TaxTMI 
TaxTMI 
2024 (5) TMI 1141
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....021 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 2023 TRANSFERRED CASE (CIVIL) NO. 6....
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..... 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 Legal Framework 65 08 Discussion 86 09 Re: Point No. 1: Whether the Council of ....
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....it 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, whether the respondent-Institute, constituted under the 1949 Act, had the competency to impose a restriction of the nature and effec....
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....sory 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 examination and verification of accounts than an Income-Tax Officer, the Wanchoo Committee recommended insertion of a provision for mandatory presentation of ....
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....ut 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 signed and verified. Explanation (i) to the Section 44AB clarified that the word 'accountant' shall have the meaning as in the Explanation to sub-section (2) of Section 288. The present position i....
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.... 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 of income and records in a structured and presentable manner will be facilitated by compulsory audit. Comprehensively, it is apparent that the intent behind Section 44AB was not to codify an essential extant practice of the Chartered Accountant's professio....
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....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, the Council of the respondent-Institute in its 133rd Meeting decided to issue a Notification under Clause (ii) of Part II of the Second Schedule of the 1949 Act specifying that w.e.f. 01.04.1989 a member of the respondent-Institute in practice shall be deemed guilty of professional misconduct, if he accepts in a financial year more than....
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....itutionality 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 dismissed holding that the Notification does not take away the right of petitioners to carry on their profession but only placed a ceiling limit for purposes of effective and business-like audit. Furthermore, the Division Bench of the High Court found that public interest was met by distribution of work amongst many Chartered Accountants. Agai....
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....rference 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 25.02.1997 recommended that the Council, before developing a suitable mechanism for the purpose of monitoring such limit, should ask members to submit a report on the number of tax audits carried out by them in a prescribed format. At its 186th Meeting, the Council took up the recommendation of the CESURA and asked members to submit a report on the num....
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....eeting 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, recommended that the Council may increase the ceiling limit for tax audit assignments to fifty. However, the Council at its 236th Meeting decided against increasing the limit from thirty to fifty tax audits per member. 3.19 In exercise of powers conferred on the respondent-Institute by clauses (c) and (d) of Sub-section (2) of Section 29A, read with Sub-section (4) of Section 21 and Sub-sections (2) and (4) of Section 21B of the 194....
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....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 appeals on merit and the same are dismissed as having become infructuous. However, in case any member is aggrieved of the existing guidelines and files a representation before the appellant, the appellant shall consider it and pass appropriate order, and if any member is aggrieved thereof whether he has made representation or not, would have right to challenge it before the appropriate forum. With the aforesaid observations, the appeals stand dismissed. Befo....
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.... 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. 32/2014, Section 3.6) Range of TARs issued Total Number of Accountants Percentage of Total Accountants 1-45 53,463 81.13 46-100 10,838 16.45 101-200 1,364 2.07 201-300 166 0.25 301-400 45 0.07 401-500 10 0.02 501-1000 11 0.02 > 1000 1 0 Total Accountants 65,898 100 Note: 81.13% adhered to the ceiling limit. Therefore, the CAG, at Section 3.11(d) Recommendations of the same Report recommended that the: d. Ministry may ensure limiting the tax audit assignments in order to ensure qua....
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....ive 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 of this Court, in T.P.(C) Nos. 2849-2859 of 2019, noting in paragraph 16 that the question involved was of public importance and necessitated a comprehensive settlement of the question of law, allowed the transfer petitions. Consequently, the writ petitions were withdrawn from the respective High Courts and transferred to this Court. Thereafter, by subsequent orders passed by this Court, all the identical writ petitions pending before various High Courts were transferred to this Court. That is why, all these transferred cases and the writ petitions filed under Article 32 of the Constitution of ....
