TaxTMI 
TaxTMI 
2003 (2) TMI 522
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....nts of the book. It was seen that the author had explained in detail the various methods of creation of black money followed by different sections of society and the methods legal as well as illegal generally adopted to convert the same into white. Since it appeared that the title of the book, its preface, its contents and in totality the book was likely to create an impression in the eyes of common man that the Chartered Accountants are experts in helping in the creation of black money and its conversion into white money, though there is no direct reference as such to the Chartered Accountants, this might tend to lower the image of the profession in the public eyes. It appears that the conduct of the respondent in writing such a book was unbecoming of a chartered accountant. Thus, the respondent had committed professional and/or other misconduct under sections 21 and 22 of the Chartered Accountants Act, 1949." 3. The matter was placed before the Disciplinary Committee for holding an inquiry against the respondent, and the Disciplinary Committee, after giving an opportunity of hearing to the respondent, found that the respondent's argument that he had only described practices fo....
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....been supplied to the court by the learned counsel for the respondent and Xerox copies thereof are also placed on record. We have been taken through the book in detail by both the sides and also the material brought on record during the inquiry. The stand taken by the respondent including his answers to the questions and material put to him during the inquiry were referred to in great detail by both the sides. 6. There is no dispute about the fact that the book entitled 'Tax Planning for Secret Income (Black Money)' was authored by the respondent who is a Chartered Accountant and a Member of the Institute. The book was first published in January 1982 and its second edition was published in October 1982. Copyright was reserved with the respondent. The book was published by Shri H.P. Parekh, who is the son of the respondent. It was printed by Shri B.P. Parekh, who is also the son of the respondent. These facts appear from the book and are not disputed. On the very first page, it is announced that it is : "A Book indispensable to every Businessman, Industrialist, Government Servant, Private employee, Contractor & Engineer, Government Minister, Politician, Limited Company, Partnershi....
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....ional behaviour. He also referred to the universally recognized principles of ethics which were adopted in the profession of accountancy, including by the Institute, and submitted that the expression "other misconduct" appearing in section 21(1) would embrace every conceivable misconduct which may not have been scheduled as a professional misconduct. It was also submitted that there was no unrestricted fundamental right of speech or expression, and that, if a member wanted to remain a member of the institute, he was bound to abide by the behavioural rules laid down for such members. It was submitted that the disciplinary action was not meant to curb the fundamental right of speech and expression. It was submitted that the Institute and the Council were statutory bodies and the Council was invested with statutory powers of taking disciplinary action against the members also in respect of "other misconduct" and the conduct of the respondent in writing a book which had the effect of teaching the taxpayers (who were willing to adopt unfair means) and methods of evading taxes in various fields and such a conduct which was not in consonance with the Code of Conduct issued by the Institut....
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....rpitude. The Supreme Court observed that, in dealing with the matter of professional propriety, we cannot ignore the fact that the profession of law is an honourable profession and it occupies a place of pride in the liberal professions of the country. Any conduct which makes a person unworthy to belong to the noble fraternity of lawyers or makes an advocate unfit to be entrusted with the responsible task of looking after the interests of the litigant must be regarded as conduct involving moral turpitude. It was held that 'An Advocate invites disciplinary orders not only if he is guilty of professional misconduct but also if he is guilty of other misconduct; and this other misconduct which may not be directly concerned with his professional activity, as such, may nevertheless be of such a dishonourable or infamous character as to invite the punishment due to professional misconduct itself'. It was held that the advocate on record acted with gross negligence in the matter of taxation of costs of his client in the appeal filed in the Supreme Court and such conduct amounted to professional or other misconduct within the meaning of that expression in the rules of Order IV-A of the Supr....
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....velopment Corpn. AIR 1998 SC 1064 was cited for the proposition that the Code of Conduct required to be observed with proper discharge of functions by a Government servant cannot be flouted in the name of other freedoms. The Court was concerned with Rule 22 of the Service Rules under which the employer was entitled to take disciplinary action. That rule was not meant to curtail freedom of speech or expression or the freedom to form association or union, but it was clearly meant to maintain discipline within the service to ensure efficient performance of duty by the employees of the Corporation and to protect the interest and prestige of the Corporation. The Supreme Court held that, a rule which is not primarily designed to restrict any of the fundamental rights, cannot be called in question as violating article 19(1)(a) or 19(1)(c ) of the Constitution. (See paragraph 13 of the judgment). (g) The decision of the Supreme Court in Jamuna Prasad Mukhariya v. Lachi Ram AIR 1954 SC 686. Which was rendered in context of the provisions of sections 123(5) and 124(5) of the Representation of the Peoples Act and articles 245(1) of the Constitution, was cited to point out that, in paragrap....
