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2024 (5) TMI 1141
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....RANSFERRED CASE (CIVIL) NO. 34 OF 2021 TRANSFERRED CASE (CIVIL) NO. 35 OF 2021 TRANSFERRED CASE (CIVIL) NO. 36 OF 2021 TRANSFERRED CASE (CIVIL) NO. 37 OF 2021 TRANSFERRED CASE (CIVIL) NO. 38 OF 2021 TRANSFERRED CASE (CIVIL) NO. 39 OF 2021 TRANSFERRED CASE (CIVIL) NO. 32 OF 2023 TRANSFERRED CASE (CIVIL) NO. 33 OF 2023 TRANSFERRED CASE (CIVIL) NO. 34 OF 2023 TRANSFERRED CASE (CIVIL) NO. 35 OF 2023 TRANSFERRED CASE (CIVIL) NO. 36 OF 2023 TRANSFERRED CASE (CIVIL) NO. 37 OF 2023 TRANSFERRED CASE (CIVIL) NO. 38 OF 2023 TRANSFERRED CASE (CIVIL) NO. 39 OF 2023 TRANSFERRED CASE (CIVIL) NO. 47 OF 2023 TRANSFERRED CASE (CIVIL) NO. 48 OF 2023 TRANSFERRED CASE (CIVIL) NO. 49 OF 2023 TRANSFERRED CASE (CIVIL) NO. 50 OF 2023 TRANSFERRED CASE (CIVIL) NO. 51 OF 2023 TRANSFERRED CASE (CIVIL) NO. 52 OF 2023 TRANSFERRED CASE (CIVIL) NO. 53 OF 2023 TRANSFERRED CASE (CIVIL) NO. 54 OF 2023 TRANSFERRED CASE (CIVIL) NO. 55 OF 2023 TRANSFERRED CASE (CIVIL) NO. 56 OF 2023 TRANSFERRED CASE (CIVIL) NO. 57 OF 2023 TRANSFERRED CASE (CIVIL) NO. 58 OF 2023 TRANSFERRED CASE (CIVIL) NO. 59 OF 2023 TRANSFERRED CASE (CIVIL) NO. 60 OF 2023 TRANSFERRED CASE (CIVIL) NO. 61 OF 2023 TRANSFERRED CASE (CIVIL) NO. 62 OF ....
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....ohan, Adv. Mr. Ravi Raghunath, AOR Mr. Goutham Shivshankar, AORMr. B.Ramana Kumar, Adv. Mr. B Ramanakumar, Adv. Mr. K. Paari Vendhan, AOR Mr. Raghunatha Sethupathy B, Adv. Mr. Ragunatha Sethupathy.b, Adv. Ms. Ramya, Adv. Ms. Ramya A., Adv. For the Respondent(s) : Mr. Arvind P. Datar, Sr. Adv. Mr. Pramod Dayal, AOR Mr. Nikunj Dayal, Adv. Mr. K M Natraj, A.S.G. Mr. Rupesh Kumar, Sr. Adv. Mr. Raj Bahadur Yadav, AOR Mr. Piyush Beriwal, Adv. Mr. Bhuvan Mishra, Adv. Mr. Shivank Pratap Singh, Adv. Mr. Prahlad Singh, Adv. Mr. Shashank Bajpai, Adv. Mr. Vatsal Joshi, Adv. Mr. Ashok Panigrahi, Adv. Mr. Swayam Prabhu Das, Adv. Mr. Diwakar Sharma, Adv. Mr. Amrish Kumar, AOR Mr. Wills Mathews, Adv. Mr. Dhanesh M Nair, Adv. Mr. Paul John Edison, Adv. Mr. Devendra Kumar Tiwari, Adv. Mr. Rakesh Garg, Adv. Mr. Ashish Gopal Garg, Adv. Ms. Shweta Garg, AOR JUDGMENT NAGARATHNA, J. Table of Contents S.No. Particulars Page No. 01 Bird's Eye View of the Controversy 8 02 Historical Perspective 8 03 Submissions 39 04 Submissions of the Petitioners 39 05 Submission of the Respondents 55 06 Points for Consideration 64 07 Le....
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....at a member of the Institute in practice shall not accept, in a financial year, more than the "specified number of tax audit assignments" under Section 44AB of the IT Act, 1961. It further provides that in the case of a firm of Chartered Accountants, the "specified number of tax audit assignments" shall be construed as the specified number of tax audit assignments for every partner of the firm. 1.3 At the outset, we find it pertinent to note that the ceiling limit, that is the subject of controversy has not been stagnant but has, on the basis of several factors, been increased by the Council of respondent-Institute during the passage of time. Initially, the Council of respondent-Institute vide Notification No. 1/CA(7)/3/88 dated 13.01.1989 set a limit of thirty audits, in exercise of powers conferred on it under Clause (ii), Part II, Second Schedule of the 1949 Act. Further, in February 2014, vide resolution adopted at the 331st Meeting of the Council of respondent-Institute, the ceiling limit in question was specified as sixty and presently stands the same. Bird's Eye View of the Controversy: 2. The controversy that has arisen in these petitions is two-fold: firstly, whet....
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....ion and recommended insertion of a statutory provision for compulsory audit of accounts. The Committee noted that mandatory audit, simultaneously with compulsory maintenance of accounts, would ensure that books and records are properly maintained; the taxpayer's income is faithfully presented, and proper presentation is facilitated before the Assessing Officer. It was further understood that information furnished by the Auditor along with his certificate would enable building up of information for cross-verification leading to prevention of tax evasion and identification of new assessees. At para 2.145, it was interestingly noted that earlier Committees and Working Groups had also deliberated on a provision providing for compulsory audit. In furtherance, it was noted that the Working Group of the Administrative Reforms Commission had favoured compulsory audit by Chartered Accountants of persons with income over Rs. 50,000 but it was finally decided that due to limited number of Chartered Accountants at that point in time, it may not be possible for all assesses to secure their services, except at heavy cost and delay. Noting, at para 2.148, that an auditor can devote more time to e....