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....rary 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 profession which is exclusive and special on its own merit without any kind of restriction except for a conduct amounting to misconduct within the rigours of the 1949 Act. As a consequence, petitioners contended that accepting a legitimate professional engagement by a professional can never be considered unprofessional or be considered a misconduct. 4.3 To highlight the arbitrariness of the restriction, it was contended on behalf of the petitioners that the restriction lacks any reasonable classification and reasonable nexus with the objects sought to be achieved. If the ceiling limit has been imposed on audits under Section 44AB, to achieve purity an....
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....e 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 the respondent-Institute. According to the petitioners, such a restriction ignores the differentiation in professional competence, sincerity, experience, ability and other factors that would enable a Chartered Accountant to complete more than the specified limit while simultaneously ensuring compliance with all quality standards. The petitioners also vehemently argued that all auditors cannot be assumed to take equal time in completing a tax audit and the consequential conclusion that a Chartered Accountant would be able to satisfactorily fulfil his obligations only up to specified tax audit assignments under Section 44AB of the IT Act, 1961 would be fallaciou....
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....he 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 identical Notification dated 13.01.1989, the same was in effect throughout the territory of India. It was held in Kusum Ingots & Alloys Ltd. as under: "22. The Court must have the requisite territorial jurisdiction. An order passed on a writ petition questioning the constitutionality of a parliamentary Act, whether interim or final keeping in view the provisions contained in clause (2) of Article 226 of the Constitution of India, will have effect throughout the territory of India subject of course to the applicability of the Act." 4.11 Challenge to procedural impropriety in issuance of the impugned Guidelines was also advanced by the petitioners. It was highlighte....
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....wn 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, 2022 by way of insertion of sub-clause (fa) and hence the impugned Guideline issued earlier in the year 2008 is without authority of law. Furthermore, it was contended that where Section 30B of the 1949 Act provides for power to make Regulations "for the purpose of carrying out the objects of the Act", subject to the following conditions: (i) prior approval of the Central Government under Sub-section (3) of Section 30 and (ii) the requirement under Section 30-B of laying the same before Parliament. The Council could not have circumvented the aforesaid mandatory safeguards by resorting to power under Section 15, especially when creating penal consequences. Reliance in this....
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....o 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 of the Government of India Act, 1935. That even if there were some safeguards and guardrails, the same could only be further emboldened. To buttress his submissions, learned counsel Sri Singh also laid emphasis on the judgment of a Constitution Bench of this Court in Aswini Kumar Ghose vs. Arabinda Bose, (1952) 2 SCC 237, ("Aswini Kumar Ghose") and Devata Prasad Singh Chaudhuri vs. Chief Justice and Judges of Patna High Court, (1962) 3 SCR 305, ("Devata Prasad Singh Chaudhuri"), to contend that a rule made by an authority to deny the right to exercise essential part of a function would be a serious invasion on the statutory right to practice. 4.19 Learned senior counsel, Sri Rajshekhar Rao, appear....
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....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 learned senior counsel, putting a cap on the tax audits to be undertaken by the Chartered Accountants under Section 44AB of the IT Act, 1961, would not in any way restrict the freedom envisaged under Article 19 (1) (g) of the Constitution of India. The said cap has been envisaged in public interest and therefore saved under Article 19 (6) of the Constitution of India. 5.1 Learned senior counsel Shri Datar submitted that all writ petitioners herein have breached the Guideline and undertaken more than the specified number of tax audits as envisaged, thereby clearly committing a misconduct. Therefore, they would have to face the disciplinary proceedings initiated by the respondent-Institute and cannot assail the ....
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....under. 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 authorities, consultation, audits under Section 44AF, audits under Section 141 (3) (g) of the Companies Act, etc. It was contended that the ceiling has been imposed only in respect of the statutory tax audits under Section 44AB of the IT Act, 1961, which form a class by themselves as they involve more time and effort and are significantly more onerous. 5.6 On the question of professional misconduct, respondent-Institute sought to argue that the expression 'professional misconduct' cannot be construed to mean only an irregularity or an act of lowering of dignity of the profession. Rather, the respondent-Institute being a regulatory body of professionals can define misconduct to control and penalize a deviation from the qua....
