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Issues: (i) Whether the notification restricting the number of tax audit assignments a practising chartered accountant may accept was constitutionally valid; (ii) Whether the notification restricting audit work and fees in relation to specified firms was constitutionally valid.
Issue (i): Whether the notification restricting the number of tax audit assignments a practising chartered accountant may accept was constitutionally valid.
Analysis: The restriction was examined in the context of the profession of chartered accountancy and the constitutional guarantees under Articles 14 and 19(1)(g). The Court held that professional occupations have their own historical conventions, traditions and work culture, and that the number of audits a professional may accept is ordinarily a matter of free choice between the client and the professional. It held that imposing an external cap on audit assignments, purportedly to distribute work among younger members, was arbitrary and amounted to an unreasonable restriction not saved by Article 19(6).
Conclusion: The notification limiting tax audit assignments was unconstitutional and invalid, in favour of the assessee.
Issue (ii): Whether the notification restricting audit work and fees in relation to specified firms was constitutionally valid.
Analysis: The Court applied the same constitutional approach and found that fixing minimum fee-related restrictions for audit work intruded into the professional relationship between client and chartered accountant. It held that charging a particular fee cannot amount to professional misconduct and that such matters must be left to mutual agreement, not controlled by an external authority. The restriction was therefore treated as arbitrary and violative of Articles 14 and 19(1)(g).
Conclusion: The notification restricting audit work and fees was unconstitutional and invalid, in favour of the assessee.
Final Conclusion: The impugned restrictions on the professional freedom of chartered accountants were held to be arbitrary and unreasonable, and the appeals failed.
Ratio Decidendi: External restrictions fixing the volume or fee of professional work in a profession governed by its own historical conventions are unreasonable, arbitrary, and violative of Articles 14 and 19(1)(g) unless justified within the limits of Article 19(6).
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