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.... also facilitate the administration of tax laws by proper presentation of the accounts before the tax authorities and considerably saving the time of the assessing officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched or not. The time of the assessing officers thus saved could be utilized for attending to more important investigational aspects of a case." (emphasis supplied) 3.7 Finally, Clause No. 11 of the Finance Bill, 1984 (Bill No. 11 of 1984), was introduced in Parliament to give effect to the proposals of the Central Government. Resultantly, Section 44AB of the IT Act, 1961 was inserted and came into force w.e.f. 01.04.1985, providing for compulsory audit. Section 44AB, as it stood then, provided that every person carrying on business, if his total sale, turnover or gross receipts exceed Rs. 40 Lakhs and every person carrying on a profession, if his gross receipts exceed Rs. 10 Lakhs, in any previous year, is required to get his accounts of such previous year audited by an Accountant and obtain before the specified date, a report of the audit in the prescribed form duly s....
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....ection 44AB meant that persons covered by the provision must compulsorily get their accounts of relevant assessment year audited by a Chartered Accountant before the specified date and obtain a report of such audit in the prescribed form duly signed and verified by the Chartered Accountant furnishing the particulars stipulated in the rules made by the Central Board of Direct Taxes (for short, "CBDT") and annex them to their returns filed in accordance with Section 139 of the IT Act, 1961. Consequently, Rule 6G to the Income Tax Rules, 1962 was inserted. 3.9 At this chronological juncture, a perusal of relevant material indicates that the objective of the insertion of Section 44AB was multi-fold: firstly, it was intended that compulsory audit will discourage tax avoidance and tax evasion by allowing faithful reflection of income of the taxpayer and only appropriate claims for deductions. Secondly, and importantly, as Chartered Accountants can devote more time to examination and verification of accounts than an Assessing Officer, it was believed that a compulsory audit would save considerable and precious time of assessing officers. Thirdly, it was hoped that proper presentation o....
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....ection reference has also been invited to Section 224 of the Companies Act whereby the number of company audits which a Chartered Accountant can do has been restricted to 20. 2. You are requested to kindly send your comments regarding the suggestion of restricting the number of audits under Section 44AB of the Income Tax Act which a Chartered Accountant may be permitted to complete. The number of audits as in the case of Section 224 of the Companies Act may also be indicated. I would request you to kindly forward the comments of the Institute at the earliest. Yours faithfully, Sd/- (M.G.C. Goyal) Officer on Special Duty (IT.ALL) Central Board of Direct Taxes." 3.11 After consideration of the aforesaid letter, the Professional Development Committee of the respondent-Institute at its 90th Meeting held on 22.02.1988 recommended that every Chartered Accountant be permitted to conduct a maximum of twenty tax audits of non-corporate assessees every year in addition to entitlement of audits conducted under the Companies Act and other statutes. Considering the recommendation of the Professional Development Committee, on 28.04.1988-30.04.1988,....
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....itute, this Court vide Order dated 29.07.2005, issued notice and granted a stay on the operation of the judgment of learned Division Bench of Madras High Court. The aforesaid captioned Special Leave Petitions were admitted as Civil Appeal Nos. 7208-7209 of 2005. 3.13 Certain other High Courts dismissed the challenge to the vires and constitutionality of the Notification dated 13.01.1989. Amongst others, four such petitions filed before the Madhya Pradesh High Court have been brought to our attention, being Miscellaneous Petition No. 2844 of 1989 - Prem Chand vs. Institute of Chartered Accountants of India; Miscellaneous Petition No. 2792 of 1990 - Ram Narain vs. Institute of Chartered Accountants of India; Miscellaneous Petition No. 4202 of 1992 - Arun Grover vs. Institute of Chartered Accountants of India; and Miscellaneous Petition No. 3307 of 1993 - Anil Kumar Gupta vs. Institute of Chartered Accountants of India. The challenge in all the above captioned petitions was to the validity and legality of the Notification dated 13.01.1989. By way of a common judgment dated 18.04.1995 passed by the Division Bench of the Madhya Pradesh High Court, the aforesaid writ petitions were di....
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....dgments in writ petitions before the Madras High Court and Madhya Pradesh High Court were considered and the latter High Court found itself in disagreement with the Madras High Court on the ground that the restriction had been imposed by a competent statutory body of professionals in the interest of the profession. It was reasoned that no interference was warranted when the statutory body had taken a decision within its powers in the interest of the profession. Against the aforesaid judgment of the High Court of Kerala, Writ Appeal No. 1116/2003 was filed before the Division Bench of the Kerala High Court but was dismissed as infructuous on 14.01.2016 on account of the death of the writ petitioner therein. 3.15 At the 184th Meeting of the Council in the year 1997, it considered the issue of certain Chartered Accountants exceeding the prescribed limit and proceeded to refer the matter to the Committee for Ethical Standards and Unjustified Removal of Auditors (CESURA) for a detailed review on the limit of thirty tax audits in a year and also to examine the issue of developing a suitable mechanism for the purpose of monitoring such limit. CESURA, in its 58th Meeting held on 25.02.1....
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.... the 205th Meeting of the Council held from 15.12.1999-17.12.1999, it was decided that since the average number of tax audits done by a member/partner of a firm came to be about 14 to 15 audits, therefore, no change was warranted. Notably, the minutes of 205th Meeting of the Council record the Institute's President's reference to a relevant paper presented in CAPA Conference at Korea in 1989. The minutes of the said Meeting describe the paper discussed in the Meeting of the Council as under: "The main thrust of the Korean paper was that when there was ceiling on audit, there was less competition. When less competition was there, the audit reports were qualified. When there was no ceiling, a member was free to accept any number of Tax Audits as a result of which there was more competition finally resulting in unqualified audit reports." 3.18 Considering that fourteen years had passed since the last ceiling limit was fixed in 1989 and that the number of persons eligible to tax audit had considerably increased due to the change in limits prescribed under Section 44AB, IT Act, 1961, the Financial Law Committee meeting of the respondent-Institute, held on 12.09.2003, recomme....