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..... 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 people and interfere only when the statute is clearly violative of the right conferred on the citizens under Part III of the Constitution. In addition to the foregoing, reliance was also placed on M/s Laxmi Khandsari vs. State of U.P., (1981) 2 SCC 600, ("M/s Laxmi Khandsari"), to submit that if the restrictions imposed appear to be consistent with the Directive Principles of State Policy in Part IV of the Constitution they would have to be upheld as the same would be in public interest and reasonable. Further, according to learned senior counsel, in judging the reasonableness, this Court should bear in mind that the present restriction is imposed in furtherance of Part IV of the Constitution. 5.11 Further reliance was also placed o....
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....oints 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, violative of the right guaranteed to Chartered Accountants under Article 19 (1) (g) of the Constitution? (iii) Whether the restrictions imposed are arbitrary and illegal and therefore, impermissible under Article 14 of the Constitution? (iv) Whether exceeding such specified number of tax audits can be deemed to be 'professional misconduct'? (v) What order? Legal Framework: 7. At this stage, the relevant provisions of the 1949 Act must be perused. The Government of India framed the Auditors Certificate Rules in 1932 in exercise of the powers conferred by Section 144 of the Indian Companies Act, 1913. While the accountancy profession in India was regulated under those Rules, in order to have a permanent regulation of accountancy profession, it was found ne....
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....stitute "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 extracted as under: "2. Interpretation.- (1) In this Act, unless there is anything repugnant in the subject or context,− x x x (b) "chartered accountant" means a person who is a member of the Institute; (c) "Council" means the Council of the Institute; x x x (e) "Institute" means the Institute of Chartered Accountants of India constituted under this Act; x x x (2) A member of the Institute shall be deemed "to be in practice", when individually or in partnership with chartered accountants in practice, or in partnership with members of such other recognised professions as may be prescribed, he, in consideration of remuneration received or to be received,− (i) engages himself in the practice of accountancy; or (ii) offers to perform or performs services involving the auditing or verification....
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.... 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 prohibit any such person from adding any other description or letters to his name, if entitled thereto, to indicate membership of such other Institute of accountancy, whether in India or elsewhere, as may be recognised in this behalf by the Council, or any other qualification that he may possess, or to prohibit a firm, all the partners of which are members of the Institute and in practice, from being known by its firm name as Chartered Accountants. x x x 9. Constitution of the Council of the Institute.- (1) There shall be a Council of the Institute for the management of the affairs of the Institute and for discharging the functions assigned to it under this Act. (2) The Council shall be composed of the following persons, namely :− (a) not more than thirty-two persons elected by the members of the Institute from amongst the fellows of the Institute chosen in such manner and from such regional constituencies as may be specified: Provided that a fell....
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....embers of the Council or in any other manner, of research in accountancy; (l) the maintenance of a library and publication of books and periodicals relating to accountancy; (m) to enable functioning of the Director (Discipline), the Board of Discipline, the Disciplinary Committee and the Appellate Authority constituted under the provisions of this Act; (n) to enable functioning of the Quality Review Board; (o) consideration of the recommendations of the Quality Review Board made under clause (a) of Section 28B and the details of action taken thereon in its annual report; and (p) to ensure the functioning of the Institute in accordance with the provisions of this Act and in performance of other statutory duties as may be entrusted to the Institute from time to time." 7.5 Clause (fa) was inserted by the 'Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Act, 2022' and the same reads as under: "15. Functions of Council.- (2) In particular, and without prejudice to the generality of the foregoing powers, the duties of the Council shall include - x x x (fa) to issue guidelines for the purpose of carrying out the objects of t....
