SHAJI POULOSE versus INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA & OTHERS
[2024] 6 S.C.R. 777, Supreme Court of India, 2024
Outcome: Disposed off
Segment: Issues
* Author
[2024] 6 S.C.R. 777 : 2024 INSC 451
Shaji Poulose 
v. 
Institute of Chartered Accountants of India & Others
(Transferred Case (Civil) No. 29 of 2021 )
17 May 2024
[B.V. Nagarathna* and Augustine George Masih, JJ.]
Issue for Consideration
Council of the Institute of Chartered Accountants of India, 
if competent to impose, by way of Guidelines, a numerical 
restriction on the maximum number of tax audits that could be 
accepted by a Chartered Accountant, u/s. 44AB of the 1961 
Act, in a Financial Year by way of a Guideline; the restrictions 
imposed, if unreasonable, arbitrary and illegal and thus, violative 
of the right guaranteed to Chartered Accountants u/Art. 19(1)(g) 
and impermissible u/Art. 14 of the Constitution; and exceeding 
of the specified number of tax audits, if can be deemed to be 
‘professional misconduct’.
Headnotes
Chartered Accountants Act, 1949 – Income Tax Act, 1961 – s. 
44AB – Audit of accounts – Clause 6 of Guidelines No.1-
CA(7)/02/2008 dated 08.08.2008 issued by the Institute of 
Chartered Accountants of India, restricting the number of tax 
audits that a Chartered Accountant could carry out which was 
initially thirty and later raised to forty-five and thereafter to 
sixty in an assessment year – Petitioners undertook audits 
u/s. 44AB of the IT Act, 1961 over and above the number of 
tax audits specified as per the Guidelines dated 08.08.2008 – 
Issuance of the notices to the petitioners for violation of the 
Guideline which was a
misconduct – Initiation of disciplinary 
proceedings by the Institute against the petitioners – Challenge 
to the Guidelines as well as to the disciplinary proceedings:
Held: Clause 6.0, Chapter VI of the Guidelines dated 08.08.2008 
and its subsequent amendment is valid and  not violative of Art. 
19(1)(g) as it is a reasonable restriction on the right to practise 
the profession by a Chartered Accountant and is protected or 
justifiable u/Art. 19(6) – However, the said clause 6.0, Chapter VI
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of the Guidelines dated 08.08.2008 and its subsequent amendment 
is deemed not to be given effect to till 01.04.2024 – Thus, all 
proceedings initiated pursuant to the impugned Guideline in 
respect of the writ petitioners and other similarly situated Chartered 
Accountants quashed – Institute at liberty to enhance the specified 
number of audits that a Chartered Accountant can undertake u/s. 
44AB, if it deems fit – Writ petitioners or any other member of the 
Institute at liberty to make a representation. [Para 50]
Chartered Accountants Act, 1949 – s. 22 – Income Tax Act, 
1961 – s. 44AB – Guidelines No.1-CA(7)/02/2008 dt 08.08.2008 
restricting the maximum number of tax audits that could be 
accepted by a Chartered Accountant, u/s. 44AB of the Income 
Tax Act, 1961, in a Financial Year – Competency of the Council 
of the Institute of Chartered Accountants of India, to impose 
restriction, by way of Guidelines:
Held: Council of the Institute had the legal competence to frame 
the impugned Guideline restricting the number of tax audits that a 
Chartered Accountant could carry out which was initially thirty and 
later raised to forty-five and thereafter to sixty in an assessment 
year, the breach of which would result in professional misconduct, 
in terms of clause 1 of Part II of the Second Schedule of the 1949 
Act – It is not vitiated on account of there being lack of competency 
or powers to frame the Guideline by the
Council of the Institute – 
Issuance of the Guidelines dt 08.08.2008 by the Institute not hit 
by the vice of excessive delegation – Thus, the Regulation or 
Guideline issued by the Council, being a part of clause 1 of Part 
II of the Second Schedule have to be read as part and parcel of 
the 1949 Act itself – Delegation of powers to add newer types of 
misconducts by way of a regulation or Guideline neither excessive 
nor ultra vires u/s. 22. [Paras 13.1-13.3]
Chartered Accountants Act, 1949 – Income Tax Act, 1961 – s. 