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....igh Court of Madras quashing the notifications issued by the appellant by which it has quashed the notifications dated 25.5.1987 and 13.1.1989 by which certain regulatory measures have been taken by the appellant against its members. Mr. N.K. Poddar, learned senior counsel appearing for the appellant stated that both these notifications do not survive. They have been withdrawn and subsequently two guidelines have been issued by the appellant on 8th August, 2008 for regulating the business of its members. However, subsequently one of them had also been withdrawn in 2011 and today only one guidelines is issued for which the appellant has not received any representation, ventilation or any grievance from any member of the appellant association in respect of the existing guidelines which deals with Section 44 A(b) of the Income Tax Act, 1961. Mr. Poddar further submitted that in case, the appellant receives any representation against such existing guidelines, the highest body of the appellant will consider it and will take a decision as to whether such guidelines would continue or require any kind of modification. In view of the above, we do not propose to hear the ap....
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.... respondent-Institute was acted upon within the framework provided in the Chartered Accountants Act and the Misconduct Rules, 2007 framed thereunder. 3.25 As per information provided by DGIT(Systems), ITD to the CAG in August, 2014: a. 65,898 Chartered Accountants submitted at least one Tax Audit Report (TAR) for AY 2013-14. Further, out of total 65,898 records of Chartered Accountants: i. 81.13% Chartered Accountants adhered to the limit of forty-five prescribed by ICAI (Institute of Chartered Accountants of India). ii. 18.87% submitted more than forty-five TARs (Tax Audit Reports). iii. Excess number of tax audits ranged from 46 to 2471. b. A table showing twenty-two Chartered Accountants who issued more than forty-five TARs for the annual year 2013-2014 ranged from 401 TARs up to 2471 TARs. The CAG Report pointed out that the purpose of maintenance of quality audit work had suffered due to no monitoring mechanism of this crucial ceiling limit by either respondent-Institute or ITD as per the following statistics: Stratification of total TARs issued by Chartered Accountant for Assessment Year 2013-14 (vide CAG Report No. ....
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.... that it decided to issue communications to only those Chartered Accountants who had conducted more than 200 tax audits in a relevant Assessment Year. As of date, the respondent-Institute has issued only 276 notices although there has been violation by over ten thousand Chartered Accountants. 3.30 Aggrieved by the aforesaid communications seeking initiation of disciplinary proceedings for professional misconduct, several petitioner-Chartered Accountants have challenged the impugned Guidelines dated 08.08.2008 as well as the communications initiated by the respondent-Institute before respective High Courts having jurisdiction. In some writ petitions pending before various High Courts, stay of the disciplinary proceedings initiated by the respondent-Institute has been granted. 3.31 In order to avoid multiplicity of proceedings and conflicting decisions by various High Courts seized of identical issues, respondent-Institute filed Transfer Petition (Civil) Nos. 2849-2859 of 2019 and 727-728 of 2020 before this Court seeking transfer of the various Writ Petitions pending in the High Courts of Kerala, Madras and Calcutta to this Court. By order dated 09.12.2020, a three-Judge Bench....
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....r and other learned counsel for the petitioners and learned senior counsel for the respondents Sri Arvind P. Datar ably assisted by Sri Nikunj Dayal, Advocate and learned counsel for the intervenors Sri Wills Mathews. Submissions of the Petitioners: 4.1 Leading the arguments, Sri V. Giri submitted that the primary case of the petitioners is that the impugned Chapter VI of the Guidelines dated 08.08.2008 imposing an unreasonable restriction on a Chartered Accountant duly qualified to practice the profession of Chartered Accountancy in India is violative of Article 19 (1) (g) of the Constitution. Furthermore, the impugned Guidelines are arbitrary and lack any rational nexus with the objects sought to be achieved by the 1949 Act, namely, the regulation and maintenance of the status and standard of professional qualifications of the members of the Institute. 4.2 Learned senior counsel appearing for petitioners submitted that the intention of the 1949 Act was to provide for a rigorous test and exemplary qualification to enter into the sphere of the profession of accountants in practice and once in possession of requisite qualification, such a person is entitled to follow a prof....
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....fessional duties and the exercise of agency by a Chartered Accountant in choosing his own volume of work cannot be considered professional misconduct. Furthermore, where the Act and Rules made thereunder would be entitled to bring restrictions or provisions only for the purpose of attaining the prescribed professional standards, a mere choice of work could not be considered professional misconduct. 4.6 During the course of arguments, analogies were often drawn to the legal profession to argue that, it is, firstly, inconceivable that a cap could be put on the number of cases that an advocate can take up and, secondly, there is no norm, custom, or practice of the profession that would require the rule-making body to ensure equitable distribution of work to younger Chartered Accountants. Relatedly, it was contended that the equitable distribution of work cannot automatically lead to betterment of the standards of chartered accountancy profession in the country. 4.7 It was further submitted on behalf of the petitioners that a Chartered Accountant's fundamental right to practice the profession is unreasonably restricted as there is no sanctity in the ceiling limit prescribed by th....
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....ct that the said Notification was quashed and held to be ultra vires the Constitution by a judgment of the Madras High Court dated 13.07.1998 in Writ Petition (C) No. 5925 of 1989 and the same was affirmed by a Division Bench of the same Court. 4.10 The contention is that the respondent-Institute issued impugned Guidelines dated 08.08.2008 during the pendency of the challenge to the Madras High Court judgment before this Court, solely to negate the binding dictum of judgment of the Madras High Court. Neither was any permission of this Court sought by respondent-Institute nor was this Court informed on 01.04.2013 that new Guidelines were of identical nature as the Notification impugned therein. Importantly, the argument of the petitioners is that the respondent-Institute could not have issued notices or instituted disciplinary proceedings, as doing so would be in teeth of the dictum laid by the Madras High Court which had not been reversed on merits by this Court. Reliance was placed by learned counsel for the petitioners on Kusum Ingots & Alloys Ltd. vs. Union of India, (2004) 6 SCC 254 ("Kusum Ingots & Alloys Ltd."), to contend that when the Madras High Court had quashed an ide....
