Judgment:
M.V. Tamaskar, J.
1. The order passed in this petition shall also govern the disposal of Miscellaneous Petition No. 3307 of 1993 (Anil Kumar Gupta v. Institute of Chartered Accountants of India, New Delhi), Misc. Petition No. 2792 of 1990 (Ram Narain, S/o. Balmukund Gupta v. Institute of Chartered Accountants of India, New Delhi) and Misc. Petition No. 2844 of 1989 (Premchand v. Institute of Chartered Accountants of India, New Delhi).
2. The petitioners are chartered accountants registered with the Institute of Chartered Accountants of India. A notification was issued purporting to be in exercise of powers conferred by Clause (ii) of Part II of the Second Schedule to the Chartered Accountants Act, 1949, Relevant extract of the notification is quoted below :
'To be published in Part III, Section 4 of the Gazette of India, dated February 4, 1989.
'Notification No. I-CA(7)/3/89, dated 13th January, 1989.
In exercise of the powers conferred by Clause (ii) of Part II of the Second Schedule to the Chartered Accountants Act, 1949, the Council of the Institute of Chartered Accountants of India hereby specifies 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 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 there 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.
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 accountants, 30 tax audit assignments, in a financial year, whether in respect of corporate or non-corporate assessees.
(b) in the case of a firm of chartered accountants in practice, 30 tax audit assignments, per partner in the firm, in a financial year, whether in respect of corporate or non-corporate assessees.
(2) In computing the 'specified number of tax audit assignments', each year's audit would be taken as a separate assignment.
(3) 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.
(4) The audit of the head office and branch office of a concern shall be regarded as one tax audit assignment,
(5) 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) The above notification shall come into force for the financial year commencing on or after April 1, 1989.
(7) A chartered accountant in practice and every partner of a firm of such chartered accountants holding immediately before 1st April, 1989, tax audit assignments in excess of the specified number, shall withinsixty days from 1st April, 1989, intimate his inability to conduct tax audit in excess of the specified number to the concerned assessees.
(8) A chartered accountant in practice shall maintain a record of the tax audit assignments accepted by him in each financial year in the format as may be prescribed by the Council.'
3. For the purpose of adjudication of these petitions, Section 44AB is relevant and reads as under :
'44AB. 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 forty lakh rupees in any previous year or years relevant to the assessment year commencing on the 1st day of April, 1985, or any subsequent assessment year; or
(b) carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any previous year or years relevant to the assessment year commencing on the 1st day of April, 1985, or any subsequent assessment year
get his accounts of such previous year or years audited by an accountant before the specified date and obtain before 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 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 obtains before that date the report of the audit as required under such other law and a further report 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 ;
(ii) 'specified date', in relation to the accounts of the previous yearrelevant to an assessment year, means-
(a) where the assessee is a company, the 31st day of December ofthe assessment year ;
(b) in any other case, the 31st day of October of the assessmentyear.'
4. Part II of the Second Schedule to the Chartered Accountants Act, 1949, deals with professional misconduct :
'Part II. Professional misconduct in relation to members of the Institute generally requiring action by a High Court.
A member of the Institute, whether in practice or not, shall be deemed to be guilty of professional, misconduct, if he--. . . (ii) is guilty of such other act or omission as may be specified by the Council in this behalf by notification in the Gazette of India.'
5. For the purposes of performing their duties chartered accountants are required to engage certain category of officials and employees as mentioned in Section 5 of the Act and regulation 48 of the Regulations. It is submitted that the notification does not take into account the manpower which a member of the Institute has to employ for rendering effective service and maintain high standard of proficiency. Regulation 48 of the Chartered Accountants Regulations, 1988 :
'48. Stipend to articled clerks.--(1) Every principal engaging an articled clerk shall pay to such clerk every month a minimum monthly stipend at the rates specified below depending on where the normal place of service of the articled clerk is situated :
Situation of the normal place of serviceof the articled clerk
During first year of training
During second year training
During remaining period of training
(a) Cities with population of two million and above.
Rs. 150
Rs. 225
Rs. 300
(b) Cities/towns other than those having population of more thantwo million.
Rs. 100
Rs. 150
Rs. 225
Provided that an additional stipend of Rs. 50 per month shall be paid to the articled clerk on his passing the intermediate examination under these Regulations, from the first day of the month following the date of declaration of the result irrespective of the above classification of rates of stipend with reference to cities/towns : Provided further that nothing contained in this regulation shall entitle an articled clerk or audit clerk registered with effect from a date prior to 1st July, 1973, or for any excess leave taken, to any stipend under this regulation.'