44AB – Council of the Institute of Chartered Accountants of 
India, imposing by way of Guidelines No.1-CA(7)/02/2008 dated 
08.08.2008 , a numerical restriction on the maximum number of 
tax audits that could be accepted by a Chartered Accountant, 
u/s. 44AB of the Income Tax Act, 1961, in a Financial Year by 
way of a Guideline – Restrictions imposed, if unreasonable, 
arbitrary and illegal and thus, violative of the right guaranteed 
to Chartered Accountants u/Art. 19(1)(g) and impermissible 
u/Art. 14 of the Constitution:
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
Held: Guidelines dated 08.08.2008 and its subsequent amendment 
is valid and not violative of Art. 19(1)(g) and is protected or justifiable 
u/Art.19(6) – Ample material placed to establish that the legislation 
comes within the permissible limits of clause (6) – By virtue of being 
a licensee, a privilege is conferred on Chartered Accountants – It 
is in pursuance of the primary goal of public interest that a further 
privilege u/s. 44AB was extended to Chartered Accountants to 
conduct quality tax audits subject to reasonable restrictions, so 
as to enable the interest of the public exchequer – Court must 
consider the public interest involved not only from the perspective 
of the Chartered Accountants but rather from the perspective of the 
general public – Chartered Accountants is a profession-licensed 
by the State that also discharges public duties crucial in public 
interest – Compulsory tax audits was neither an inherent part of the 
practice of Chartered Accountant nor essential function which could 
be claimed as a fundamental right u/Art.19(1)(g) – Where public 
interest was the genesis of a privilege being extended to Chartered 
Accountants and not a right, it is reasonable that the Institute, would 
have the authority to regulate the privilege extended to Chartered 
Accountants in a reasonable manner deemed appropriate to serve 
public interest – Public interest
involved in the instant petitions 
being pervasive is evidenced through CAG’s recommendation to 
the Government to insert a provision in the statute book putting a 
cap on the number of tax audits permissible – Also restriction placed 
u/s.224 of the Companies Act with regard to the number of companies 
which could be audited by an auditor or firm of auditors is also an 
instance of regulation of the profession of Chartered Accountants 
intended by the Parliament to ensure that standard and quality in 
the audit of accounts of companies are maintained – Furthermore, 
where the devolution of privilege is justifiably restricted in public 
interest and such restriction has rational nexus with the objects 
sought to be achieved, the restriction cannot be held unreasonable 
due to hardship faced by a certain section of professionals.  
[Paras 19, 22,24-25, 29, 33, 36-37, 50]
Chartered Accountants Act, 1949 – Income Tax Act, 1961 – 
s. 44AB – Clause 6 of Guidelines No.1-CA(7)/02/2008 dt 
08.08.2008 issued by the Institute of Chartered Accountants 
of India, restricting the number of tax audits that Chartered 
Accountant could carry out which was initially thirty and later 
raised to forty-five and thereafter to sixty in an assessment 
year – Petitioners undertook audits u/s.44AB over and above
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the number of tax audits specified as per the Guidelines – 
Exceeding specified number of tax audits, if ‘professional 
misconduct’ – Institute initiating disciplinary proceedings 
only against few Chartered Accountants, including petitioners, 
while majority of Chartered Accountants who had breached 
the Guideline not facing any proceeding, if discriminatory:
Held: There has been an uncertainty in law due to a similar Guideline 
being successfully assailed and during the pendency of the matter 
before this Court the impugned Guideline being enforced and selective 
implementation of the same by the Institute – Initially notices were 
sent only selectively to Chartered Accountants who had completed 
more than two hundred audits not to all who had breached the 
impugned Guideline – For the limited period of uncertainty, the rule 
against doubtful penalization as a principle could, in the interest of 
justice and equity, be made applicable and the benefit of uncertainty 
be given to those subjected to misconduct proceedings in the instant 
writ petitions and to also those Chartered Accountants who may have 
received notices from the Institute and who may not have approached 
any court of law or to other similarly situated Chartered Accountants – 
Disciplinary proceedings initiated against the petitioners is quashed, 
since only the writ petitioners have been proceeded against, while 
around twelve thousand Chartered Accountants
who had breached 
the Guideline were left out – Furthermore, a reasonable provision may 
with the passage of time become unreasonable – As regards, the 
restriction on the specified audits u/s. 44AB, Minutes of the Council 
of the Institute reflect that with the passage of time, the number 
