Shaji Poulose v. Institute of Chartered Accountants of India & Others

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presentation or certification of financial facts or data: or (iv) renders such other services as, in the opinion of the Council are or may be rendered by a chartered accountant in practice; and the words “to be in practice” with their grammatical variations and cognate expressions shall be construed accordingly. Explanation.− An associate or a fellow of the Institute who is a salaried employee of a chartered accountant in practice or a firm of such chartered accountants or firm consisting of one or more chartered accountants and members of any other professional body having prescribed qualifications shall, notwithstanding such employment, be deemed to be in practice for the limited purpose of the training of articled assistants.” 7.4 Section 3 deals with incorporation of Institute of Chartered Accountants of India while Section 7 states that every member of the Institute is to be known as Chartered Accountant. Vide Section 9, the Council of the Institute is constituted for the management of the affairs of the Institute and for discharging the functions assigned to it under the Act and its 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,

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hold and dispose of property, both movable and immovable, and shall by its name sue or be sued. xxx

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 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. xxx

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 fellow of the Institute, who has been found guilty of any professional or other misconduct and whose name is removed from the Register or has

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been awarded penalty of fine, shall not be eligible to contest the election,− (i) in case of misconduct falling under the First Schedule of this Act, for a period of three years; (ii) in case of misconduct falling under the Second Schedule of this Act, for a period of six years, from the completion of the period of removal of name from the Register or payment of fine, as the case may be; (b) not more than eight persons to be nominated in the specified manner, by the Central Government. (3) No person holding a post under the Central Government or a State Government shall be eligible for election to the Council under clause (a) of sub- section (2). (4) No person who has been auditor of the Institute shall be eligible for election to the Council under clause (a) of sub-section (2), for a period of three years after he ceases to be an auditor. xxx

15. Functions of Council.- (1) The Institute shall function under the overall control, guidance and supervision of the Council and the duty of carrying out the provisions of this Act shall be vested in the Council. (2) In particular, and without prejudice to the generality of the foregoing powers, the duties of 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;

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(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 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.”

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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 – xxx (fa) to issue guidelines for the purpose of carrying out the objects of this Act;” 7.6 Chapter V of the 1949 Act deals with Misconduct. Section 22 defines professional or other misconduct as under: “22. Professional or other misconduct defined.- For the purposes of this Act, the expression “professional or other misconduct” shall be deemed to include any act or omission provided in any of the Schedules, but nothing in this Section 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.” Section 22 of the 1949 Act defines “professional or other misconduct” to include any act or omission provided in any of the Schedules to the Act. Clause (1) of Part II of the Second Schedule to the Act stipulates that a member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct if he contravenes any of the provisions of the Act or the regulations made thereunder or any Guidelines issued by the Council of the respondent-Institute. For immediate reference the same reads as under: “PART II: Professional misconduct 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 –

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(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 Accountants in practice, the number of tax audit assignments which may be taken 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

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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 “specified number of tax audit assignments” each year’s audit would be taken as a separate assignment. 6.1.2 In computing the “specified number of tax audit assignments”, the number of such assignments, which he or any partner of his firm has accepted whether singly or in combination with any other Chartered Accountant in practice or firm of such Chartered Accountants, shall be taken into account. 6.1.3 The audit of the head office and branch offices of a concern shall be regarded as one tax audit assignment. 6.1.4 The audit of one or more branches of the same concern by one Chartered Accountant in practice shall be construed as only one tax audit assignment. 6.1.5 A Chartered Accountant being a part time practicing partner of a firm shall not be taken into account for the purpose of reckoning the tax audit assignments of the firm.

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6.1.6 A Chartered Accountant in practice shall maintain a record of the tax audit assignments accepted by him relating to each financial year in the format as may be prescribed by the Council.” The 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 IV deals with other misconduct in relation to members of the Institute generally. Part I of the Second Schedule speaks about professional misconduct in relation 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

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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 notification, constitute a Quality Review Board consisting of a Chairperson and ten other members. (2) The Chairperson and members of the Board shall be appointed from amongst the persons of eminence having experience in the field of law, economics, business, finance or accountancy. (3) Five members of the Board shall be nominated by the Council and other five members shall be nominated by the Central Government.” 7.10 Section 30 gives the Council of respondent-Institute the power to make regulations to fulfil its functions and duties. For ease of reference, relevant portions of Section 30 read as under: “30. Power to make regulations (1) The Council may, by notification in the “Gazette of India”, make regulations for the purpose of carrying out the objects of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters :− (a) the standard and conduct of examinations under this Act; (b) the qualifications for the entry of the name of any person in the Register as a member of the Institute;

