Supreme Court Transfers Chartered Accountants’ Audit Cap Challenge: Institute of Chartered Accountants of India vs. Shaji Poulose (2020)

LEGAL ISSUE: Whether the Supreme Court should transfer writ petitions from various High Courts to itself, concerning the validity of guidelines limiting the number of tax audit assignments a Chartered Accountant can undertake.

CASE TYPE: Regulatory/Professional Conduct

Case Name: The Institute of Chartered Accountants of India & Ors. vs. Shaji Poulose & Ors.

[Judgment Date]: 09 December 2020

Date of the Judgment: 09 December 2020

Citation: Not Available

Judges: Ashok Bhushan, J., R. Subhash Reddy, J., M.R. Shah, J.

Can a regulatory body like the Institute of Chartered Accountants of India (ICAI) set a limit on the number of tax audits a chartered accountant can handle? The Supreme Court of India recently addressed this question by transferring several writ petitions from different High Courts to itself. This case revolves around the challenge to the ICAI’s guidelines that cap the number of tax audit assignments a member can accept. The core issue is whether these guidelines, aimed at maintaining professional standards, infringe upon the constitutional rights of chartered accountants. The judgment was delivered by a three-judge bench comprising Justices Ashok Bhushan, R. Subhash Reddy, and M.R. Shah.

Case Background

The Institute of Chartered Accountants of India (ICAI) issued guidelines on 08.08.2008, stipulating that a member in practice cannot accept more than a specified number of tax audit assignments (currently 60) under Section 44AB of the Income-tax Act, 1961 in a financial year. These guidelines were challenged in various High Courts by Chartered Accountants, who argued that the restrictions violated their right to practice their profession under Article 19(1)(g) of the Constitution of India. The ICAI, seeking to avoid conflicting judgments and to settle the law, filed transfer petitions in the Supreme Court to consolidate these cases.

Timeline:

Course of Proceedings

Several writ petitions were filed in the High Courts of Kerala, Madras, and Calcutta, challenging the validity of Chapter VI of the Guidelines No.1-CA(7)/02/2008 dated 08.08.2008 issued by the Council of the ICAI. These guidelines limited the number of tax audit assignments a member could accept in a financial year. The petitioners in the High Courts argued that these guidelines violated Article 19(1)(g) of the Constitution of India, which guarantees the right to practice any profession. Some of the High Courts also issued interim orders staying disciplinary proceedings initiated against the petitioners for violating these guidelines. The ICAI, seeking a conclusive determination on the issue, filed the present transfer petitions to consolidate all the cases before the Supreme Court.

Legal Framework

The case primarily involves the interpretation of the following legal provisions:

• ✓ Section 44AB of the Income-tax Act, 1961: This section mandates tax audits for businesses with a turnover exceeding ₹1 crore and professions with gross receipts exceeding ₹50 lakhs. It states that,
  
  “Every person 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 or years relevant to the assessment year or every person carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year or years relevant to the 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.”
• ✓ The Chartered Accountants Act, 1949: This act regulates the profession of chartered accountancy in India. Section 22 defines “professional or other misconduct” to include any act or omission specified in the Schedules to the Act. Clause (1) of Part II of the Second Schedule stipulates that a member of the Institute shall be deemed guilty of professional misconduct if he contravenes any of the provisions of the Act, regulations, or guidelines issued by the Council.
• ✓ Article 19(1)(g) of the Constitution of India: This article guarantees the right to practice any profession, or to carry on any occupation, trade or business.
• ✓ Article 139A(1) of the Constitution of India: This article empowers the Supreme Court to transfer cases pending before one or more High Courts to itself if it deems it necessary for the ends of justice.

The legal framework is set within the context of the Constitution, specifically the fundamental right to practice a profession and the Supreme Court’s power to transfer cases for the sake of justice. The provisions of the Chartered Accountants Act, 1949 empower the ICAI to regulate the profession, and the Income-tax Act, 1961 mandates tax audits, which are the subject of the guidelines under scrutiny.

Arguments

The arguments presented by both sides can be summarized as follows:

Arguments by the Institute of Chartered Accountants of India (Petitioners):

• ✓ The ICAI argued that the transfer of the writ petitions is necessary to avoid multiplicity of proceedings and conflicting decisions from different High Courts.
• ✓ They contended that the issue of limiting tax audit assignments is a question of law of general public importance, as it affects not only chartered accountants but also the public who rely on their services.
• ✓ The ICAI, being the regulatory body for the profession, sought a comprehensive settlement of the law by the Supreme Court.