of tax audits to be permitted have been repeatedly deliberated, 
re-evaluated and increased, subject to final decision taken by the 
Council – Since the last revision to sixty tax audits was made a 
decade ago, the Council to consider if the time is ripe to enhance 
the specified number of tax audits – Institute at liberty to enhance 
the specified number of tax audits that could be undertaken by the 
Chartered Accountants. [Paras 46, 47]
Chartered Accountants Act, 1949 – s. 22 – “professional or 
other misconduct” – Definition:
Held: s. 22 defines “professional or other misconduct” to deem to 
include any act or omission provided in any of the Schedules – 
However, nothing in s. 22 shall be construed to limit or abridge in 
any way the power conferred or duty cast on the Director (Discipline) 
under sub-section (1) of s. 21 to inquire into the conduct of any
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781
Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
member of the Institute under any other circumstances – Schedules 
which enumerate various kinds of misconducts are not exhaustive 
or static – With the passage of decades and with the emerging 
varieties of misdemeanour, omissions or commissions of Chartered 
Accountants which are not in consonance with professional ethics and 
would amount to misconduct can be defined under the Schedules 
so as to ensure quality service being rendered by the Chartered 
Accountants as professionals and there could be newer misconducts 
which could be included in the Schedules in the form of regulations 
or Guidelines – Part II of Second Schedule has delegated the power 
to the Council to make any regulation or Guideline, the breach of 
which would amount to a misconduct – This delegation to define 
and enumerate a misconduct by way of a regulation or a Guideline 
is a legislative device adopted by the Parliament so as to leave it 
to the discretion of the Council of the Institute to incorporate, define 
and insert a Guideline or a regulation, the breach of which would 
result in misconduct committed by Chartered Accountant. [Para 13.1]
Chartered Accountants Act, 1949 – Scheme and object of the 
enactment – Stated. [Paras 7.1-7.12]
Chartered Accountants – Role and importance of:
Held: Chartered Accountants can serve as effective catalysts in 
securing the virtuous circle of trust between the
taxpayer and the 
tax administration – This is because a large proportion of the tax 
payers in India seek advice of Chartered Accountants – Integrity 
and standards of Chartered Accountants determine the efficiency 
in the functioning of the nation’s taxation system – Onus is on 
Chartered Accountants to ensure that the Nation’s businesses 
do indeed conform to high corporate governance standards – 
By providing the foundation for compilation of credible financial 
statements, the accounting profession facilitates market discipline, 
engenders confidence among various stakeholders and reduces 
the possibility of misleading information that can disrupt stability 
of financial systems – Thus, the need for quality assessments 
particularly u/s. 44AB of the IT Act, 1961 – Chartered Accountants 
must themselves comply with the relevant laws and regulations 
and avoid any conduct that discredits the profession – Chartered 
Accountants must refuse to represent clients who insist on resorting 
to unfair means – Chartered accountants are relevant not only in 
securing corporate governance, but governance in broader contexts 
too – Chartered Accountants face many different responsibilities
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to the profession; to the tax administration; to the client and to the 
economy at large – Integrity, objectivity, professional competence 
and due care and confidentiality must be the doctrines guiding their 
work ethic. [Paras 49.1, 49.3-49.6]
Chartered Accountancy – Institute of Chartered Accountants 
of India – Role of:
Held: Institute has a significant role in ensuring the dynamism of the 
Chartered Accountancy course curriculum and the credibility of the 
examinations – Institute must be committed towards convergence of 
accounting, auditing and ethical standards with international practices 
and for its endeavour towards securing the highest standards of 
corporate governance – True test however, lies in application and 
enforcement of these standards in the Indian context. [Para 48]
Income Tax Act, 1961 – s. 44AB – Audit of accounts – Object 
and purpose of:
Held: s. 44AB provides that every person carrying on business, 
whose total sale, turnover or gross receipts exceed Rs.10 crore, 
and every person carrying on a profession, if his gross receipts 
exceed Rs.50 lakhs, in any previous year, is required to get 
his accounts of such previous year audited and verified by a 
Chartered Accountant – Said provision is called “compulsory tax 
audits” – Object and purpose of s. 44AB is to prevent evasion of 
taxes, plug loopholes enabling tax avoidance and also facilitate 
tax administration. [Para 7.14]
Case Law Cited
B.P.