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(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; xxx (k) the regulation and maintenance of the status and standard of professional qualifications of members of the Institute; xxx (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 Government may frame the first regulations for the purposes mentioned in this Section, and such regulations shall be deemed to have been made by the Council, and shall remain in force from the date of the coming into force of this Act, until they are amended, altered or revoked by the Council.” 7.11 Section 30B deals with laying procedure before the Parliament and the same is extracted as under:

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“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, relates to ‘Meetings and Proceedings of the Council’. Regulation 163 provides that the President of the respondent-Institute will assume the Chairmanship of the Council. Regulation 166 prescribes the manner of passing of resolution at a meeting. The aforesaid regulations are reproduced as under: “163. Chairman of meeting At a meeting of the Council, the President, or in his absence the Vice-President, shall preside, or in the absence of both, a member elected from among the members who are present, shall preside. xxx

166. Passing of resolution at a meeting At a meeting of the Council, a resolution shall be passed by a majority of the members present unless otherwise require by the Act or these Regulations,

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and in the case of equality of votes, the Chairman of the meeting shall have a casting vote.” 7.13 The Council of the respondent-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 verified by such Chartered Accountant. The said provision is popularly called “compulsory tax audits”. The object and purpose of Section 44AB is to prevent evasion of taxes, plug loopholes enabling tax avoidance and also facilitate tax administration, which would ensure that the economic system does not result in concentration of wealth to the common detriment. 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;

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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 his gross receipts in profession exceed fifty lakh rupees in any previous year; or (c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or (d) carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount

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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 shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section. Explanation.—For the purposes of this section,— (i) “accountant” shall have the same meaning as in the Explanation below sub-section (2) of section 288;

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(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:

8Copy pinpoint8. 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.

9Copy pinpoint9. 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 Guidelines dated 08.08.2008. Thereby, it is in the guise of challenging the disciplinary proceedings initiated by the respondent-Institute against the petitioners herein for conducting the audits over and above the specified number of tax audits that has led to the constitutional challenge to the Guidelines as well as to the disciplinary proceedings.

10Copy pinpoint10. This challenge is on three grounds: first, the manner in which the Guideline was brought about was not in accordance with law; second, that the Guideline is violative of Article 19(1)(g) of the Constitution of India and not protected by Article 19(6) thereof and third, the Guideline which constitutes a misconduct within Clause (c) of Part II of the Second Schedule to 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.

11Copy pinpoint11. 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

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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.

12Copy pinpoint12. 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 rendered by Chartered Accountants, this Court observed at para 34 that a Chartered Accountant or a Cost Accountant obtains a license or a privilege from the competent body to practise. We find ourselves in agreement with this observation. Reading along with Section 2(1)(b) of the 1949 Act which defines a Chartered Accountant as a person who is a member of the respondent-Institute, we find it right to infer that a member of the respondent-Institute is conferred with the privilege 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?

13Copy pinpoint13. 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

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the Act as delineated in its various provisions of the 1949 Act, vide Section 15. The power vested in the Council is general insofar as the carrying out the provision of the Act is concerned and in particular and without prejudice to the generality of the aforesaid powers, certain duties have been specifically delineated. This is evident on a reading of sub-sections (1) and (2) of Section 15 of the 1949 Act. One of the objects of the 1949 Act is to ensure that the profession of the Chartered Accountant in the country maintains high professional ethics and renders quality service inasmuch as Chartered Accountants are absolutely necessary for the efficient tax administration in the country. That on account of their services, the onerous duties cast on the assessing 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 defined by a deeming provision which implies that the Schedules which have enumerated various kinds of misconducts are not exhaustive or static. With the passage of decades and with the emerging varieties of misdemeanour, omissions or commissions of Chartered Accountants which are not in consonance with professional ethics and would amount to misconduct can be defined under the Schedules so as to ensure quality service being rendered by the Chartered Accountants as professionals. Therefore, the deeming provision

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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 Act made by Parliament in favour of the Council of the respondent-Institute cannot be faulted with. This is on account of the fact that the 1949 Act itself defines certain types of misconduct vis-à-vis a Chartered Accountant. But in the year 1949, the Parliament could not have envisaged every possible variety or type of commission or omission which could be a misconduct by a Chartered Accountant. Therefore, the delegation has been made by the Parliament to the Council of the respondent-Institute to make regulations or Guidelines, the breach of which would result in a professional misconduct. The aforesaid delegation of the Parliament to the Council of the respondent-Institute is clearly to define possible 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

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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 an assessment year. Therefore, the Council of the respondent-Institute having the legal competence to frame the Guidelines, the breach of which would result in professional misconduct, in terms of clause 1 of Part II of the Second Schedule of the 1949 Act cannot be held to be vitiated on account of there being lack of competency or powers to frame the impugned Guideline by the Council of the respondent-Institute. The argument advanced by the petitioners regarding the issuance of the Guidelines 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?

