Facts

The appellant, on behalf of income-tax practitioners, claimed that they were entitled to be ‘authorised representatives’ on behalf of the assessee and, therefore, excluding them for the purpose of auditing accounts under section 44AB was violative of articles 14 and 19 of the Constitution of India. They, therefore, challenged the validity of provision of section 44AB. The High Court rejected the plea of the Income Tax Practitioners. This was challenged before the Supreme Court.

Issue

Whether section 44AB is violative of Article 14 and 19 of the Constitution, in as much as it excludes Income-tax Practitioners from auditing of accounts under the said section?

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Section 44AB required every person carrying on business, if his total sales, turnover or gross receipts exceeded Rs. 40 lakhs, and every person carrying on        a profession, if his gross receipts exceeded Rs. 10  lakhs, in  any  previous year  “to get his accounts of such previous year audited by an accountant before the specified date….” The Explanation to the section defines ‘Accountant’ for its purpose to have the same meaning as in the Explanation below section 288(2). Section 288 deals with authorised representatives. Sub-section (2) clause (4) refers to an Accountant. The Explanation says that in that section ‘Accountant’ means a Chartered Accountant within the meaning of the Chartered Accountancy Act and includes persons entitled to be appointed to Act as auditors of companies in a particular State by reasons of the provisions of section 226(2) of the Companies  Act, 1956.

Held

Dismissing the petition, the Supreme Court held that Chartered Accountants, by reason of their training have special aptitude in the matter of audits and thus, it

is reasonable that they, who form a class by themselves, should be required to  audit the accounts of businesses. It was observed by the Court that Income-tax Practitioners do not have the same expertise as Chartered Accountants in the matter of accounts and thus, the challenge under article 19 fails. (CA No. 2824       of 1992 dt. 8-12-1998)

Editorial: Decision of the Madras High Court in R. Sathya Moorthy v. UOI [1991] 189 ITR 491 (Mad) (HC) affirmed. in Bar Council of India v.  A. K. Balaji AIR  2018 SC 1382 (CA  Nos. 7875-7879 of  2015 dt.  13-3-2018) explained the  scope of foreign lawyers and firms to practice in India. Foreign law firms and foreign lawyers cannot set up offices and practice in India, however they can give advice   to Indian clients on ‘fly in and fly out’ mode on temporary basis.

In Sales Tax Practitioners’ Association of Maharashtra v. State of Maharashtra (2008) 170 Taxman 371, the Bombay High Court, following this decision, held that section 61 of Maharashtra Value Added Tax Act, 2002, which requires accounts of certain dealers to be audited by Chartered Accountants, is constitutionally valid and it does not infringe article 14 or 19 of the Constitution    of India.

Applying this decision conversely, the Income-tax (Sixth Amendment) Rules, 2018, which omitted the words “or an accountant” appearing in Rule 11UA(2)(b)   of the Income Tax Rules, 1962 (for the purpose of determining the value of equity shares), may be challenged on the ground that Chartered Accountants do have expertise and have had special training and aptitude in the matter of valuations  and accordingly, the exclusion of Chartered Accountants from the said rule is invalid.

“Nothing has saddened me so much in life as the hardness of heart of educated people.”

– Mahatma Gandhi