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....those freedoms in whatever place they please. The exercise of those freedoms will come to an end as soon as the right of someone else to hold his property intervenes. Such a limitation is inherent in the exercise of those rights. The validity of that limitation is not to be judged by the tests prescribed by sub-articles (2) and (3) of Article 19. In other words the contents of the freedoms guaranteed under clauses (a), (b) and (c ), the only freedoms with which we are concerned in this appeal, do not include the right to exercise them in the properties belonging to others.' (j) The decision of the Pepsu High Court in Jang Bahadur Sant Lal v. Principal Mohindra College, AIR 1951 SC 59 was cited for the proposition that, apart from the qualifications enumerated in clauses 2 to 6 of article 19, the rights guaranteed by clause (1) are also subject to the qualification that the exercise of these rights by a citizen should not infringe the rights of others. The Court held that where a student of a college issued a handbill and therein tried to make out that the authorities were not only anti-nationals but selfish, evil minded, morally degenerate and given to intrigue, subversive and h....
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....orm the public about things which were happening in the society so that they become aware of such instances and understand the consequences thereof. It was argued that there was nothing in the book which was likely to create an impression that the Chartered Accountants were expert in creating black money, nor was there anything in it which would lower the image of the profession. It was, therefore, submitted that there was no basis for proceeding against the respondent on these charges. The learned counsel further contended that the disciplinary authority had gone beyond the charges levelled against the respondent by stating that, the effect of this writing was to educate the public as to how to evade the tax and how to create black money. It was submitted that the respondent had done nothing which could be termed as educating the public. He then argued that the respondent had a fundamental right of speech and expression to inform the public about the things that were happening in the society, even if the writing may not have been palatable to a section of the public. He submitted that the tenor of the book does not go to suggest that the Chartered Accountants were helping to creat....
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....sary define it with precision and accuracy so that any ex post facto interpretation of some incident may not be camouflaged as misconduct. It will be noticed that the decision is rendered in context of the statutory requirement that the misconduct should be enumerated. (b) The decision of the Supreme Court in Glaxo Laboratories (I) Ltd. v. Presiding Officer, Labour Court AIR 1984 SC 505, to point out that the Supreme Court negatived the contention that the expression "misconduct" prescribed in Standing Order 23 would comprehend any misconduct irrespective of the fact whether it is enumerated in Standing Order 22 or not. It noted that section 3(2) of the Industrial Employment (Standing Orders) Act (20 of 1946) requires the employers in an industrial establishment while preparing draft standing orders to make provision in such draft for every matter set out in the schedule which may be applicable to the industrial establishment, and that therefore, the statutory obligation upon the employer to draw up with precision those acts of omission and commission which in his industrial establishment would constitute misconduct. In this context, it was held that, in the face of the statutor....
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....nt of severe reprimand for his misconduct under section 21(2) of the Act on the ground that the proceedings had been pending against him for a long time. (g) The decision of the Supreme Court in H.V. Panchaksharappa v. K.G. Eshwar AIR 2000 SC 3344 was cited for the proposition that a charge of professional misconduct is in the nature of a quasi-criminal charge, and that such a charge required to be proved in the manner of proving a criminal charge and the nature of proof required to prove it, is that of beyond a reasonable doubt. (h) The decision of the Calcutta High Court in Pramatha Nath v. State AIR 1951 Cal 581 was cited to point out that it was held by the Calcutta High Court that an advice was not necessarily abetment. In order that there may be abetment, there must be either instigation or intentional aiding or engaging in a conspiracy as laid down in section 107 of the Penal Code. General advice is far too vague an expression to prove abetment under the Penal Code. On facts, it was held that there was no evidence what the advice was. (i) The decision of the Allahabad High Court in Nazir Ahmad v. Emperor, reported in AIR 1927 All. 730 (2) was cited to point out that....
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....or professional accountants in each country should be founded." The International Code is intended to serve as a model on which to base the national ethical guidance. It sets standards of conduct for Professional accountants and states the fundamental principles that should be observed by them. The International Code of Ethics for professional Accountants is established on the basis of that the objectives and funda- mental principles are equally valid for all professional accountants, whether they be in public practice, industry, commerce, public sector or education. 9.2 A hallmark of any noble profession is adherence by its members to a common code of values and conduct established by its administrative body, including maintaining an outlook which is essentially objective and acceptance of a duty to the society as a whole. Acceptance of its responsibility to public is a distinguishing mark of a profession. A large section of public relies on the objectivity and integrity of professional accountants to maintain the orderly functioning of commerce. Such reliance imposes a public interest responsibility on the accounting profession. Professional accountants have an important role ....