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....in this Court held as unconstitutional, a ban on carrying on a private profession or self-employment on attaining a certain age specified by the State in the absence of any reasons therefor. 4.13 Learned senior counsel appearing for the petitioners in Writ Petition (C) No. 267/2021 argued that by no stretch of imagination could the restriction as sought to be imposed herein could be achieved simply through a resolution - a delegated legislation not specifically provided for by the Parliament to impose a quantitative restriction. It was further contended that the Guidelines are ultra vires the provisions of the Act inasmuch as there is no power at all under the Act to lay down a maximum limit on the number of tax audits. Learned senior counsel focused on the language of the Preamble of the 1949 Act to argue that the Act was sought by the Parliament to 'make provisions' to regulate the profession. Thereby, any regulation made has to relate to a specific provision and no omnibus power to regulate has been granted to the Council. 4.14 Learned senior counsel Sri Patwalia further contended that the power to issue Guidelines has been conferred for the first time by the Amendment Act....
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....) 4 SCC 230, ("V. Sasidharan") wherein this Court had held that the office of a lawyer is not a commercial establishment under the Shop & Establishments Act, 1968 (Kerala Act). Relying on the aforesaid, it was contended by learned counsel that a technical profession stands on a different footing to other professions and while a prescription for technical qualification would be a reasonable restriction under Article 19 (6), any other restriction on a profession must be carefully construed. 4.18 It was argued by learned senior counsel Sri Singh that professions have existed even before the Constitution came into being. Prior to the enforcement of the Constitution, an attempt to move a legislation to restrict the practice of a profession was subject to seeking the assent of Governor-General, in case of Federal Legislature, and the Governor in case of provincial legislature. Importantly, the Governor-General could not have given sanction, if a legislation was framed to restrict lawful practice of the profession, except in 'public interest'. As per learned counsel, the position could not have been said to be worse off after the coming into force of our Constitution, i.e. after repeal....
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....st accountant may undertake. Noting that there was no material to base such a restriction, he further found that such a cap on maximum number of audits was arbitrary and in violation of Article 14 of the Constitution. 4.22 It was also canvassed on behalf of the petitioners that where the challenge to an erstwhile in pari materia Notification was not decided on merits the respondent-Institute erred in initiating disciplinary proceedings and imposing punishments, especially where a stay on the operation of the judgment of Madras High Court had been granted. Reliance was placed on Shree Chamundi Mopeds Ltd. vs. Church of South India Trust Association CSI CINOD Secretariat, Madras, (1992) 3 SCC 1 ('Chamundi Mopeds'). Petitioners therefore sought the reliefs as noted above by allowing the writ petitions. Submission of the Respondents: 5. Per contra, learned senior counsel Sri Arvind Datar, ably assisted by learned counsel Sri Nikunj Dayal, contended that the Guideline with regard to exceeding the specified number of tax audits being a misconduct was inserted pursuant to the communication received from the CBDT and with the aim of maintaining quality in tax audits. According to ....
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....red Accountant cannot conceivably complete more than the specified number of audits in a period of 25-30 weeks, i.e., from April-September of the relevant assessment year. 5.4 Learned senior counsel sought to repel the argument that the petitioners' right under Article 19 (1) (g) is violated by the restriction. Instead, it was argued that the right of an Indian citizen under the Constitution to practice any profession is not an absolute right but can be appropriately limited under Article 19 (6). It was submitted that the right to practice as a Chartered Accountant is conferred by the 1949 Act and the same may be limited by conditions and limitations stipulated under the Act or Regulations or Guidelines framed thereunder. The contention of the respondent-Institute was that under Article 19 (1) (g), what is available is a right to practice as a Chartered Accountant in accordance with the 1949 Act and the Guidelines or regulations made thereunder which is subject to reasonable restrictions. 5.5 Sri Datar took us through a wide variety of professional work that can be undertaken by a Chartered Accountant in practice such as statutory corporate audit, representation before tax au....
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....gation to provide work for young Chartered Accountants, it was contended that under the 1949 Act, the respondent-Institute has a responsibility to regulate the profession and hence, the Guidelines have been made to ensure quality work and equitable distribution of work amongst Chartered Accountants which objects are indisputably in furtherance of that statutory duty. It was also submitted that the Division Bench of Madras High Court did not consider the judgment of the learned Single Judge of the Kerala High Court in B.K. Kamath vs. The Institute of Chartered Accountants, (2003) 2 KLJ 21, ("B.K. Kamath"). However, the judgment of learned Single Judge of the Madras High Court was considered and dealt with by the Kerala High Court. 5.10 Learned senior counsel, Sri Datar placed reliance on a judgment of this court in Pathumma vs. State of Kerala, (1978) 2 SCC 1, ("Pathumma"), in support of his contention that a just balance between the fundamental rights and the larger and broader interest of society must be struck by this Court while trying to protect fundamental rights. Furthermore, it was argued that this Court should defer to the Legislature in appreciating the needs of the peo....
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....both legislative sanction and expert opinion, vide CBDT Letter dated 19.01.1988 and CAG Report No. 32 of 2014, supporting the utility of the measure in achieving the objects sought, namely, quality and accuracy in such audits. 5.14 Therefore, it was prayed by the respondent-Institute that all the writ petitions/transferred cases filed before various High Courts and this Court challenging the validity of Chapter VI of the Council Guidelines No. 1-CA(7)/02/2008 dated 08.08.2008 issued by the respondent-Institute be held to be devoid of any merits and thereby dismissed. Points for Consideration: 6. Having heard learned senior counsel and learned counsel appearing for the respective parties and upon perusal of the record, the following points would arise for our consideration: (i) Whether the Council of the respondent-Institute, under the 1949 Act, was competent to impose, by way of Guidelines, a numerical restriction on the maximum number of tax audits that could be accepted by a Chartered Accountant, under Section 44AB of the IT Act, 1961, in a Financial Year by way of a Guideline? (ii) Whether the restrictions imposed are unreasonable and therefore, violat....