14Copy pinpoint14. 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— xxx

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(g) to practise any profession, or to carry on any occupation, trade or business. xxx 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 affect the operation of any existing law in so far as it relates to, or prevent the State from making any law relating to,— (i) the professional or technical qualifications necessary for practising any profession or carrying on any occupation, trade or business, or (ii) the carrying on by the State, or by a corporation owned or controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise.”

15Copy pinpoint15. Firstly, Article 19(6) of the Constitution empowers the State to impose reasonable restrictions upon the freedom of trade, business, occupation or profession in the 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”).

16Copy pinpoint16. The ambit of reasonable restrictions on the exercise of rights under Article 19(1)(g) in the interest of the general public under Article

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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, which required the industries to pay compensation on closure of their undertakings: “10. …Whether an impugned provision imposing a fetter on the exercise of the fundamental right guaranteed by Article 19(1)(g) amounts to a reasonable restriction imposed in the interest of the general public must be adjudged not in the background of any theoretical standards or pre- determinate patterns, but in the light of the nature and incidents of the right the interest of the general public sought to be secured by imposing the restriction and the reasonableness of the quality and extent of the fetter upon the right.”

17Copy pinpoint17. 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.’

18Copy pinpoint18. 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 shared by experts and practitioners over a span of time extending over thirty years. In fact, the preceding sentiment is evidenced by both CBDT’s letter dated 19.01.1988 seeking views of the respondent-Institute on the imposition of a limit and the CAG’s Report presented to the Parliament on 19.12.2014 discussed above.

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19Copy pinpoint19. Following the dicta of the Constitution Bench of this Court in Saghir Ahmad vs. State of U.P., (1954) 2 SCC 399 (“Saghir Ahmad”), the burden to establish that the instantiation of the specified number of tax audit assignments was within the purview of the exception laid down in Article 19(6) is on the respondent-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.

20Copy pinpoint20. 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 his position to obtain municipal briefs, get unreasonable fees sanctioned or compromise the interests of the municipality while acting on behalf of private parties. What is of pertinence here is that this Court was alive to the fact that cases of misuse may be an exception because lawyers would be loathe to stoop to such tactics, yet, it upheld the restriction because it sought to prevent a possible abhorrent misconduct and malpractice that would be corrosive to public life. The reasoning in Sakhawant Ali was to the effect that disqualification of a legal practitioner 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.

21Copy pinpoint21. 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

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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.

22Copy pinpoint22. 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 insertion of Section 44AB in order to achieve the public interest of prevention of tax leakages and more efficient tax administration. It is in pursuance of this primary goal of public interest that a further privilege under Section 44AB was extended to Chartered Accountants to conduct quality tax audits, so as to enable the interest of the public exchequer.

23Copy pinpoint23. The present discussion would be enriched by a comparative discourse on State regulation of licensed professions as under: (i) Justice Powell, in Ohralik vs. Ohio State Bar Association, 436 U.S. 447 (1978), (“Ohralik”), held that the State’s interests implicated 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

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of administering justice, and have historically been ‘officers of the courts.’”

24Copy pinpoint24. We now look at how this Court has understood public interest in matters pertaining to abridgment of Article 19(1)(g). (i) A Constitution Bench of this Court, through JC Shah J, in Mohd. Faruk vs. State of M.P., (1969) 1 SCC 853, held that the Notification issued by the State Government prohibiting the slaughter of bulls and bullocks in premises maintained by a local authority infringed upon the right to freedom of profession under Article 19(1)(g) of the Constitution. This Court had emphasized that even though such a Notification may be issued under the authority of law that was 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 administrative authority that no case for imposing the restriction is made out or that a less drastic restriction may ensure the object intended to be achieved.