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....ny conduct which might bring discredit to the profession. 10.1 A professional accountant rendering professional tax services is entitled to put forward the best position in favour of a client, or an employer, provided the service is rendered with professional competence, does not in any way impair integrity and objectivity, and is in the opinion of the professional accountant consistent with the law. The professional accountant is under an obligation to take necessary steps to ensure that the tax return is properly prepared on the basis of the information received. He should not be associated with any return or communication in which there is a reason to believe that it contains a false or misleading statement contains statements or information furnished recklessly or without any real knowledge of whether they are true or false, or omits or obscures information required to be submitted and such omission of obscurity would mislead the revenue authorities. These professional standards are imperative and arise from the fundamental principle that a professional accountant should be straight forward and honest in performing professional services. [See Part A. Section 1 Clause (1) and....
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....duct issued by the Institute of Chartered Accountants of India records that it is necessary for the Institute "to guide and compel the members to live upto these high standards. The prestige and confidence enjoyed by a profession to a great extent, is dependent on strictness and scrupulosity with which such a Code is interpreted and not necessarily by legislation or regulation as much by self-discipline". It is also stated that the Council in addition to "professional misconduct" as defined in section 22 of the Act has been given power to inquire into the conduct of any member of the institution under circumstances other than those specified in the Schedules to the Act. The Council is not debarred from inquiring into the conduct of any member of the institute under any other circumstances, as asserted in the Code. This aspect is fully borne out by the expression "professional or other misconduct" occurring in section 21. The power of the Council to inquire into "other misconduct" which is not mentioned in the Schedules is placed beyond any pale of controversy by the decision of the Supreme Court in Institute of Chartered Accountants v. B. Mukharajea (supra ) in which the Supreme Co....
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.... of the institute under any other circumstances. If the Council specifies any other act or omission by notification in the Gazette under Part II (2), that would be deemed to be a professional misconduct because as provided in the opening words of Part II of the Second Schedule, "A member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct, if he is guilty of such other act or omission as may be specified by the Council in this behalf, by notification in the Gazette of India under clause (2) of Part II. It is not possible to encompass within a statutory enactment all myriad situations that arise in the course of profession that would amount to misconduct. Thus, "other misconduct" will be any misconduct which is not specified in the Schedule or notified thereunder. 13.1 Under section 8 of the said Act, a person shall not be entitled to have his name entered in or borne on the register if he has been removed from membership of the Institute on being found on inquiry to have been quality of professional or other misconduct. Thus, not only for the professional misconduct specified in the Schedule but also for any other misconduct not ....
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.... having consented, he commits the crime or not. Wilful attempt to evade tax is a serious offence punishable under section 276C. Making of false entry or statement in books of account or other documents or omissions of relevant entry or statement in such books of account or other documents would amount to wilful attempt to evade any tax, penalty or interest. 13.4 Apart from the offences under sections 277 and 278 of the Act, tax frauds may entail liability for non-compoundable offences under various provisions of the Indian Penal Code. A given conduct may amount to falsification of accounts under section 477A of the IPC, punishable upto seven years' rigorous imprisonment; forgery for the purpose of cheating punishable upto seven years' rigorous imprisonment under section 468 of the IPC; forgery of valuable security etc. punishable under section 467 of the IPC upto ten years' rigorous imprisonment; destroying valuable security or secreting it punishable under section 477 punishable for life imprisonment or upto ten years' rigorous imprisonment. 13.5 Since the proceeding before an Income-tax Authority is a judicial proceeding under section 136 of the Income-tax Act within the me....
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....pline, and the nature of the duty. 15. The High Court has been entrusted important function in context of the behaviour of the members of this noble profession in the disciplinary matters which come up before it. It has wide powers extending to removal from membership of the institute either permanently or for a specified period. It may direct the proceedings to be filed or dismiss the complaint. This enables the court to examine the nature of misconduct alleged and the facts and circumstances brought on record in connection therewith against the delinquent. There is a serious responsibility on the Court a duty to itself, to the profession, and to the whole of the community to be careful not to accredit any person as worthy of the public confidence who cannot establish his right to that credential. However, when an important statutory body like the Council finds a member of the institute guilty of the misconduct and forwards the case to the High Court with its recommendation under section 21(5) of the Act, its findings based on the material on record would ordinarily not be disturbed unless found to be unjust, unwarranted or contrary to law. 16. The plea of the respondent, th....