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....the whole position by an ad hoc expert body constituted for the purpose, after taking into account the views expressed by the various Provincial Governments and public bodies concerned." (emphasis supplied) Therefore, the 1949 Act was enacted with the object of incorporating an autonomous professional body of accountants that would, in respect of discharge of their public duties, provide for uniform regulation of the profession. Thereby, it is apparent that the relationship of the profession to public duty is closely present even in the earliest statutory prescription. 7.2 It is pertinent to note that the long title and preamble of the 1949 Act was amended, w.e.f. 10.05.2022, vide the Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Act, 2022, to substitute "regulation and development" instead of the extant "regulation". The amended long title and preamble of the 1949 Act reads as under: "An Act to make provision for the regulation and development of the profession of Chartered Accountants." (emphasis supplied) 7.3 Section 2 of the 1949 Act deals with interpretation and the relevant clauses of Section 2 are ext....
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....s functions are delineated in Section 15. The above-mentioned Sections are extracted as under: "3. Incorporation of the Institute.- (1) All persons whose names are entered in the Register at the commencement of this Act and all persons who may hereafter have their names entered in the Register under the provisions of this Act, so long as they continue to have their names borne on the said Register, are hereby constituted a body corporate by the name of the Institute of Chartered Accountants of India, and all such persons shall be known as members of the Institute. (2) The Institute shall have perpetual succession and a common seal and shall have power to acquire, hold and dispose of property, both movable and immovable, and shall by its name sue or be sued. x x x 7. Members to be known as Chartered Accountants.- Every member of the Institute in practice shall, and any other member may, use the designation of a chartered accountant and no member using such designation shall use any other description, whether in addition thereto or in substitution therefor: Provided that nothing contained in this Section shall be deemed to prohibi....
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....the Council shall include - (a) to approve academic courses and their contents; (b) the examination of candidates for enrolment and the prescribing of fees therefor; (c) the regulation of the engagement and training of articled and audit assistants; (d) the prescribing of qualifications for entry in the Register; (e) the recognition of foreign qualifications and training for the purposes of enrolment; (f) the granting or refusal of certificates of practice under this Act; (g) the maintenance and publication of a Register of persons qualified to practice as chartered accountants; (h) the levy and collection of fees from members, examinees and other persons; (i) subject to the orders of the appropriate authorities under the Act, the removal of names from the Register and the restoration to the Register of names which have been removed; (j) the regulation and maintenance of the status and standard of professional qualifications of members of the Institute; (k) the carrying out, by granting financial assistance to persons other than members of the Council or in any other manner, of resear....
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....t in relation to members of the Institute generally A member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct, if he - (1) contravenes any of the provisions of this Act or the regulations made thereunder or any guidelines issued by the Council;" Therefore, if a member of the Institute contravenes the provisions of the aforesaid Chapter VI of the Guidelines dated 08.08.2008, he shall be deemed to be guilty of professional misconduct under the 1949 Act. Clause 6 is extracted as under: "Chapter VI Tax Audit assignments under Section 44AB of the Income-tax Act, 1961 6.0 A member of the Institute in practice shall not accept, in a financial year, more than the "specified number of tax audit assignments" under Section 44AB of the Income-tax Act, 1961. Provided that in the case of a firm of Chartered Accountants in practice, the "specified number of tax audit assignments" shall be construed as the specified number of tax audit assignments for every partner of the firm. Provided further that where any partner of the firm is also a partner of any other firm or firms of Chartered Accoun....
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.... Council at its 331st meeting held from 10th to 12th February, 2014 decided to increase the "specified number of tax audit assignments" for practicing Chartered Accountants, as an individual or as a partner in a firm, from forty-five to sixty. The said limit will be effective for the audits conducted during the financial year 2014-15 and onwards. 7.7 Section 21 refers to Disciplinary Directorate, while Section 21A deals with Board of Discipline and Section 21B deals with Disciplinary Committee. Section 21C states that the Authority, the Disciplinary Committee, Board of Discipline and the Director (Discipline) shall have the powers of a Civil Court. These provisions have to be read with the Schedules to the 1949 Act. The First Schedule of the 1949 Act deals with professional misconduct in relation to Chartered Accountants in practice and it enumerates various types of misconduct. It has four Parts. Part I deals with professional misconduct in relation to Chartered Accountants in practice. Part II deals with professional misconduct in relation to members of the Institute in service. Part III deals with professional misconduct in relation to members of the Institute generally. Part....
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....inations under this Act; (b) the qualifications for the entry of the name of any person in the Register as a member of the Institute; (c) the conditions under which any examination or training may be treated as equivalent to the examination and training prescribed for members of the Institute; (d) the conditions under which any foreign qualification may be recognised; (e) the manner in which and the conditions subject to which applications for entry in the Register may be made; (f) the fees payable for membership of the Institute and the annual fees payable by associates and fellows of the Institute in respect of their certificates; x x x (k) the regulation and maintenance of the status and standard of professional qualifications of members of the Institute; x x x (t) any other matter which is required to be or may be prescribed under this Act. (3) All regulations made by the Council under this Act shall be subject to the condition of previous publication and to the approval of the Central Government. (4) Notwithstanding anything contained in sub-sections (1) and (2) the Central Gover....
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....nt-Institute, in exercise of its powers conferred by clause (ii) of Part II of the Second Schedule of the 1949 Act, issued a Notification bearing No. 1/CA(7)/3/88 dated 13.01.1989 specifying that a member of the Institute in practice shall be deemed to be guilty of professional misconduct, if he accepts in a financial year, more than specified number of tax audit assignments under Section 44AB of the IT Act, 1961, the specified number being thirty (now sixty) in a financial year, whether in respect of corporate or non-corporate assesses. 7.14 As for relevant provisions of the IT Act, 1961 is concerned, Section 44AB of the IT Act, 1961 was inserted in the statute book by the Finance Act, 1984 and the same came into force with effect from 01.04.1985. Presently, Section 44AB provides that every person carrying on business, whose total sale, turnover or gross receipts exceed Rs. 10 crore, and every person carrying on a profession, if his gross receipts exceed Rs. 50 lakhs, in any previous year, is required to get his accounts of such previous year audited by a Chartered Accountant, and obtain before the specified date, a report of the audit in the prescribed form duly signed and ver....