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....aken for all the firms together in relation to such partner shall not exceed the "specified number of tax audit assignments" in the aggregate. Provided further that where any partner of a firm of Chartered Accountants in practice accepts one or more tax audit assignments in his individual capacity, the total number of such assignments which may be accepted by him shall not exceed the "specified number of tax audit assignments" in the aggregate. Provided also that the audits conducted under Section 44AD, 44AE and 44AF of the Income-tax Act, 1961 shall not be taken into account for the purpose of reckoning the "specified number of tax audit assignments". 6.1 Explanation: For the above purpose, "the specified number of tax audit assignments" means - (a) in the case of a Chartered Accountant in practice or a proprietary firm of Chartered Accountant, 45 tax audit assignments, in a financial year, whether in respect of corporate or non-corporate assesses. (b) in the case of firm of Chartered Accountants in practice, 45 tax audit assignments per partner in the firm, in a financial year, whether in respect of corporate or non-corporate assesses. 6.1.1 In computing the "specif....
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....tion to Chartered Accountants in practice while Part II deals with professional misconduct in relation to members of the Institute generally. Part III thereof refers to other misconduct in relation to members of the Institute generally. 7.8 The First Schedule has to be read as part of Sections 21 (3), 21A (3) and 22, while the Second Schedule has to be read as part of Sections 21 (3), 21B (3) and 22. In particular, what is relevant is with regard to a member of the Institute, whether in practice or not, contravening any of the provisions of the Act or the regulations made thereunder or any Guideline issued by the Council, who shall be deemed to be guilty of professional misconduct. What falls for interpretation in this batch of cases is the expression "any Guidelines issued by the Council". The Institute issued, inter alia, the Guidelines by Notification dated 08.08.2008. 7.9 According to the petitioners, the object of ensuring quality of audits would be served better by frequent reviews by the Quality Review Board established under Section 28A. The said section is reproduced as under: "28A. Establishment of Quality Review Board (1) The Central Government shall, by notificati....
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.... Section 30B deals with laying procedure before the Parliament and the same is extracted as under: "30B. Rules, regulations and notifications to be laid before Parliament Every rule and every regulation made and every notification issued under this Act shall be laid, as soon as may be after it is made or issued, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule, regulation or notification, or both Houses agree that the rule, regulation or notification should not be made or issued, the rule, regulation or notification, shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule, regulation or notification." 7.12 Chapter VIII of the Chartered Accountants Regulations, 1988, framed under the provisions of the 1949 Act, relate....
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....riment. For immediate reference, Section 44AB of the IT Act, 1961 as it stands presently is extracted as under: "44AB. Audit of accounts of certain persons carrying on business or profession.-Every person,- (a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year; Provided that in the case of a person whose- (a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and (b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment, this clause shall have effect as if for the words "one crore rupees", the words ten crore rupees had been substituted; or Provided further that for the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash. (b) carrying on profession shall, if h....
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....n the Explanation below sub-section (2) of section 288; (ii) "specified date", in relation to the accounts of the assessee of the previous year relevant to an assessment year, means date one month prior to the due date for furnishing the return of income under sub-section (1) of section 139." Discussion: 8. We have heard the matter at length and perused the compilations submitted by learned senior counsel and learned counsel and perused the material on record. 9. During the course of submissions, we observed that the catalyst for filing these writ petitions was the issuance of the communications/notices to the petitioners herein pursuant to the Guideline dated 08.08.2008, violation of which is a misconduct. Although by an amendment made to the said Guidelines, a new type of misconduct was envisaged, since the respondent-Institute had initially not taken any steps vis-à-vis the said misconduct, there was no challenge as such to the Guideline as well as amendment thereto in question by any of the petitioners herein. Admittedly, the writ petitioners have undertaken audits under Section 44AB of the IT Act, 1961 over and above the number of tax audits specified as per the Gu....