6. While chartered accountants are required to maintain huge establishments and incur heavy expenditure on the establishment, the notification restricts the number of audits in the case of assessees under Section 44AB of the Income-tax Act, i.e., to say, every assessee having turnover of Rs. 4 lakhs if he is carrying on business and Rs. 10 lakhs if a profession, is required to get audited the accounts by a chartered accountant and failure to do so attracts penalty at 5 per cent. of the turnover not exceeding Rs. 1 lakh. A reading of the notification would disclose that from January13, 1989, a chartered accountant cannot audit more than thirty cases in a year or else there is a threat of initiation of proceedings for professional misconduct. A perusal of the notification further discloses that the restriction is placed for each auditor and the petitioners submit that there is an unreasonable restriction placed infringing the fundamental rights of the petitioners to carry on their profession. Firstly, it is submitted that it does not take into account the location of the number of industries in the big cities and small cities. The volume of work available in the cities is more with bigger industries. But in small cities the persons having such a specified turnover may be not many. It is submitted that the Institute itself recognises the fact that the members who practice in small cities are less in number than those in bigger cities and all the chartered accountants cannot be placed in the same category. Restricting the tax audit in respect of assessees under Section 44AB of the Income-tax Act, without taking into account the years of experience gained in the professional field (sic).
7. It is submitted that under the Companies Act, the tax audit is more liberal. Reference is made to Section 224(1B) inserted by the Companies (Amendment) Act, 1974, wherein a chartered accountant can audit 20 companies in a financial year.
8. The case of the respondents is that such a restriction is necessary in order to have an effective audit. The respondents submit that the limit prescribed is based on experience in the field. It is also submitted that under Section 30 of the Act the Council is empowered to make regulations for the purpose of carrying out the objects of the Act, i.e., to say to regulate the working of the chartered accountants in the interest of industries and the members of the Institute. The mechanism provided under the Act is to provide competent persons in the field of accountancy. It is stated that the notification thus takes into account the manpower which a member of the Institute has to engage on putting in a number of years of practice and is self-regulatory as also keeping the members under a self-discipline. It is stated that members of the Institute do not abide by the self-regulatory measures and as such the Council had to restrict the number of audits for effective and proper audit.
9. The number of audits was provided under the Companies (Amendment) Act from the year 1974, and has worked well and the quality of tax audit has improved. Thus, the Institute considered it in the interest of equitable distribution of tax audit assignments to its members and abolished monopolisation of the assignments.
10. It is also submitted that the number fixed is not for life but only for the financial year.
11. Learned counsel for the petitioners heavily relied on the decision of the Supreme Court in Pathumma v. State of Kerala, AIR 1978 SC 771 ;Jaisinghani (S. G.) v. Union of India, AIR 1967 SC 1427, and Laxmi Khandsari v. State of U. P., AIR 1981 SC 873, and submitted that the notification does not lay down proper criteria. There is no reasonable nexus with the purpose to be achieved. On the other hand, the members may not get enough work despite having acquired efficiency in the field. The number of companies differs from cities smaller and big.
12. The Institute of Chartered Accountants consists of experts in the field and is also represented by members of the Institute, i.e., chartered accountants themselves and associates. The notification does not restrict the fee to be obtained for the audit. It is also submitted that the petitioners have not placed material showing that any of the chartered accountants had to refuse or return the case of any assessee as it exceeded more than 30 or 60, as the case may be. The very fact that no such basis has been laid down it cannot be said that the number of audit fixed under the notification (annexure P-1) is unreasonable, Apart from the audits under Section 44AB of the Income-tax Act, the chartered accountants have other audits also under the Companies Act, and the intention is only to improve the quality of audit. It is experienced that in order to obtain high degree of efficiency in the audits the volume of work an auditor can put in and time spent in the audit can be worked out and based on the experience the Council has fixed the number of the said audits. Learned counsel for the petitioner submitted that a chartered accountant may complete the audit in respect of turnover of more than Rs. 40 lakhs in the case of business within 2 or 3 days and in the case of profession even in lesser time. No material has been placed in support of these propositions.
13. It does not take away the right of the petitioners to carry on profession. It only limits and places ceiling for the purposes of effective and business-like audit. Even if some of the auditors have to lose work, distribution of the work amongst other associates and professionals and the chartered accountants will provide a larger trained persons in the field which will provide work to the larger number of persons which is in public interest. The notification (annexure P-1) does not suffer from any illegality. The petition is accordingly dismissed but without any order as to costs.