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(ii) A reasonable restriction, within the meaning of Article 19(6) must also be ‘in the interests of the general public.’ Our Constitution, by establishing a welfare State, emphasises a fine balance between the public interest of the community and the liberties of the individual. Indeed, this is not to say that individual rights and liberties are not a matter of vital public interest 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 nature of right alleged to have been infringed, the underlying purpose of the restriction imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, enter into judicial verdict (Laxmi Khandsari v. State of U.P. [(1981) 2 SCC 600 : AIR 1981 SC 873] ; D.K. Trivedi and Sons v. State of Gujarat [1986 Supp SCC 20] and Harakchand Ratanchand Banthia v. Union of India [(1969) 2 SCC 166 : AIR 1970 SC 1453] ).

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28. Under clause (1)(g) of Article 19, every citizen has a freedom and right to choose his own employment or take up any trade or calling subject only to the limits as may be 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.

25Copy pinpoint25. 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 profession of Chartered Accountants is not a private enterprise and is concerned solely with rendering of public duties. We rather only highlight that it is a profession – licensed by the State – that also discharges public duties crucial in public interest.

26Copy pinpoint26. In our opinion, a perusal of the Wanchoo Committee Report, Finance Bill, 1984 and the accompanying Memorandum makes it explicitly clear that the intent of insertion of Section 44AB of the IT Act, 1961, was to facilitate the process of tax administration 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

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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.

27Copy pinpoint27. 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 audit. We have already observed and noted that Section 44AB, IT Act, 1961 was inserted to assist the Revenue Department in public. Thereby, it is only through the extension of statutory privilege by the presence of Section 44AB, IT Act, 1961, that a Chartered Accountant gets the opportunity to undertake tax audits under the said section. If the Parliament, in its wisdom, at a certain future date, due to technological developments or any other reason, finds that expeditious and accurate assessments can be ensured without imposing on assessees the burden of additional requirement of tax audit report and thereby deletes Section 44AB from the IT Act, 1961, it could not be possibly argued 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.

28Copy pinpoint28. 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

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make available to the teachers-doctors the time required for reading and research which was absolutely essential for maintaining quality in their main profession as teachers in medicine. Furthermore, where for a brief period, in the facts of that case, private practice by teaching post-holders was also permitted and then withdrawn, this Court held that such an extension was only a privilege extended on people who were regulated by the relevant Act and rules made thereunder and therefore, the revocation of that privilege was not the violation of any right.

29Copy pinpoint29. Where public interest 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.

30Copy pinpoint30. 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 Act, 1953, finding it expedient in public interest that the Union should take under its control the coir industry as several malpractices had crept in the export trade such as non-fulfilment of contracts, supplying goods of inferior quality in an industry crucial to the repute of India’s products and national economy. With the intent of limiting these losses due to qualitative underperformance, the Central Government, under powers conferred by the statute, framed Rules in 1958. The Rules were assailed by the petitioner therein, contending that they erroneously prescribed a quantitative test for registration of established exporters, when in fact, a qualitative test would be more suitable. 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

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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 which test would meet the requirements of public interest and what method would be most expedient in controlling the industry for the national good. Besides, even the adoption of a qualitative test may tend to extinguish the trade of those who do not satisfy the said test; but such a result cannot obviously be treated as contravening the fundamental rights under Article 19. Control and regulation of any trade, though reasonable within the meaning of Article 19, sub-Article (6), may in some cases lead 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

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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 Indian traders; and one of the main reasons which led to this unfortunate result was that exporters sometimes accepted orders far beyond their capacity and that inevitably led to non-fulfilment of contracts or to supply of inferior commodities. In order to remedy this position the trade had to be regulated and so the intending exporter was required to satisfy the test of the prescribed minimum capacity and to establish the prescribed minimum status before his application for registration is granted. In this connection it may also be relevant to point out that the rules seem to contemplate the granting of exemption from the operation of some of the relevant tests to cooperative societies; and that shows 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)

31Copy pinpoint31. 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.

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32Copy pinpoint32. 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 our considered opinion, is misplaced. This case concerned whether acquisition of an additional qualification of Chartered Financial Analyst (“CFA”) by a Chartered Accountant could be termed as professional misconduct under Section 22 of the 1949 Act. Holding in the negative, this Court found that enhancement of knowledge, training and ability should be encouraged in an emerging economy and to term the same as professional misconduct would be violative of Articles 14 and 19(1)(g). 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.

33Copy pinpoint33. 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 unreasonable vide Minerva Talkies which we shall discuss later. Where the devolution of a privilege is justifiably restricted in public interest and such restriction has a rational nexus with the objects sought to be achieved, the restriction cannot be held unreasonable due to hardship faced by a certain section of professionals.

