The Aryavarth Express
Agency (New Delhi): On Friday, May 17, the Supreme Court upheld a rule issued by the Institute of Chartered Accountants of India (ICAI) that restricts Chartered Accountants (CAs) from accepting more than 60 tax audit assignments in a financial year. This decision was made by a bench comprising Justices BV Nagarathna and Augustine George Masih, who ruled that the regulation is not in violation of the fundamental right to practice a profession as guaranteed under Article 19(1)(g) of the Constitution.
The court’s decision specifies that the rule, stated in paragraph 6.0 of Chapter VI of the Council Guidelines No. 1-CA(7)/02/2008 dated August 8, 2008, along with subsequent amendments, is to be effective from April 1, 2024. Additionally, the court quashed the disciplinary proceedings initiated against CAs for violating this clause based on the doctrine of legal uncertainty. The court also granted the ICAI the liberty to increase the number of audits a CA can undertake in the future.
In its judgment, the bench highlighted the significant role of the ICAI, stating, “ICAI has, over time, received recognition as a premier accounting body domestically and globally for maintaining the highest standards. The ICAI has also played a significant role in ensuring the dynamism of the CA course and the credibility of the examination. We commend that the ICAI must be committed towards the convergence of accounting and ethical standards with international standards. The true test, however, lies in the enforcement of these standards.”
The court’s conclusions are as follows:
1. Clause 6 of Chapter 6 and the subsequent amendment is not violative of Article 19(1)(g) and is a reasonable restriction.
2. This clause will be effective from April 1, 2024, and all proceedings initiated under it are quashed.
3. The ICAI has the liberty to increase the number of audits a CA can undertake.
The compulsory tax audit regime was introduced in 1984 through Section 44AB of the Income-tax Act, 1961, effective from April 1, 1985. This section mandates that individuals or businesses with sales, turnover, or gross receipts exceeding a specified threshold must have their accounts audited by a Chartered Accountant. Before 1985, only companies and cooperative societies were required to have audited accounts under the Companies Act, 1956, and the Co-operative Societies Act, 1912, respectively. Section 44AB was enacted to counter tax evasion and fraudulent practices.
In 1988, the ICAI issued a notification prohibiting members from accepting more than the specified number of tax audit assignments under Section 44AB. This limitation applies to each partner in a CA firm, and non-compliance results in professional misconduct charges. The 2008 guidelines superseded the 1988 notification following amendments to the Chartered Accountants Act, 1949, in 2006.
These guidelines faced several writ petitions in different High Courts across India. Due to conflicting judgments, the Supreme Court accepted an application from the ICAI in 2020 to transfer all petitions to itself for a final determination.
Petitioners argued that the guideline infringed on the fundamental right to practice any profession or business as guaranteed under Article 19(1)(g) and violated the right to equality under Article 14. They also questioned the ICAI’s authority to issue this guideline. Senior Advocate Paramjit Singh Patwalia represented the petitioners, while Senior Advocate Arvind P. Datar represented the ICAI, providing a historical overview of compulsory audit under the Income-tax Act, 1961.