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....lege of being able to practise as a Chartered Accountant. 12.1 As held by this Court in Kerala Ayurveda Paramparya Vaidya Forum vs. State of Kerala, (2018) 6 SCC 648, ("Kerala Ayurveda Paramparya Vaidya Forum") a right to practice a profession is indeed an acknowledged fundamental right, but not unrestricted and is subject to any law imposing regulatory measures aiming to ensure standards of the profession and nature of public interest involved in the practice of the profession. Re: Point No. 1: 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? 13. We have perused the impugned Guideline dated 08.08.2008 which is extracted above. The same has to be read in the context of the respondent-Institute functioning under the overall control, guidance and supervision of the Council which means the Council of the Institute has to carry out the duties so as to achieve the objects of the Act as delineated in its various provisions of the....
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....fore, the deeming provision would imply that with the passage of time, there could be newer misconducts which could be included in the Schedules in the form of regulations or Guidelines. The Schedules are a part of the 1949 Act which has been passed by the Parliament. But bearing in mind the fact that in future, it may not always be possible for the Parliament to go on amending the Schedules to the Act so as to incorporate newer professional misconducts particularly with emerging technology and its applicability to the profession of Chartered Accountancy in India, Part II of Second Schedule by way of a foresight has delegated the power to the Council to make any regulation or Guideline, the breach of which would amount to a misconduct. This delegation to define and enumerate a misconduct by way of a regulation or a Guideline is a legislative device adopted by the Parliament so as to leave it to the discretion of the Council of the respondent-Institute to incorporate, define and insert a Guideline or a regulation, the breach of which would result in a misconduct committed by a Chartered Accountant. 13.2 The delegation of this power under Part II of the Second Schedule of the 1949 A....
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....uidelines dated 08.08.2008 by the respondent-Institute is hit by the vice of excessive delegation, is hence without substance. Accordingly, we answered the point No. 1. Re: Point No. 2: Whether the restrictions imposed are unreasonable and therefore, violative of the right guaranteed to Chartered Accountants under Article 19 (1) (g) of the Constitution? And, Re: Point No. 3: Whether the restrictions imposed are arbitrary and illegal and therefore, impermissible under Article 14 of the Constitution? 14. Before answering these points for ready reference and convenience, Article 19 (1) (g) and (6) are reproduced as under: "19. Protection of certain rights regarding freedom of speech, etc.- (1) All citizens shall have the right- x x x (g) to practise any profession, or to carry on any occupation, trade or business. x x x 6) Nothing in sub-clause (g) of the said clause shall affect the operation of any existing law in so far as it imposes, or prevent the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by the said sub-clause, and, in particular, nothing in the said sub-clause shall ....
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....ess of the quality and extent of the fetter upon the right." 17. On the scope of restrictions that may be imposed on fundamental rights, it is apposite to refer to Justice Holmes in Stephen Otis & Joseph F. Gassman vs. E. A. Parker, 187 U.S. 606 (1903); 1903 SCC OnLine US SC 22, ("Stephen Otis & Joseph F. Gassman"), wherein it was held that if the State thinks that an admitted evil cannot be prevented except by prohibiting a calling or transaction not in itself necessarily objectionable, the courts cannot interfere, unless in looking at the substance of the matter they can see that it 'is a clear, unmistakeable infringement of rights secured by the fundamental law.' 18. The respondent-Institute has placed reliance on the letter of CBDT and the CAG Report No. 32/2014 in order to satisfy us of the overwhelming need and appropriateness of the decision to place a ceiling limit as the best conceivable and practical measure at rectifying the targeted mischief. A perusal of the material on record reflects that the respondent-Institute's assertion that there is a probable link between the number of tax audits undertaken and the quality thereof is supported by concerns and suggestions sha....