Sharma v. Union of India [2003] Supp. 2 SCR 684 : (2003) 7 
SCC 309; Minerva Talkies, Bangalore v. State of Karnataka [1988] 
2 SCR 511 : AIR 1988 SC 526; B.K. Kamath v. The Institute of 
Chartered Accountants (2003) 2 KLJ 21 – relied on.
Saghir Ahmad v. State of U.P. [1955] 1 SCR 707 : (1954) 2 SCC 
399; Institute of Chartered Financial Analysts of India v. Council 
of the Institute of Chartered Accountants of India [2007] 6 SCR 
1127 : (2007) 12 SCC 210 – distinguished.
Raja Video Parlour v. State of Punjab [1993] Supp. 1 SCR 149 : 
(1993) 3 SCC 708; Kusum Ingots & Alloys Ltd. v. Union of India 
[2004] Supp. 1 SCR 841 : (2004) 6 SCC 254; Municipal Corporation 
of Greater Mumbai v. Anil Shantaram Khoje [2014] 3 SCR 511 : 
(2016) 15 SCC 726; Modern Dental College and Research Centre
[2024] 6 S.C.R. 
783
Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
v. State of Madhya Pradesh [2016] 3 SCR 579 : (2016) 7 SCC 
353; V. Sasidharan v. Peter and Karunakar [1985] 1 SCR 601 : 
(1984) 4 SCC 230; Aswini Kumar Ghose v. Arabinda Bose [1953] 
1 SCR 1 : (1952) 2 SCC 237; Devata Prasad Singh Chaudhuri v. 
Chief Justice and Judges of Patna High Court [1962] 3 SCR 305; Shri 
R. Nanabhoy v. Union of India (1982) SCC Online Del. 210; Shree 
Chamundi Mopeds Ltd. v. Church of South India Trust Association 
CSI CINOD Secretariat, Madras [1992] 2 SCR 999 : (1992) 3 SCC 1; 
Pathumma v. State of Kerala [1978] 2 SCR 537 : (1978) 2 SCC 1; 
M/s Laxmi Khandsari v. State of U.P. [1981] 3 SCR 92 : (1981) 2 
SCC 600; Deepak Theatre, Dhuri v. State of Punjab [1991] Supp. 3 
SCR 242 : 1992 Suppl. 1 SCC 684; T. Velayudhan Achari v. Union 
of India [1993] 1 SCR 832  : (1993) 2 SCC 582; All-India Federation 
of Tax Practitioners v. Union of India [2007] 9 SCR 147 : (2007) 7 
SCC 527; Kerala Ayurveda Paramparya Vaidya Forum v. State of 
Kerala [2018] 5 SCR 566 : (2018) 6 SCC 648; Nagar Rice and Flour 
Mills v. N. Teekappa Gowda and Bros. [1970] 3 SCR 846 : (1970) 1 
SCC 575; Hathising Manufacturing Co. Ltd. v. Union of India [1960] 
3 SCR 528; Sakhawant Ali v. State of Orissa [1955] 1 SCR 1004 : 
(1954) 2 SCC 758; Mohd. Faruk v. State of M.P. [1970] 1 SCR 156 : 
(1969) 1 SCC 853; K. K. Kochuni v. States of Madras and Kerala 
[1960] 3 SCR 887 : (1958) SCC OnLine SC
12; Krishnan Kakkanth 
v. Govt. of Kerala [1996] Supp. 7 SCR 487 : (1997) 9 SCC 495; 
Sukumar Mukherjee v. State of W.B. [1993] Supp. 1 SCR 339 : 
(1993) 3 SCC 723; P.V. Sivarajan v. Union of India [1959] Supp. 1 
SCR 779 : AIR (1959) SC 556; Jindal Paper & Plastics v. Union of 
India (1997) 10 SCC 536; Kasinka Trading v. UOI [1994] Supp. 4 
SCR 448 : (1995) 1 SCC 274; Malpe Vishwanath Acharya v. State 
of Maharashtra [1997] Supp. 6 SCR 717 : (1998) 2 SCC 1; Motor 
General Traders v. State of A.P. [1984] 1 SCR 594 : (1984) 1 SCC 
222 – referred to.
