specified number of tax audit assignments under Section 44AB of the Income Tax Act, 1961. The notification dated 25.05.1987 specified that a member of the Institute in practice shall be deemed guilty of professional misconduct if he accepts audit work involving receipt of audit fees below specified amounts, with certain exceptions.2. Alleged Violation of Fundamental Rights Under Article 19(1)(g) and Article 14 of the Constitution of India:The petitioner argued that the notifications violated his fundamental rights guaranteed under Article 19(1)(g) (right to practice any profession) and Article 14 (right to equality) of the Constitution of India. He contended that there was no reasonable classification and that the notifications were arbitrary and unreasonable. The court examined the counter affidavits which justified the restrictions as a means to enable younger and less fortunate members of the profession to get work and earn their livelihood. The court found this justification wholly unreasonable and untenable.3. Reasonableness of Restrictions Imposed on Chartered Accountants:The court held that the imposition of restrictions on the volume of audits and fees which a Chartered Accountant can accept is unreasonable. It emphasized that each profession has its own historical conventions, traditions, customs, and practices. The court stated that it has never been a convention in professions like law or accountancy to diversify work by restricting the number of cases or audits a professional can accept. The court opined that such restrictions are unreasonable under Article 19(6) and violative of Article 14. It stressed that clients must be free to choose their professionals, and the number of cases or audits accepted by a professional should be left to their discretion. The court agreed with the single judge's view that accepting a larger number of audits cannot be regarded as professional misconduct and that the term 'professional misconduct' should be interpreted in its historical and traditional sense.Separate Judgments:The court concurred with the single judge's view on both notifications. It held that the notification dated 13.01.1989, which limited the number of tax audit assignments, and the notification dated 25.05.1987, which imposed minimum fee restrictions, were both arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution. The court reiterated that the fee and number of assignments should be decided by mutual consent between the client and the professional, without any artificial restrictions imposed by external authorities.Conclusion:The appeals were dismissed, and the court found no force in the arguments presented by the appellant. The connected writ appeals and miscellaneous petitions were also dismissed, with no costs awarded.