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....which is not chargeable to income-tax in any previous year; or (e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed: Provided that this section shall not apply to a person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of Section 44ADA: Provided further that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985, or, as the case may be, the date on which the relevant section came into force, whichever is later: Provided also that in a case where such person is required by or under any other law to get his accounts audited, it sha....
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.... the 1949 Act has not at all been enforced until very recently and it has been enforced only selectively, and therefore, there is non-compliance of the equality clause envisaged under Article 14 of the Constitution of India. 11. During the course of submissions, learned senior counsel Sri Datar submitted that although a little over ten thousand Chartered Accountants had violated the Guideline in question, notices for initiation of disciplinary proceedings were at first issued only in respect of a few of them, including writ petitioners herein and those who had undertaken more than two hundred tax audits. In regard to others, who had exceeded the specified number of tax audits, no disciplinary proceedings have been initiated as yet. 12. At the outset, we consider it useful to examine the privilege conferred under the 1949 Act to practise the profession of a Chartered Accountant. Reference to the observation of this Court in All-India Federation of Tax Practitioners vs. Union of India, (2007) 7 SCC 527, ("All-India Federation of Tax Practitioners"), is helpful in this regard. In answering the question of whether the Parliament was competent to levy service tax on services rende....
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....g officer as well as the ITD is reduced. This would however depend upon the quality of service that is rendered by the Chartered Accountant as a professional for which regulation of the profession is necessary and the respondent-Institute has been established for, inter alia, such regulation of the profession. 13.1 In this context, Chapter V of the 1949 Act assumes importance. The said Chapter deals with misconduct. Section 22 of the Act defines "professional or other misconduct" to deem to include any act or omission provided in any of the Schedules. However, nothing in Section 22 shall be construed to limit or abridge in any way the power conferred or duty cast on the Director (Discipline) under sub-section (1) of Section 21 to inquire into the conduct of any member of the Institute under any other circumstances. The two prongs of Section 22 are expansive and wide inasmuch as there is no limitation in any way on the power conferred or duty cast on the Director (Discipline) under Sub-section (1) of Section 21 to inquire into the conduct of any member of the Institute under circumstances other than what is stated in the Schedules. Also, professional or other misconduct is define....
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....ssible types of misdemeanours in the Second Schedule in the form of a regulation or a Guideline, the breach of which would result in a misconduct in futuro. This is in order to avoid the Parliament itself amending the Schedules to the 1949 Act every time a different type of misconduct is to be inserted to the Schedules by way of an amendment to the Act. Therefore, the regulation or Guideline issued by the Council, the breach of which would result in a professional misconduct, being a part of clause 1 of Part II of the Second Schedule have to be read as part and parcel of the 1949 Act itself. The delegation of powers to add newer types of misconducts by way of a regulation or a Guideline is neither excessive nor ultra vires under Section 22 of the 1949 Act which deems any breach of a regulation or Guideline as a misconduct as per Clause 1 of part II of Schedule II to the 1949 Act. 13.3 In the circumstances, we hold that the Council of the respondent-Institute had the legal competence to frame the impugned Guideline restricting the number of tax audits that a Chartered Accountant could carry out which was initially thirty and later raised to forty-five and thereafter to sixty in a....
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....he interest of the general public, which freedom is recognised under Article 19 (1) (g). Secondly, it empowers the State to prescribe professional and technical qualifications necessary for practising any profession or carrying on any occupation, trade or business. Thirdly, pursuant to the enactment of the Constitution (First) Amendment Act, 1951 - it enables the State to carry on any trade or business, either by itself or through a corporation owned or controlled by the State, to the exclusion of private citizens wholly or in part. It is trite law that restrictions imposed by the State upon the freedom guaranteed by Article 19 (1) (g) cannot be justified on any ground outside Article 19 (6) vide Nagar Rice and Flour Mills vs. N. Teekappa Gowda and Bros., (1970) 1 SCC 575, ("Nagar Rice Milling"). 16. The ambit of reasonable restrictions on the exercise of rights under Article 19 (1) (g) in the interest of the general public under Article 19 (6) was further explained in Hathising Manufacturing Co. Ltd. vs. Union of India, (1960) 3 SCR 528 ("Hathising Manufacturing Co. Ltd."), which concerned the challenge to the validity of Section 25FFF (1) of the Industrial Disputes Act, 1947, ....
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....ondent-Institute. We find that the respondent-Institute has placed ample material before this Court to establish that the legislation comes within the permissible limits of clause (6). But the factual matrix herein is dissimilar to Saghir Ahmad, wherein this Court had 'absolutely no materials' before it to say in which way the establishment of State monopoly in road transport service would be conducive to the general welfare of the public. 20. In this regard, we place reliance upon Sakhawant Ali vs. State of Orissa, (1954) 2 SCC 758 ("Sakhawant Ali"), wherein this Court was seized of a challenge to a disqualification from electoral candidature of legal practitioners who were employed on payment, on behalf of the municipality or to act against the municipality. This Court emphasised upon the salutary object of the disqualification, i.e., the purity of public life, which would invariably be thwarted if there arose a situation where there was a conflict between interest and duty. This Court took note of the possibility of a conflict of interest and duty of a municipal councillor employed as a paid legal practitioner and was alive to the possibility that such a councillor may misuse....