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....oner from contesting elections did not prevent him from practising his profession of law and as such, the right to practice the profession of law under Article 19 (1) (g) did not imply the existence of a fundamental right in any person to stand as a candidate for election to the municipality. 21. Therefore, the present petitioners' assertion that the undertaking of more than a specified number of tax audit assignments would not imperil the integrity and quality of the tax audit does not persuade us because a reasonable possibility of the fall in quality owing to the surfeit of tax audit assignments exists. Therefore, we find it proper to trust the wisdom of the respondent-Institute as it has acted on bona fide and genuine recommendations of the CAG and the CBDT. We find no fault in the endeavour of the respondent-Institute to eliminate the possibility of the conduct of tax audits in an insincere, unethical or unprofessional manner. 22. Keeping the aforesaid in mind, there is no difficulty in concluding that by virtue of being a licensee, a privilege is conferred on Chartered Accountants. An elaborate and extensive process of recommendations and policy-making preceded the insertio....
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....as enacted by a competent legislature, it would nevertheless be liable for directly infringing the fundamental right of the petitioner guaranteed by Article 19 (1) (g) unless it is established that it seeks to impose reasonable restrictions in the interest of the general public and a less drastic restriction will not ensure the interest of the general public. It was reasoned that the judicial determination of the validity of the law imposing a prohibition on the carrying on of a business or profession should be informed by: a. an evaluation of the direct and immediate impact of the prohibition upon the fundamental rights of the citizens affected thereby; b. the larger public interest sought to be ensured in the light of the object sought to be achieved; c. the necessity to restrict the citizen's freedom; d. the inherently pernicious nature of the act prohibited or its capacity or tendency to be harmful to the general public; e. the possibility of achieving the object by imposing a less drastic restraint; and f. in the absence of exceptional exigent situations like the prevalence of a state of emergency national or local, the existence of a machinery to satisfy the a....
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....imposed by the State in the interests of public welfare and the other grounds mentioned in clause (6) of Article 19. But it may be emphasised that the Constitution does not recognise franchise or rights to business which are dependent on grants by the State or business affected by public interest (Saghir Ahmad v. State of U.P. [(1955) 1 SCR 707 : AIR 1954 SC 728] )." (emphasis by us) Therefore, it follows that this Court must consider the public interest involved not only from the perspective of the Chartered Accountants but rather from the perspective of the general public. In the present cases, it has been contended that public interest manifests as a benefit to the public exchequer in terms of appropriate quality of tax audit reports under Section 44AB. 25. At this juncture, it is useful to reiterate the thread of public interest visible in the 1949 Act since its inception. The Statement of Objects and Reasons of the 1949 Act makes it clear that the Act was brought in to ensure that accountants all over the country, in discharge of their public duties, are governed by a central body that is not transitional. Our words should not be mistakenly understood to suggest that the pr....
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....d that the right under Article 19 (1) (g) has been abridged. What follows is that when a privilege is being granted, as a privilege by statute, which could be effaced completely, a reasonable restriction could also be imposed, the latter being a restriction of a lesser degree than a complete ban on an activity. 28. On the scope of restrictions imposed to maintain quality of service where a privilege had been extended by the Government to medical officers, this Court, in Sukumar Mukherjee vs. State of W.B., (1993) 3 SCC 723, ("Sukumar Mukherjee"), held that the restriction was reasonable where the State of West Bengal had, vide Section 9 of the West Bengal State Health Service Act, 1990, prohibited private practice by members of W.B. Medical Education Service who were also teaching in medical institutions. It was held that where the State Government had concluded that the regime of permitting private practice of those teaching in medical institutions led to a considerable decline in quality of teaching, such restriction was reasonable and in the interest of general public as the ban on private-practice would make available to the teachers-doctors the time required for reading and r....
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....e. This argument was rejected, holding that once it is accepted that regulation of coir industry is in public interest, then it would be erroneous to assert that regulation must be introduced only on the basis of a qualitative test. This Court was mindful of the potential difficulties in introducing and effectively enforcing a qualitative test and thereby held that it would be for the rule-making authority to decide as to which test would meet the requirements of public interest and what method would be most expedient in controlling the industry for national good. This Court noted as under: "7. If it is conceded that the regulation of the coir industry is in the public interest, then it would be difficult to entertain the argument that the regulation or control must be introduced only on the basis of a qualitative test. It may well be that there are several difficulties in introducing and effectively enforcing the qualitative test. It is well known that granting permits or licences to export or import dealers on the basis of a quantitative test is not unknown in regard to export and import of essential commodities. It would obviously be for the rule-making authority to decide whi....