34Copy pinpoint34. The following judgments of this Court are also apposite: (a) In B.P. Sharma, clause 17 of the instructions issued in 1979 by the Ministry of Tourism and Civil Aviation, Department of Tourism, Government of India prohibiting the renewal of identity cards to guides who were carrying on the job of conducting tourists

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to historical monuments and other places of interest and to 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 each case would ultimately decide whether, a complete prohibition, ban or restriction is a reasonable one or not depending upon the public interest it would seek to achieve. In the aforesaid case clause 17 of the instructions was held to be ultra vires Article 19(1)(g) and hence, quashed by this Court. (b) In Minerva Talkies, Rule 41-A of Karnataka Cinemas (Regulations) Rules, 1971 made under Section 19 of the Karnataka Cinemas (Regulation) Act, 1964 limiting the 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

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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 four shows, it was noted that holding of continuous five shows from 10 am in the morning caused great inconvenience to the incoming and outgoing cine-goers and endangered public safety. A short interval of fifteen minutes between two shows is too little time for cleaning the cinema halls and there was also rush by the cine-goers to occupy the seats. Moreover, licensees would start exhibiting approved films and slides before the cine-goers could occupy their seats, with the result they would not have the benefit of the same. The absence of interval between the shows resulted in denial of fresh air, ventilation and cleanliness in the cinema halls. In order to remove these maladies, the restriction on the number of shows to four 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 been provided

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in the corporate sector. But for these safeguards, the depositors would be left high and dry without any remedy. It was held that the restrictions were reasonable and were in the public interest. (d) In B.K. Kamath, Kurian Joseph J. (as a Judge of the Kerala High Court), observed that the Chartered Accountants Act was enacted for regulating the profession and in the process regulating and maintaining the status of the Chartered Accountants. 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 and Advocates by the petitioners is also inappropriate.

35Copy pinpoint35. It is also noted that under Section 224 of the Companies Act, 1956 which deals with appointment and remuneration of auditors, there is a bar with regard to appointment or reappointment of any person as an auditor of a company, if such person or firm of auditors is, at the date of such appointment or reappointment, holding appointment as auditor of specified number of companies or more than the specified number of companies. Explanation (1) to Section 224 defines specified number to mean (a) in the case of a person or firm holding appointment as auditor of a number of companies each of which has paid-up share capital of less than rupees twenty-five lakh, twenty such companies; and (b) in any other case, twenty companies, out of which not more than ten shall be companies each of which has paid-up

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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.

36Copy pinpoint36. 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. There has not been any challenge to the said regulation which is in the form of a restriction. Any breach of the restriction placed on the Chartered Accountants under Section 224 may lead to misconduct under the provision of 1949 Act.

37Copy pinpoint37. It is for the foregoing reasons that we find that questions (i), (ii) and (iii) ought to be held in favour of the respondent-Institute. Re: Point No.4: Whether exceeding such specified number of tax audits can be deemed to be ‘professional misconduct’?

38Copy pinpoint38. 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

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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 a sudden there could not have been initiation of disciplinary proceedings only against the petitioners herein and possibly others who may not have approached any court of law, whereas many other Chartered Accountants have not been proceeded against and are virtually scot-free. Therefore, there is discrimination and violation of Article 14 of the Constitution of India herein in the implementation of the Guideline vide Notification dated 08.08.2008. Therefore, pending full and effective implementation of the Guideline impugned herein of the impugned proceedings against the petitioners herein for the alleged misconduct on their part for violating the Guideline may be dropped.

39Copy pinpoint39. It is observed that there has been an uncertainty in law due to a similar 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.

40Copy pinpoint40. 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 under clear law, …”

41Copy pinpoint41. Francis Bennion on Statutory Interpretation (8th Edn, 2020 at Section 26.4) deals with principle against doubtful penalisation in the following words:

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“It is a principle of legal policy that a person should not be penalised except under clear law. This principle forms part of the context against which legislation is enacted and, when interpreting legislation, a court should take it into account.”

42Copy pinpoint42. 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.

43Copy pinpoint43. 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 similarly situated Chartered Accountants who may not have been proceeded against.