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....cated in the case of regulatory restriction on the practice of a licensed profession are particularly strong. The case pertained to the conviction of an attorney for misconduct on the basis of his in-person solicitation from accident victims. Repelling the attorney's claims regarding the violation of the right to freedom, Justice Powell laid stress on the need for prophylactic regulation to safeguard the interests of the lay public. This is for the reason that the State bears a special responsibility for maintaining standards amongst members of the licensed professions. This view is strengthened by the reasoning in Williamson vs. Lee Optical Co., 348 U.S. 483 (1955), ("Williamson") and Semler vs. Oregon State Board of Dental Examiners, 294 U.S. 608 (1935), ("Semler"). (ii) On this point, the dicta from Goldfarb vs. Virginia State Bar, 421 U.S. 773, 792, (1975), ("Goldfarb") is also instructive and the relevant portion of the judgment reads as follows: "....The interest of the States in regulating lawyers is especially great, since lawyers are essential to the primary governmental function of administering justice, and have historically been 'officers of the courts....
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....erest but any policy or law may not be struck down at the instance of an individual alone. In other words, there is a basic unity between fundamental rights and the public interest. The public interest inherent in the said individual's exercise of a fundamental right under Part III would need to be delicately balanced with the imminent constitutional imperative of the 'ordered progress of society towards a welfare state,' vide K. K. Kochuni vs. States of Madras and Kerala, 1958 SCC OnLine SC 12, Pr. 33. (iii) In Krishnan Kakkanth vs. Govt. of Kerala, (1997) 9 SCC 495, ("Krishnan Kakkanth"), this Court held as under: "27. The reasonableness of restriction is to be determined in an objective manner and from the standpoint of the interests of general public and not from the standpoint of the interests of the persons upon whom the restrictions are imposed or upon abstract consideration. A restriction cannot be said to be unreasonable merely because in a given case, it operates harshly and even if the persons affected be petty traders (Mohd. Hanif v. State of Bihar [AIR 1958 SC 731] ). In determining the infringement of the right guaranteed under Article 19(1), the nat....
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.... to the benefit of the public exchequer. The genesis of the opportunity to conduct tax audits was not regulation of a practice essential to the Chartered Accountant profession per se but rather to take assistance of auditors, in discharge of their public duties, for plugging tax leakage and thereby saving the time of the Assessment Officers on presentation of quality tax audit reports in a prescribed format. Therefore, it is for these intents and purposes, the privilege of conducting tax audits was extended to Chartered Accountants by creating a privilege to conduct such audits subject to reasonable restrictions. 27. We must be careful in our delineation between a right and a privilege. As discussed above, the idea of compulsory tax audits was neither an inherent part of the practice of a Chartered Accountant nor an essential function which could be claimed as a fundamental right under Article 19 (1) (g). Furthermore, an examination of the nature of the supposed right that was being enjoyed by Chartered Accountants reflects that in practice, an assessee, seeking to comply with the requirements of Section 44AB, would approach a Chartered Accountant to obtain a certificate of audi....
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....erest was the genesis of a privilege being extended to Chartered Accountants and not a right, it is reasonable that the respondent-Institute, an expert body, would have the authority to regulate the privilege extended to Chartered Accountants in a reasonable manner deemed appropriate to serve public interest. That the public interest involved in the present petitions being pervasive is evidenced through CAG's recommendation to the Government to insert a provision in the statute book putting a cap on the number of tax audits permissible. According to the CAG, in the matter of revenue, the IT Act, 1961 should have provision to prescribe for quality of tax audit assignments rather than relying on respondent-Institute. 30. It would be apposite at this juncture to refer to the judgment in P.V. Sivarajan vs. Union of India, AIR 1959 SC 556, ("P.V. Sivarajan"), delivered by a Constitution Bench of this Court. Petitioner therein was aggrieved by the rejection of his application as a registered exporter of coir products, on the ground that he had not already exported the minimum specified quantity of 500 Cwts. It was observed by this Court that Parliament had enacted the Coir Industry Ac....
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....ad to hardship to some persons carrying on the said trade or business if they are unable to satisfy the requirements of the regulatory rules or provisions validly introduced; but once it is conceded that regulation of the trade and its control are justified in the public interest, it would not be open to a person who fails to satisfy the rules or regulations to invoke his fundamental right under Article 19(g) and challenge the validity of the regulation or rule in question. In our opinion, therefore, the challenge to the validity of the rules on the ground of Article 19 must fail. 8. The challenge to the validity of the said rules on the ground of Article 14 must also fail, because the classification of traders made by Rules 18 and 19 is clearly rational and is founded on an intelligible differentia distinguishing persons falling under one class from those falling under the other. It is also clear that the differentia has a rational relation to the object sought to be achieved by the Act. As we have already pointed out, the export trade in coir commodities disclosed the existence of many malpractices which not only affected the volume of trade but also the reputation of In....
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.... That case is clearly distinguishable. Neither did this Court find that the restriction placed was in public interest, nor that the acquisition of an additional qualification hurt the quality of statutory responsibilities attributed to a Chartered Accountant. 33. The argument advanced by learned counsel for the petitioners is that as a direct consequence and effect of the ceiling limit, an anomalous situation of discrimination between qualified professionals practicing in metropolitan cities as against those in mofussil areas, or those catering to small assessees as against those catering to bigger assessees, must be categorically rejected. The potential effect of the concerned restriction is that practitioners dealing in mofussil areas or catering to small assessees will face a reduction in their income which is violative of their right to freely engage in their profession. We find ourselves unable to agree with this contention. There is no material to suggest that this partial limitation on the practise of the profession would lead to a significant reduction in income. In any case, it is trite law that reduction of income cannot be a ground for holding a reasonable restriction....
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.... cinema shows to four per day was held to be neither ultra vires the said Act nor violative of Article 19 (1) (g) of the Constitution. It was observed that no licensee can claim to have an unrestricted right to exhibit cinematograph films for all the twenty-four hours of the day. Such a claim would obviously be against public interest. The right to exhibit cinematograph films is regulated by the provisions of the Act in the interest of the general public. The restriction to limit the number of shows to four in a day placed by Rule 41-A is regulatory in nature which clearly carries out the purposes of the Act. In the context of Article 19 (1) (g), it was observed that the law placing restrictions on the citizens' right to do business must satisfy two conditions set out in clause (6) of Article 19: firstly, the restrictions imposed by the law must be reasonable, and secondly, the restrictions must be in the interests of the general public. If these two tests are satisfied, the law placing restriction on the citizens' right guaranteed under Article 19 (1) (g) must be upheld. While considering the validity of Rule 41-A which had limited the number of films to be exhibit in a day to fou....