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....ws that the intention of the legislature is to encourage small traders to form co-operative societies and carry on export trade on behalf of such societies; and so it would not be possible to accept the argument that the impugned rules would lead to a monopoly in the trade. It is thus clear that the main object which the rules propose to achieve is to improve the anomalies and malpractices prevailing in the export trade of coir commodities and to put the said trade on a firm and enduring basis in the interest of national economy. We are, therefore, satisfied that the challenge to the impugned rules on the ground of infringement of Article 14 of the Constitution must also fail." (emphasis supplied) 31. The further contention that a quantitative test discriminates between persons carrying on business on a large scale and those who carry on business on a small scale as even the prescription of a qualitative test would also lead to hardship on those who cannot satisfy the test was rejected. 32. We must also now consider further arguments advanced by learned senior counsel and counsel for the petitioners. Heavy reliance placed on Institute of Chartered Financial Analysts of India, in....
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.... explain the background and importance of such places as well as acquaint the tourists with the historical facts relating to the monuments and landmarks of the area after they attained the age of sixty years, was assailed. Clause 17 stated that "when a guide attains the age of 60 years the identity card issued to him or her will not be renewed further". This was unsuccessfully challenged by way of a writ petition under Article 226 of the Constitution before the Allahabad High Court. But, this Court observed that the freedom guaranteed under Article 19 (1) (g) of the Constitution is valuable and cannot be violated on grounds which are not established to be in public interest or just on the basis that it is permissible to do so. For placing a complete prohibition on any professional activity, there must exist some strong reason for the same with a view to attain some legitimate object and non-imposition of such prohibition might result in jeopardizing or seriously affecting the interest of the people in general. Otherwise, it would not be a reasonable restriction. We do not have any contrary opinion to what has been observed by this Court in the aforesaid judgment but the facts of ea....
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....r per day was introduced. After analysing the inconvenience that would be caused to the cine-goers and also the fact that if the five shows were exhibited from 10 am to 1 am the next day, there would be great inconvenience caused to the public, the State Government had promulgated the restriction to only four shows in a day. Consequently, the said Rule was upheld by this Court by observing that it was intra vires the Act as it carried out the purposes of the Act and it did not place any unreasonable restriction in violation of Article 19 (1) (g) of the Constitution. Consequently, this Court dismissed the appeals as well as the writ petitions. (c) In T. Velayudhan Achari, Section 45-S (1) as introduced by Banking Laws (Amendment) Act, 1983 limiting the number of depositors that can be accepted by individual, firm or unincorporated association, was held to be not violative of Article 19 (1) (g) of the Constitution as the said limitation protected larger interest of depositors. It was observed that a ceiling for acceptance of deposits and to require maintenance of certain liquidity of funds as well as not to exceed borrowings beyond a particular percentage of the net-owned funds had....
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....nd (b) in any other case, twenty companies, out of which not more than ten shall be companies each of which has paid-up share capital of rupees twenty-five lakh or more. Explanation-II states that in computing the specified number, the number of companies in respect of which or any part of which any person or firm has been appointed as an auditor, whether singly or in combination with any other person or firm, shall be taken into account. 36. The restriction placed under Section 224 of the Companies Act, 1956 with regard to the number of companies which could be audited by an auditor or firm of auditors is also an instance of regulation of the profession of Chartered Accountants intended by the Parliament so as to ensure that standard and quality in the audit of accounts of companies as defined under Section 3 of the Companies Act, 1956 are maintained. This is to protect the rights and interest of the shareholders as well as the investors in the companies. Any omission or inadvertence in the auditing of such company accounts would inevitably have an adverse impact not only on the balance-sheets of the companies but also on the potential investments and growth of the companies. The....