44Copy pinpoint44. Reference may also be made to judgment of this Court in Jindal Paper & Plastics vs. Union of India, (1997) 10 SCC 536, (“Jindal Paper & Plastics”) wherein the question on merits was settled by a judgment of this Court in Kasinka Trading vs. Union of India, (1995) 1 SCC 274, (“Kasinka Trading”), delivered on 18.10.1994 and a larger bench on 20.12.1996 concluded that the judgment dated 18.10.1994 was good law. This Court allowed the petitioner’s prayer therein that for the period of uncertainty in law, i.e., until the law, on merits, was settled by this Court on 18.10.1994, a lesser interest rate of 12% be charged instead of 17.5%, as ordered by the High Court. In these circumstances, this Court held as follows: “4. We are of the view that there was uncertainty about the law until the decision in the case of Kasinka

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Shaji Poulose v. Institute of Chartered Accountants of India & Others

45Copy pinpoint45. 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 Chartered Accountants who had breached the Guideline and had undertaken tax audits over and above the specified number but no action whatsoever was initiated against of them.

46Copy pinpoint46. In conclusion, we must also note the dictum in Malpe Vishwanath Acharya vs. State of Maharashtra, (1998) 2 SCC 1, (“Malpe Vishwanath Acharya”), wherein this Court, relying on Motor General Traders vs. State of A.P., (1984) 1 SCC 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

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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

47Copy pinpoint47. 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, liberty is reserved to the practising Chartered Accountants to make their suggestions to the respondent.

48Copy pinpoint48. We wish to make certain observations before parting with these writ petitions. The Institute of Chartered Accountants of India over a period of time, has received recognition as a premier accounting body, domestically and globally, for maintaining highest standards in technical, ethical areas and for sustaining stringent examination and educational standards. Since its inception in the year 1949, the profession of Chartered Accountancy and accounting has grown leaps and bounds in terms of the number of members, which now stands at over 3.5 lakhs. The respondent-Institute has also played a significant role in ensuring the dynamism of the Chartered Accountancy course curriculum and the credibility 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.

49Copy pinpoint49. 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 tax returns; to enhance efficiency of the tax administration; or to maintain progressivity at such levels as would not induce evasion.

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49.1 In relation to direct taxation, we believe that the taxation system must be one that not only incorporates the normative and prescriptive considerations of neutrality, fairness, certainty, efficiency etc. but one that also promotes the virtuous circle of increased trust between tax payers 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 the requirement of good faith practices. The most recent tax reforms seek to achieve transparent taxation by “Honouring the Honest taxpayer.” The success of such initiatives depends, to a very large extent, on the vigilance demonstrated by Chartered Accountants. 49.3 Transparency in accounting is imperative to the economy in many ways. For instance, in the absence of accurate financial reporting, it would become difficult for banks to make informed decisions about credit allocation. It is the quality, reliability and objectivity of this information which stakeholders rely upon to make informed judgments and allocate resources efficiently. The role of transparent accounting is critical in lending credibility to the financial market transactions. Market participants, investors and shareholders look towards this community for accurate information, which ensures market discipline and fosters confidence of various stakeholders. The onus is on

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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 governance, we find that the corporate governance agenda garners attention only during times when the Country is faced with the most notorious corporate scams. Shareholder democracy has come to stay and Chartered Accountants are the gatekeepers of this new corporate world which poses challenges as well as unprecedented opportunities. Thus, the importance of integrity of auditing functions 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.

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Integrity, objectivity, professional competence and due care and confidentiality must be the doctrines guiding their work ethic. Conclusion:

50Copy pinpoint50. 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 amendment is valid and is not violative of Article 19(1)(g) of the Constitution as it is a reasonable restriction on the right to practise the profession by a Chartered Accountant and is protected or justifiable under Article 19(6) of the Constitution. b) However, the said clause 6.0, Chapter VI of the Guidelines dated 08.08.2008 and its subsequent amendment is deemed not to be given effect to till 01.04.2024. c) Consequently, all proceedings initiated pursuant to the impugned Guideline in respect of the writ petitioners and other similarly situated Chartered Accountants stand quashed. d) Liberty is reserved to the respondent-Institute to enhance the specified number of audits that a Chartered Accountant can undertake under Section 44AB of the IT Act, 1961, if it deems fit. e) Liberty is also reserved to the writ petitioners or any other member of the respondent-Institute to make a representation in the above context which may be taken into consideration in the event respondent-Institute intends to amend the Guideline as per point No.(d) above. f) The writ petitions as well as all the transferred cases are disposed of in the aforesaid terms. g) The Registry to intimate the concerned High Courts regarding disposal of the transferred cases accordingly. h) No costs.

Headnotes prepared by: Nidhi Jain Result of the case: Writ petitions and transferred cases disposed of.