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....tants. Therefore, the measures taken, intended to maintain and improve the quality of work and ensure equitable distribution of work among the Chartered Accountants could not be held to be an unreasonable restriction since such restrictions are necessary for maintaining the status of the Chartered Accountants and also for ensuring the quality of the work by them. Comparing the said restriction to Section 224 of the Companies Act, 1956 wherein a Chartered Accountant is permitted to audit only twenty companies in a financial year since the introduction of the said provision in the year 1974, it was observed that such regulatory measures are provided in view of the onerous and time-consuming nature of the work of the Chartered Accountant requiring accuracy and perfection. The Income Tax Act attributes much importance to the certificate of audit by the Chartered Accountant and therefore, it is in public interest also to introduce certain restrictions on the volume of work lest it would affect professional standards apart from affecting the professional status. We are in complete agreement with the aforesaid observations. In our view, the comparison made between Chartered Accountants an....
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.... be deemed to be 'professional misconduct'? 38. During the course of submissions, an alternative plea raised by learned senior counsel and learned counsel for the petitioners was that the respondent-Institute initiated disciplinary proceedings only against a few Chartered Accountants, including petitioners herein, while a majority of the Chartered Accountants who had breached the Guideline are not facing any disciplinary proceeding and have not been proceeded against. Secondly, it was contended that it was only recently that notices have been issued to the writ petitioners herein to respond to the same and for conducting disciplinary proceedings. That there cannot be a discrimination, so to say, by the respondent-Institute in the matter. That, the impugned Guideline dated 08.08.2008 has been on the statute book, the disciplinary proceedings have been initiated only recently. The impugned Guideline has not been effectively given effect to. Therefore, the disciplinary proceeding may be quashed for the aforesaid reasons. In this regard, it was contended that when the respondent-Institute has remained silent and not acted upon the Guideline, since it was issued on 08.08.2008, all of....
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....count." 42. It was borne out during the course of arguments and through the submissions made in the Counter Affidavit that the tax audit monitoring mechanism was firstly, self-regulatory, wherein the disciplinary mechanism would kick in only on a complaint made/information received and not otherwise. Furthermore, the Tax Audit Monitoring Cell was created only after the CAG Report No. 32/2014, and even after that, initially notices were sent only selectively to Chartered Accountants who had completed more than two hundred audits not to all who had breached the impugned Guideline. 43. As a rule of statutory interpretation, we find that the aforesaid principles, in an equitable legal system, should be applicable to the present circumstances. Thereby, for the limited period of uncertainty, the rule against doubtful penalization as a principle could, in the interest of justice and equity, be made applicable and the benefit of uncertainty be given to those subjected to misconduct proceedings in the instant writ petitions and to also those Chartered Accountants who may have received notices from the respondent-Institute and who may not have approached any court of law or to other si....
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....CC 222, ("Motor General Traders"), reiterated that a provision which was/is reasonable may with the passage of time become unreasonable. In the context of restriction on the specified audits under Section 44AB of IT Act, 1961, Minutes of the Council of the respondent-Institute reflect that with the passage of time, the number of tax audits to be permitted have been repeatedly deliberated, re-evaluated and increased, subject to final decision taken by the Council. However, it also becomes apparent that decisions of the Council on whether to increase or maintain the status quo have been ad-hoc, influenced by several factors such as technological development, number of practicing Chartered Accountants, etc. Since the last revision to sixty tax audits was made a decade ago, we direct the Council to consider if the time is ripe to enhance the specified number of tax audits and to delineate the factors that it may consider in taking such a decision. 47. In that view of the matter, the respondent-Institute is at liberty to enhance the specified number of tax audits that could be undertaken by practicing Chartered Accountants under Section 44AB of the IT Act, 1961. For that purpose, lib....
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....le of increased trust between taxpayers and the tax administration. We call this a "virtuous circle" because it seeks to achieve a dual purpose: it reinforces voluntary compliance while at the same time promoting good governance. Good governance is achieved in an attempt to secure the confidence of the taxpayer. Once a taxpayer is certain that tax revenue is being channelled in an efficient manner, consistent with the objectives of a welfare state, enhanced tax compliance is likely to follow. It is in this context that we stress on the significance of the role played by Chartered Accountants. They can serve as effective catalysts in securing this circle of trust between the taxpayer and the tax administration. This is because a large proportion of the tax payers in India seek advice of Chartered Accountants to understand the rules of the road. The integrity and standards of Chartered Accountants determine the efficiency in the functioning of the nation's taxation system. 49.2 There are many concepts and processes in the present taxation regime that rest, almost completely, on the vigilance of Chartered Accountants and auditors. The very concept of self-assessment carries with it....
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....tions for maintaining financial stability is now well-recognised. 49.5 More importantly, Chartered Accountants must themselves comply with the relevant laws and regulations and avoid any conduct that discredits the profession. Needless to specify that Chartered Accountants must refuse to represent clients who insist on resorting to unfair means. Chartered accountants are relevant not only in securing corporate governance, but governance in broader contexts too. 49.6 Chartered Accountants face many different responsibilities: to the profession; to the tax administration; to the client and to the economy at large. In that context, we stress on the importance of preserving their independence of view and integrity; to separate their client-advisory role from their role as public citizens seeking to improve the functioning of the tax machinery of the Nation. Integrity, objectivity, professional competence and due care and confidentiality must be the doctrines guiding their work ethic. Conclusion: 50. In the circumstances, we dispose of the writ petitions in the following manner: a) Clause 6.0, Chapter VI of the Guidelines dated 08.08.2008 and its subsequent amendmen....