1998 (7) TMI 62 - HC - Income Tax

Chartered Accountant, Professional Misconduct, Tax Audits, Minimum Fees, Notification Of ICAI Council

Summary

Issues Involved:
1. Constitutionality and legality of the notification dated January 13, 1989, limiting the number of tax audit assignments.
2. Constitutionality and legality of the notification dated May 25, 1987, prescribing minimum audit fees for partnerships of chartered accountants.

Detailed Analysis:

Issue 1: Limiting the Number of Tax Audit Assignments (Notification dated January 13, 1989)
The petitioner challenges the notification under W. P. No. 5925 of 1989, which limits the number of tax audit assignments a chartered accountant can accept in a financial year to 30. The petitioner argues that this restriction affects his fundamental right to carry on his profession under Article 19(1)(g) of the Constitution. The court notes that the main object of the Chartered Accountants Act, 1949, is to regulate the conduct of its members. However, the restriction on the number of assignments is deemed arbitrary and unreasonable, as it lacks a reasonable classification and nexus with the Act's purpose.

The court highlights that the Act and the Rules are intended to ensure professional standards and integrity, not to limit the volume of work a professional can undertake. The court finds that the restriction places an unnecessary burden on chartered accountants, potentially leading to unemployment for part of the year if they complete their assignments early. The court dismisses the argument that the restriction ensures equitable distribution of work among junior practitioners, stating that such distribution is not mandated by the Act.

Issue 2: Prescribing Minimum Audit Fees (Notification dated May 25, 1987)
The petitioner also challenges the notification under W. P. No. 5926 of 1989, which prescribes minimum audit fees for partnerships of chartered accountants based on the population of the area and the number of partners. The petitioner contends that this notification is unconstitutional and illegal as it affects his right to carry on his profession under Article 19(1)(g) of the Constitution.

The court agrees with the petitioner, stating that charging fees is a matter of professional discretion and cannot be controlled by deeming it professional misconduct. The court finds that the notification's classification based on population and the number of partners is arbitrary and has no rational nexus with the Act's purpose. The court also notes that the notification does not consider the varying nature of audit work, which may not always justify the prescribed minimum fees.

The court further observes that the notification leads to discrimination among members of the Institute, as it imposes restrictions on partnerships but not on individual chartered accountants. This, the court concludes, violates Article 14 of the Constitution.

Conclusion:
The court finds both notifications to be unconstitutional, arbitrary, and illegal. The notifications are quashed, and both writ petitions are allowed. The court emphasizes that the restrictions imposed by the notifications are unreasonable and discriminatory, affecting the fundamental rights of chartered accountants to practice their profession freely.