Stephen Otis & Joseph F. Gassman v. E. A. Parker 187 U.S. 606 
(1903); (1903) SCC OnLine US SC 22; Ohralik v. Ohio State Bar 
Association 436 U.S. 447 (1978); Williamson vs. Lee Optical Co. 348 
U.S. 483 (1955); Semler v. Oregon State Board of Dental Examiners 
294 U.S. 608 (1935); Goldfarb v. Virginia State Bar 421 U.S. 773, 
792, (1975) – referred to.
Books and Periodicals Cited
Halsbury Laws of England, 5th Edn. Volume 96 (2018); Francis 
Bennion on Statutory Interpretation (8th Edn, 2020 at Section 
26.4) – referred to.
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List of Acts
Chartered Accountants Act, 1949; Constitution of India; Income 
Tax Act, 1961; Taxation Laws (Amendment) Act, 1975; Finance 
Act, 1984; Finance Bill, 1984; Income Tax Rules, 1962; Chartered 
Accountants (Procedure of Investigations of Professional and 
Other Misconduct and Conduct of Cases) Rules, 2007; Chartered 
Accountants (Amendment) Act, 2006; Government of India Act, 
1935; Companies Act, 1956; Auditors Certificate Rules; Companies 
Act, 1913; Chartered Accountants, the Cost and Works Accountants 
and the Company Secretaries (Amendment) Act, 2022; Chartered 
Accountants Regulations, 1988.
List of Keywords
Chartered Accountants; Professional misconduct; Reasonable 
restriction on the right to practise the profession by a Chartered 
Accountant; Delegation; Excessive delegation; Numerical restriction 
on the maximum number of tax audits; Public interest; Privilege; 
Compulsory tax audits; Virtuous circle of trust; Integrity and 
standards of Chartered Accountants; Nation’s taxation system; 
Compilation of credible financial statements; Unfair means; 
Professional or other misconduct; Misconduct; Misdemeanour, 
omissions or commissions of Chartered Accountants; Professional 
ethics; Corporate governance; Prevent evasion of taxes; Tax 
avoidance; Tax administration.
Case Arising From
CIVIL ORIGINAL JURISDICTION: Transferred Case (Civil) No. 29 
of 2021
From the Judgment and Order dated 09.12.2020 of the Supreme
Court of India in T.P. (C) No. 2849 of 2019
With
Writ Petition (Civil) Nos. 267, 272 371, 581, 670, 1084, 1200, 1256, 
1291, 1295 and 1360 of 2021, Writ Petition (Civil) Nos. 32, 186 and 
833 of 2022, Transferred Case (Civil) Nos. 27, 28, 30, 31, 32, 33, 34, 
35, 36, 37, 38 and 39 of 2021 and Transferred Case (Civil) Nos. 32, 
33, 34, 35, 36, 37, 38, 39, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 
58, 59, 60, 61, 62, 63 , 64, 66, 67, 68, 69, 70,71, 72, 73, 74, 75, 76, 
77, 78, 79, 81, 82, 83, 84, 85, 86, 87 and 88 of 2023
[2024] 6 S.C.R. 
785
Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
Appearances for Parties
P.S. Patwalia, Rajshekhar Rao, Preetesh Kapur, Sr. Advs., Pai Amit, 
Ms. Pankhuri Bhardwaj, Abhiyudaya Vats, Nikhil Pahwa, Kushal Dube, 
Tathagata Dutta, Ms. Vanshika Dubey, P. Ashok, Ms. Lochana S. Babu, 
Smarhar Singh, Kunal Sharma, Jai Krishna Singh, Vikas Chopra, Ms. 
Shweta Kumari, Manoj Kumar, Rishi Raj, Manish K. Bishnoi, M. Anand, 
Shubhendu Bhattarcharyya, Ms. Ila Shikhar Sheel, Hitesh Lodwal, Arjun 
Garg, Shobhit Jain, Aakash Nandolia, Ms. Sagun Srivastava, Ms. Kriti 
Gupta, Nirmal Kumar Ambastha, Ms. Ashmita Bisarya, Sanjay Dutt, Ms. 