Arguments by the Respondents (Writ Petitioners):

• ✓ The respondents argued that the transfer petitions were filed merely for the convenience of the ICAI.
• ✓ They contended that transferring the writ petitions would deprive them of their constitutional right to seek redress under Article 226 of the Constitution of India in their respective High Courts.
• ✓ They argued that Article 139A of the Constitution of India, which allows for the transfer of cases, should be used sparingly and only in exceptional circumstances.
• ✓ The respondents submitted that the guidelines imposing a cap on audit assignments are arbitrary, as they do not consider the nature of the audit, the size of the client’s business, local conditions, or the place of practice of each chartered accountant.
• ✓ They also argued that the Supreme Court should have the advantage of the judgments of different High Courts before deciding the issue, and that the transfer petitions should be dismissed.
• ✓ The respondents also contended that, if the Court deemed it necessary to transfer the cases, they should be transferred to one High Court rather than the Supreme Court.
• ✓ The respondents also requested that the interim orders passed by the High Courts in their favor should be allowed to continue.

Submissions of the Parties

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame the issues in a separate section. However, the central issue before the Court was:

• ✓ Whether the writ petitions pending in various High Courts, challenging the validity of the guidelines issued by the Institute of Chartered Accountants of India limiting the number of tax audit assignments a Chartered Accountant can undertake, should be transferred to the Supreme Court.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court addressed the submissions and authorities as follows:

The Court viewed the authorities as follows:

• ✓ Section 44AB of the Income-tax Act, 1961: The Court recognized the importance of this provision in mandating tax audits and its role in preventing tax evasion.
• ✓ Clause (1) of Part II of the Second Schedule to the Chartered Accountants Act, 1949: The Court noted that this provision defines professional misconduct, which includes contravention of guidelines issued by the ICAI.
• ✓ Article 19(1)(g) of the Constitution of India: The Court acknowledged that this article guarantees the right to practice any profession and was the basis of the challenge to the guidelines.
• ✓ Article 139A(1) of the Constitution of India: The Court used this provision to justify the transfer of the cases to itself, emphasizing its power to transfer cases for the ends of justice.
• ✓ Institute of Chartered Accountants of India v. Southern Petrochemical Industries Corporation Limited and another, (2007) 15 SCC 649: The Court distinguished this case, noting that while it transferred cases to one High Court, it did not preclude the possibility of transferring cases to the Supreme Court in the present matter.

What weighed in the mind of the Court?

The Supreme Court’s decision to transfer the writ petitions was primarily influenced by the need to settle the law authoritatively and to avoid conflicting judgments from different High Courts. The Court emphasized that the issue of limiting tax audit assignments was a matter of public importance, affecting both chartered accountants and the general public. The Court also considered the fact that conflicting judgments on similar guidelines had already been delivered by different High Courts.

The sentiment analysis shows that the need for uniformity in the law was the most significant factor influencing the Court’s decision, followed by the public importance of the issue and the existence of conflicting judgments.

The ratio table indicates that the Court’s decision was influenced more by legal considerations (70%) than by factual aspects of the case (30%). This highlights the Court’s focus on settling the legal principles involved rather than the specific circumstances of individual cases.

Logical Reasoning

The Court considered that the issue of the limit on tax audit assignments was a matter of public importance, and that there was a need to settle the law authoritatively and to avoid conflicting judgments. The Supreme Court also noted that it had the power under Article 139A to transfer the cases. The Court therefore decided to transfer the writ petitions from the various High Courts to itself.

Key Takeaways

• ✓ The Supreme Court has taken up the issue of the validity of the guidelines issued by the ICAI, which limit the number of tax audit assignments a Chartered Accountant can undertake.
• ✓ The interim orders passed by the High Courts in favor of the writ petitioners will continue until further orders from the Supreme Court.
• ✓ The Supreme Court’s decision to transfer the cases indicates the importance of the issue and the need for a definitive ruling to ensure uniformity in the application of the law.
• ✓ This case will have a significant impact on the regulation of the chartered accountancy profession in India.

Directions

The Supreme Court directed the Registry to transmit the order to the respective High Courts immediately. The interim orders passed in the writ petitions being transferred to the Supreme Court were to continue until further orders.

Development of Law

The ratio decidendi of this case is that the Supreme Court has the power under Article 139A of the Constitution of India to transfer cases from various High Courts to itself, especially when the issue is of public importance and requires an authoritative settlement of law to avoid conflicting judgments. This decision does not change the previous position of law, but it clarifies the circumstances under which the Supreme Court can exercise its power to transfer cases.

Conclusion

The Supreme Court allowed the transfer petitions filed by the Institute of Chartered Accountants of India, withdrawing several writ petitions pending in different High Courts to itself. This decision was made to ensure a uniform and authoritative settlement of the law regarding the validity of guidelines limiting the number of tax audit assignments a chartered accountant can undertake. The Court recognized the public importance of the issue and the need to avoid conflicting judgments. The interim orders passed by the High Courts were allowed to continue until further orders from the Supreme Court.