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....imilar Guideline being successfully assailed and during the pendency of the matter before this Court the impugned Guideline being enforced and selective implementation of the same by the respondent-Institute. Relying on the dictum of this Court in Chamundi Mopeds, the petitioners contended that a stay on the judgment of Madras High Court was only on the operation of the judgment and not a declaration that the judgment was bad in law. As the special leave petition impugning the judgment of Madras High Court was dismissed as infructuous and any action taken by the respondent-Institute on the superseding Guideline dated 08.08.2008 was taken only belatedly, we find force in the submission that there was uncertainty in law only in the context of the pendency of the matter before this Court on there being quashing of the Guideline by the Madras High Court and an interim stay of the said judgment by this Court. 40. In this regard, we may refer to Halsbury Laws of England, [5th Edn. Volume 96 (2018)] dealing with the principle against doubtful penalisation: "774. Principle Against Doubtful Penalisation "It is a principle of legal policy that a person should not be penalised except und....
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....t held as follows: "4. We are of the view that there was uncertainty about the law until the decision in the case of Kasinka Trading [(1995) 1 SCC 274 : JT (1994) 7 SC 362] was rendered on 18-10-1994, and that, therefore, interest from the date it became payable until 18-10-1994, should be payable at the rate of 12% per annum. Interest for the further period should be at the rate of 17.5% per annum, as ordered by the High Court. Calculations shall be made accordingly and the balance and interest as aforesaid due by the appellants shall be paid to the respondents within 8 weeks." (emphasis supplied) 45. We, therefore, find much force in the alternative plea made by the petitioners herein. In these circumstances, due to the uncertainty in law owing to quashing of the earlier Guideline and the pendency of the Special Leave Petition filed by the respondent-Institute before this Court and the enforcement of a fresh Guideline, we quash the disciplinary proceedings initiated against the petitioners herein. This is for the simple reason that only the writ petitioners have been proceeded against, while even according to the respondent-Institute, there were around twelve thousand Charter....
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....dibility of the examinations. The financial skills of the aspirants are fairly consolidated, at the time of joining the profession itself-this is owing to the robust examination pattern. We commend that the respondent-Institute must be committed towards convergence of accounting, auditing and ethical standards with international practices and for its endeavour towards securing the highest standards of corporate governance. The true test however, lies in application and enforcement of these standards in the Indian context. 49. The power to control and impose taxes is a cornerstone of State sovereignty. Welfare States impose taxes to generate revenue that enables investment in human capital, infrastructure and services for citizens and businesses. The Tax Law landscape in India has been one of the most dynamic areas of law and has witnessed several changes over the last few decades. The Taxation Systems in India have been periodically assessed and several changes have been brought about from time to time. Such changes have been introduced with a view to either widen the tax base; to simplify and rationalise laws and procedures; to bring about modernization through computerization of....
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....owards this community for accurate information, which ensures market discipline and fosters confidence of various stakeholders. The onus is on Chartered Accountants to ensure that our Nation's businesses do indeed conform to high corporate governance standards. Further, while the quality of information has immediate and far-reaching implications for a particular enterprise, it eventually permeates to the market and the economy as a whole. It is therefore not surprising to find that the accounting profession is being constantly challenged to meet the demands for quality information. As key providers and verifiers of information, the bottom-line is simple: the higher the quality and integrity maintained by the profession, the stronger and more resilient will our markets be. By providing the foundation for compilation of credible financial statements, the accounting profession facilitates market discipline, engenders confidence among various stakeholders and reduces the possibility of misleading information that can disrupt stability of financial systems. Therefore, the need for quality assessments particularly under Section 44AB of the IT Act, 1961. 49.4 In the public discourse on g....