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....ns !" ****** ". . . it is the purpose of this book to acquaint in national interest every citizen of India as well as a foreigner about the illegal methods of creation of black money, its 'rolling' on, its legal as well as illegal conversion into white and the fruitful conversion of white money into black !" P. 7. "Thus there is scope for tax planning from individual angle for both creation of black money as well as converting it into white which keeps the Indian democratic system and socialist society going !" ****** ". . . And in that attempt, either he suppresses (or conceals) his income or furnishes inaccurate particulars of income which schemes often fails leading to unbearable tax liability and penalties as well as costly and time-consuming legal battles which often swallow not only the whole of the income but also erode the health and wealth of the taxpayer. Therefore, it is necessary to know how to avoid such a situation and yet to use certain standard as well as indigenous legal as well as illegal methods which in some cases though immoral yet are practically effective if well planned which are adopted by many to create the black money without attracting ....
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....manipulations which are tackled by the 'clever' assessee as under :" P. 111 "While 'manipulating' the accounts, the assessee mostly takes proper care of not being caught by the official and he also takes "care" of the Officer and 'settles' the case on a sum of Rs. 1,000 to Rs. 5,000 which the co-operative officer willingly does on the principle that every person has his price." P. 114. "The simplest method of creating black money by a doctor is simply to omit the issue of receipt and also omit the entry of the same in the books of account. They also evade the tax by inflating the allowable expenses as in the case of businessmen. They either prepare fresh receipt books and books of account at the end of the year according to their requirement or use their skill in day-to-day manipulation of books of account and bank accounts. Such original income and expenditure account as well as manipulated income and expenditure account may be on the following lines as given in the following illustration." P. 120 "The simplest method of creating black money by lawyers, engineers etc. professionals is to omit the issue of receipt and also to omit the entry in the books of account....
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....s but in such discussion, certain steps may be missed due to the very nature of the subject or to avoid the repetition." P. 171 "However, as in other cases, a wise black money holder takes resort to first deposit in the bank and then to withdraw by cheque the amount in the next year to 'skip' the assessment if possible even in earlier year by "assessment and forget" method." P. 173 "The explanations prepared before hand for cash credit by the black money holder may be any one of the following :" P. 174 "Planning before deposit of black money in the books of the black money holder: To avoid the inclusion of deposit in black money owner's income, the following pre-planning is done in case of each depositor when there are numerous deposits during a year:" P. 178 "The black money holder while taking statement at the time of deposit in bank account often keeps the date of statement blank. He will also take the repayment receipt from the 'depositor' (if the depositor is not the family member but an 'outsider' i.e., other than wife or husband or some other person who is not under his control or on whom the control is likely to be lost with the passage of time). The....
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....s and files estate duty return for the same, manages to keep the estate duty proceedings 'dormant' for a few years (of course, after paying up the estate duty which is a small amount compared to income-tax." ****** "To substantiate his claim the black money holder Mr. X manages to get the will of the deceased on the following lines:" P. 254 ****** "Now we shall discuss some special methods of conversion of white money into black. Conversion of white money into black, as stated earlier, is very easy not acquiring any lessons or guidance on the same." ****** "However, there are certain aspects of such suppression, inflation and under valuation which require a brief discussion chief of which are : (i) Bogus donations to charitable trust by cheque and refund of the said amount with receipt, (ii) inflating the cost of assets without making payments and (iii) commission entries in the books without payments." P. 256-257 "One of the methods adopted by the businessmen to inflate the expenses and reduce net profits is by way of payment of 'commission' to employees or other persons under their control. For such commission, the planning is done on the following l....
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....Income-tax Act, the Wealth-tax Act, the Gift-tax Act, and FERA are included in the Schedule of the Economic Offences Inapplicability of Limitation Act, 1974). The book assumes that all taxpayers and officials virtually everybody is a crook and easily evades the law for selfish purposes and emphasizes that no one shall be left behind his neighbour in the race of tax evasion. Unfortunately, the writer has no idea of the extent of goods that surrounds him in the society which has prompted the Code of Conduct. All that we can say is we pity the cynissim displayed by the author. A cynical public view about the ethics of individual professionals spills over into a strong suspicion against the integrity of the entire profession. If the professions do not take strong steps to not only policing their members but also to ensure that the public believes that they are doing so, it would call for increasing governmental policing. 18. The manner in which the book is written and its tenor clearly indicate that the author intends to pander to the evil designs of those who want to safely generate "black money" and get away with it by "planning" for tax evasion as per the methods shown differentl....
