RAJKOT ENGINEERING ASSOCIATION Vs. UNION OF INDIA

JUDGEMENT

(1.) Since common questions of law and facts arise in these two petitions we intend to dispose them of by this common judgment though we will shortly set out the relevant facts and circumstances in which the respective petitioners have moved those petitions challenging the validity of sec. 44AB of the Income-tax Act 1961 which has been placed on the statute book by Finance Act 1984 with effect from 1/04/1985 and Rule 6G as well as forms 3CA to 3 of the Income-tax (Amendment) Rules 1985 promulgated on 31/01/1985 and made effective from 1/04/1985 and sec. 271B providing penalty for not getting the accounts audited broadly on the ground of the impugned provisions being violative of Arts. 14 and 19(1)(g) of the Constitution and consequently therefore praying for appropriate writs orders and directions to quash and set aside the said provisionS.

(2.) Special Civil Application No. 068/85 has been moved by two registered associations of Engineers and Oil Millers being petitioners Nos. 1 and 2 respectively having membership of more than 500 and 250 persons respectively as well as by different partnership firms being petitioners Nos. 3 to 6 carrying on business in different commodities with a turn over of each of them exceeding Rs. 40 lakhs. The petitioners claim that the members of the first and second petitioner-Associations as well petitioners Nos. 3 to 6 are represented by non-chartered Accounant Authorised representatives in preparations of their accounts various statements and returns of income to be filed before the Income tax Officer for purposes of their assessment as permitted by sec. 288 of the Income-Tax Act 1961 (hereinafter referred to as the Act). Broadly stated the case of the petitioners is that the Act does not make any distinction whatsoever between various categories of authorised representatives specified in sec. 288(2) while discharging their functions and duties under the Act. The authorised representatives comprise mainly of Advocates Chartered Accountants or Commerce Graduates as permitted to appear in the proceedings under the Act. Before the impugned provisions were put on the statute book the Act did not prescribe for any compulsory audit of the accounts of the assessees or a class of assessees except in those cases where the Income-tax Officer so directs after obtaining previous approval of the Commissioner and having regard to the nature and complexity of the accounts of the assessee to get his accounts audited by a Chartered Accountant. The main grievance of the petitioners is that Parliament has after due deliberations thought fit not to put a similar provision of compulsory tax audit on the statute book when an attempt was made by clause 39 of the Taxation Laws (Amendment) Bill of 1973 to introduces such a provision since the Select Committee to which the Bill was referred felt on consideration of a large number of representations and memorandums of objections received in that behalf that the proposed provision requiring compulsory audit of assessees not being companies by Chartered Accountants was likely to cause harassment inconvenience and unnecessary expenses to assessees particularly in the mofussil and other places where Chartered Accountants are not readily available without any corresponding substantial benefit to the Government revenue. Instead by the Taxation Laws (Amendment) Act 1975 sec. 142 to (2D) was introduced with effect from 1/04/1976 providing for a statutory audit in case where the Income-tax Officer was of the opinion that it was necessary to do so having regard to the nature and complexity of the accounts of the assessee and the interest of the Revenue as stated hereinabove. The petitioners point out that this power of enforcing statutory audit under sec. 142(2A) has not bee resorted to except in a few exceptional cases during all these years. According to the petitioners the fact that the Income-tax Authorities have thought fit to resort to this power of statutory audit only in exceptional cases indicates that the provisions of the Income-tax Act were found to be adequate and satisfactory all these years in order to effectuate the purpose of the Act. According to the Petitioners the introduction of the provision was not called for since there is no apparent and material change in the circumstances which would warrant the necessity of the impugned provisions. The grievance of the petitioners is that their right to carry on and manage their business including their right to be represented by the authorised representatives for the purposes of their tax assessment under the Act before the concerned authorities is virtually rendered nugatory by the impugned provisions inasmuch as they would be constrained to represent their cases through those Chartered Accountants to whom they would be required to entrust the work of audit of their accounts and obtain their reports of audit containing the particulars as prescribed under the impugned provisions. According to them for all practical purposes they would be denied the choice of selecting their authorised representatives from non-Chartered Accountant practitioners. The impugned provisions insofar as they tend to restrict this right would cause harassment inconvenience and unnecessary expenses to them and particularly in mofussil and other places where the services of the Chartered Accountants would not be readily available without conferring any corresponding substantial benefit to the Government revenue which was a raison detre for the Select Committee of the Parliament to drop the provision of compulsory audit sought to be introduced by clause 39 of the Taxation Laws (Amendment) Bill 1973 The impugned provisions according to the petitioners entail unreasonable restriction and not justified in the public interest and therefore violative of Article 19 (1) (g) of the Constitution. Their further grievance is that the impugned provisions insofar as they require the tax audit to be carried only by Chartered Accountants and deny privilege to non-Chartered Accountant authorised representatives are discriminatory inasmuch as there is no intelligible classification having rational nexus with the object of the amended statute particularly when the authorised representatives consisting of legal practitioners commerce graduates and persons having educational qualifications as prescribed by the Board or who were entitled to practice under the 1922 Act or in certain specified territories are authorised under Rule 12A of the Income-tax Rules 1962 to file particulars of accounts statements or other documents furnished by the assessee for the preparations of the return of income and also to report on the scope and result of their examination of such accounts in course of preparations thereof. This classification according to the petitioners has become more unintelligible in view of the amendment of proviso to section 44AB permitting a class of assessees which is required to have the accounts audited under the special Act governing them to produce the report of their non-Chartered Accountant Auditors in compliance of the obligation prescribed under section 44AB. The amended proviso therefore perpetuates a hostile discrimination which is inbuilt in the impugned provisions. It is in this back-drop that the petitioners of this petition have prayed for the reliefs of quashing and setting aside the impugned provisions and restraining the respondents from enforcing the same.

(3.) Special Civil Application No. 2069 of 1985 is moved by petitioners Nos. 2 to 15 who are Advocates practising as authorised representatives and income-tax practitioners at Ahmedabad and by a Commerce Graduate being petitioner No. 16 as well on behalf of the unregistered Association of Advocates practising as Tax practitioners at Ahmedabad being petitioner No. 1. The circumstances which compelled these petitioners to move this petition are same as those averred in Special Civil Application No. 2068185 since the impugned provisions have a direct and immediate impact on their fundamental right to practise and appear on behalf of the assessees and represent them in the assessment proceedings before the tax authorities as permitted under section 288 of the Act. The purpose and the intention of the impugned provisions is apparent insofar as she same require the tax audit to be carried out by Chartered Accountants only and therefore there is a clear hostile discrimination against them. The impugned provisions are irrational arbitrary and do not subserve public interest as considered by the Select Committee of the Parliament in 1973. The objects and reasons of the impugned provisions as stated by the Finance Minister on the floor of Parliament are not capable of being achieved by the same. The impugned Rules and the forms go beyond the purpose of section 44AB enjoining for a prescribed class of assessees the audit of accounts which even in the extended sense of the term would not include the tax audit required under the Rules. They have also therefore prayed for appropriate writs orders and directions to quash and set aside the impugned provisions and restraining the respondents from enforcing the same.