Lakshmi N. Kaimal, E. M. S. Anam, Ashwin Kumar Das, Ms. Aditi Anil 
Dani, Rangasaran Mohan, Ishan Roy Chowdhury, Ms. Surbhi Mehta, 
Tapesh Kumar Singh, Sukant Vikram, Prashant Bhardwaj, Aditya P. 
Singh, Animesh Dubey, Ravi Raghunath, Aakashi Lodha, Goutham 
Shivshankar, Ms. Ruchira Goel, Adit Jayeshbhai Shah, Ms. Sharanya 
Sinha, Ms. Shagun Parashar, K. Paari Vendhan, Anas Tanwir, Ebad, 
Parijat Kishore, Sanyat Lodha, Advs. for the Petitioner.
K.M. Natraj, ASG, Arvind P. Datar, Rupesh Kumar, Sr. Advs., Pramod 
Dayal, Nikunj Dayal, Raj Bahadur Yadav, Piyush Beriwal, Ms. 
Swayam Prabha Das, Shivank Pratap Singh, Shashank Bajpai, Ashok 
Panigrahi, Vatsal Joshi, Prahlad Singh, Diwakar Sharma, Amrish 
Kumar, Wills Mathews, Ms. Nanditta Batra, Paul John Edison, Ms. 
Shweta Garg, Advs. for the Respondent.
Petitioner-in-person
By Courts Motion
Judgment / Order of the Supreme Court
Judgment
Nagarathna, J.
Table of Contents*
S.No.
Particulars
Page No.
01
Bird’s Eye View of the Controversy
8
02
Historical Perspective
8
03
Submissions
39
* Ed. Note: Pagination as per the original Judgment.
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04
Submissions of the Petitioners
39
05
Submission of the Respondents
55
06
Points for Consideration
64
07
Legal Framework
65
08
Discussion
86
09
Re: Point No.1: Whether the Council of the 
respondent-Institute, under the 1949 Act, was 
competent to impose, by way of Guidelines, a 
numerical restriction on the maximum number of 
tax audits that could be accepted by a Chartered 
Accountant, under Section 44AB of the 1961 Act, 
in a Financial Year by way of a Guideline?
89
10
Re: Point No. 2: Whether the restrictions imposed 
are unreasonable and therefore, violative of the 
right guaranteed to Chartered Accountants under 
Article 19(1)(g) of the Constitution? 
95
11
Re: Point No.3: Whether the restrictions imposed 
are arbitrary and illegal and therefore, impermissible 
under Article 14 of the Constitution?
95
12
Re: Point No.4: Whether exceeding such specified 
number of tax audits can be deemed to be 
‘professional misconduct’?
124
13
Conclusion
137
The petitioners herein are Chartered Accountants who have 
challenged the validity of Clause 6 of Guidelines No.1-CA(7)/02/2008 
dated 08.08.2008 issued by the Institute of Chartered Accountants of 
India (hereinafter referred as, “respondent-Institute”), under powers 
conferred by the Chartered Accountants Act, 1949 (hereinafter 
referred to as “the 1949 Act”) on the ground that the same is illegal, 
arbitrary and violative of Article 19(1)(g) of the Constitution of India.
1.1	 Some of the present writ petitions have been filed before this 
Court under Article 32 of the Constitution while others were 
filed before various High Courts invoking Article 226 thereof. By 
order dated 09.12.2020, this Court transferred the writ petitions 
pending before various High Courts to this Court. That is how, 
these cases have been clubbed and were heard together and 
are being disposed of by this common order.
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
1.2	 The petitioners are, specifically, aggrieved by the mandatory 
ceiling limit imposed by Clause 6.0, Chapter VI of said Guidelines 
on the number of tax audits that a Chartered Accountant can 
accept in a financial year under Section 44AB of the Income Tax 
Act, 1961 (hereinafter referred to as, “IT Act, 1961”). Additionally, 
and importantly, the petitioners seek a direction for quashing 
and/or setting aside of the disciplinary proceedings initiated by 
the respondent-Institute in pursuance of the Impugned Guideline. 