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....ts in creation of "black money" and its conversion into "white money". It was in terms alleged that the conduct of the respondent in writing such a book was unbecoming of a Chartered Accountant. There is, therefore, no substance in the contention that the findings reached by the disciplinary body are beyond the charges levelled against the respondent. 20. It is urged that, in exercise of his fundamental rights, the respondent was entitled to point out in his writings the methods which were widely adopted by different sections of the community to generate and manage "black money". It was submitted that no disciplinary action can be taken by the Council in respect of the said work of the respondent even if the writing was not palatable to any particular reader. 20.1 The Chartered Accountants Act was enacted to make provision for the regulation of the profession of Chartered Accountants and for that purpose, to establish an Institute of Chartered Accountants. A Council of the Institute for management of the affairs of the institute is constituted by section 9. The functions of the Council are enumerated in section 15 which include removal of names from the Register and restorati....
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....ity which implies not merely honesty but fair dealing and truthfulness. Any member who encourages untruthfulness and fabrication of false evidence in the taxation procedure will obviously be acting in a manner unbecoming of a member of such noble profession. Which would be a misconduct. Violation of the ethical norms by a member which has an effect of encouraging tax evasion would be against public interest and can rightly be treated as "other misconduct" when not falling in the instances of professional misconduct specified in the Schedules or notified thereunder. 20.4 A Code of Ethics is a legally binding statement of conduct. The Code of Conduct issued by the Institute proclaimed as follows : "Code of Conduct ****** A client, before engaging the services of a professional man, requires to be assured: (i) that he has the required competence and (ii) that he is a man of character and integrity. As regards the first, evidence is available to the client in the form of a certificate that the accountant has undergone the training and passed the examination, and as regards the second, he would have an assurance only if the professional body to which he belongs has adopted a....
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....from a non-professional a willingness to recognize need for standards, an ability to articulate what those standards should be, and commitment to maintaining those standards, not out of fear of non-compliance, but instead, out of a belief that the standards have intrinsic worth. The members should proudly follow the ethical principles, because, they represent a deep and thoughtful commitment to the professionalism in the accounting sphere. 21.1 The Code of Conduct clearly emphasizes the requirement that a professional man should be a man of character and integrity which is a fundamental norm universally recognized in this profession. The wordings of section 22 that the expression "professional misconduct" shall be deemed to include any act or omission specified in any of the Schedules shows that the types of professional misconduct enumerated in the Schedules to the Act are only illustrative and no exhaustive definition of "professional misconduct" is intended. Therefore, there can be misconduct outside the specifically enumerated of notified acts of omissions or commissions deemed to be included in the expression "professional misconduct", which is a professional misconduct not....
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.... 19(6), membership of the profession cannot be claimed as a fundamental right for carrying on the profession. The position so lost cannot be retrieved by resorting to the fundamental right to freedom of speech and expression, because, the impugned action primarily has an impact on the membership of the professional body from which be could be removed for a professional or other misconduct as statutorily provided. 21.3 The statutory power to take action in respect of misconduct is not meant to curtail freedom of speech and expression, but to ensure proper conduct of the members of the institute and to protect the interest and prestige of the profession of Chartered Accountants. If the member commits misconduct by committing breach of the Code of Conduct and does anything detrimental to the interest and prestige of the profession, he is liable to disciplinary action under section 21 which is not designed to restrict in any way the freedom of speech or expression. It is primarily designed to regulate the profession of the Chartered Accountants. It cannot, therefore, be called in question as violating of article 19(1)(g) of the Constitution. Misconduct may consist of writing an offe....
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....ugh writing or speech. The answer to him would be if your speech and expression are foul, go ahead at your risk, but cease to be a member of this profession first. Everything we do has a consequence, that is a plain and simple matter of physics. The doer of a deed has a responsibility for the consequences of his thought, words and deeds. There is, thus, no substance in the contention raised on behalf of the respondent on the ground that his fundamental right to speech and expression would be violated by imposing punishment of removal of his name from the Register of members of the Institute which has a bearing on the freedom of profession rather than freedom of speech and expression. 22. The conduct of the respondent in associating with the methods of tax evasion rather than denouncing them, to say the least is a gross misconduct on the part of a member of a noble profession which is worst than solitary lapses of the taxpayers. It should have merited instant removal from the profession when the book was first published in 1982. The Council ought to be prompt in such cases and so should we be, and not let such serious matters linger on for decades and let such published material ....