1989 (8) TMI 18 - HC - Income Tax

Summary

Issues Involved:
1. Constitutionality of Section 44AB of the Income-tax Act, 1961.
2. Alleged discrimination against non-chartered accountants.
3. Alleged violation of Article 14 (Right to Equality) and Article 19(1)(g) (Right to Practice Profession) of the Constitution of India.

Detailed Analysis:

1. Constitutionality of Section 44AB of the Income-tax Act, 1961:
The petitioners challenged the constitutionality of Section 44AB, which mandates the audit of accounts by chartered accountants for certain assessees. They argued that this section imposes an unreasonable restriction on their profession and discriminates against non-chartered accountants.

The court held that the introduction of Section 44AB by the Finance Act, 1984, was aimed at ensuring proper maintenance of accounts, detecting fraudulent practices, and facilitating tax administration. The court referred to the objects and reasons for the introduction of this section, emphasizing that it was intended to ensure that the books of account reflect the true income of the taxpayer and to aid in the efficient administration of tax laws.

2. Alleged Discrimination Against Non-Chartered Accountants:
The petitioners argued that Section 44AB discriminates against non-chartered accountants by excluding them from auditing accounts of assessees whose turnover exceeds forty lakh rupees or whose gross receipts exceed ten lakh rupees. They claimed that this classification is arbitrary and irrational.

The court rejected this argument, stating that auditing is a specialized job requiring specific skills and knowledge, which chartered accountants possess. The court noted that while some income-tax practitioners might acquire auditing skills through practice, it is within the legislative competence of Parliament to prescribe special qualifications for auditing accounts. The court cited several judgments, including Mohan Trading Co. v. Union of India and Rajkot Engineering Association v. Union of India, which upheld the validity of Section 44AB and rejected similar contentions.

3. Alleged Violation of Article 14 and Article 19(1)(g) of the Constitution:
The petitioners contended that Section 44AB violates Article 14 (Right to Equality) and Article 19(1)(g) (Right to Practice Profession) of the Constitution. They argued that the section imposes an unreasonable restriction on their right to practice their profession and discriminates against them in favor of chartered accountants.

The court held that the classification made by Section 44AB is reasonable and based on intelligible differentia. The court emphasized that chartered accountants constitute a distinct class with specialized qualifications for auditing accounts. The court also noted that the provision does not preclude assessees from seeking advice from legal practitioners or income-tax practitioners for preparing their returns or representing them before the income-tax authorities. The court cited judgments from various High Courts, including the Madhya Pradesh High Court, Karnataka High Court, and Gujarat High Court, which upheld the validity of Section 44AB and rejected the contention that it violates Articles 14 and 19(1)(g).

Conclusion:
The court dismissed all the writ petitions, upholding the validity of Section 44AB of the Income-tax Act, 1961. The court found no merit in the arguments that the section is unconstitutional or discriminatory. The court granted leave to appeal to the Supreme Court.