Clause 6.0, Chapter VI of Guidelines dated 08.08.2008 provides 
that a member of the Institute in practice shall not accept, in 
a financial year, more than the “specified number of tax audit 
assignments” under Section 44AB of the IT Act, 1961. It further 
provides that in the case of a firm of Chartered Accountants, the 
“specified number of tax audit assignments” shall be construed 
as the specified number of tax audit assignments for every 
partner of the firm.
1.3	 At the outset, we find it pertinent to note that the ceiling limit, 
that is the subject of controversy has not been stagnant but 
has, on the basis of several factors, been increased by the 
Council of respondent-Institute during the passage of time. 
Initially, the Council of respondent-Institute vide Notification 
No.1/CA(7)/3/88 dated 13.01.1989 set a limit of thirty audits, 
in exercise of
powers conferred on it under Clause (ii), Part II, 
Second Schedule of the 1949 Act. Further, in February 2014, 
vide resolution adopted at the 331st Meeting of the Council of 
respondent-Institute, the ceiling limit in question was specified 
as sixty and presently stands the same. 
Bird’s Eye View of the Controversy:
2.	
The controversy that has arisen in these petitions is two-fold: firstly, 
whether the respondent-Institute, constituted under the 1949 Act, had 
the competency to impose a restriction of the nature and effect herein? 
If the answer is in the affirmative, secondly, whether a Chartered 
Accountant’s right “to practice any profession” as provided under 
Article 19(1)(g) of the Constitution, is unreasonably restricted by a 
ceiling limit imposed by respondent-Institute on the number of tax 
audits, under Section 44AB, that can be accepted by a Chartered 
Accountant in a financial year? In other words, whether a Chartered 
Accountant can be restricted from undertaking more tax audits
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than specified by the respondent-Institute? Whether the impugned 
Guideline is saved under Article 19(6) of the Constitution of India?
Historical Perspective:
3.	
It is apposite for us, at this juncture, to preface the origin of Section 
44AB in the IT Act, 1961, popularly known as the compulsory audit 
provision and the ceiling limit imposed by the respondent-Institute 
on the Chartered Accountants by way of a Guideline, violation of 
which would result in a misconduct.
3.1	 With the aim of examining and suggesting legal and administrative 
measures for countering evasion and avoidance in direct taxation 
in the country, the Government of India on 02.03.1970, constituted 
a High Power Committee of Experts, namely, the Direct Taxes 
Enquiry Committee, under the chairmanship of Justice K.N. 
Wanchoo, retired Chief Justice of India. In December 1971, 
the Wanchoo Committee submitted its Final Report to the 
Government of India. A bare perusal of Chapter 1 – Introduction, 
Direct Taxes Enquiry Committee-Final Report elucidates that the 
Wanchoo Committee was asked to examine and recommend:
(a)	 concrete and effective measures (i) to unearth black money 
and prevent its proliferation through further evasion; (ii) 
to check avoidance of tax through various legal devices, 
including the formation of trusts; and (iii) to reduce tax 
arrears, 
(b)	 examine various exemptions allowed by the tax laws with 
a view to their
modification, curtailment or withdrawal, and 
(c)	
indicate the manner in which tax assessment and 
administration may be improved for giving effect to all its 
recommendations.
3.2	 In order for the tax administration to become more efficient, the 
Committee, inter alia, made other extensive recommendations, 
in Chapter 2 – Black Money and Tax Evasion and recommended 
insertion of a statutory provision for compulsory audit of accounts. 
The Committee noted that mandatory audit, simultaneously with 
compulsory maintenance of accounts, would ensure that books 
and records are properly maintained; the taxpayer’s income is 
faithfully presented, and proper presentation is facilitated before
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
the Assessing Officer. It was further understood that information 
furnished by the Auditor along with his certificate would enable 
building up of information for cross-verification leading to 
prevention of tax evasion and identification of new assessees. At 
para 2.145, it was interestingly noted that earlier Committees and 
Working Groups had also deliberated on a provision providing for 
compulsory audit. In furtherance, it was noted that the Working 
Group of the Administrative Reforms Commission had favoured 
compulsory audit by Chartered Accountants of persons with 
income over Rs.50,000 but it was finally decided that due to 
limited number of Chartered Accountants at that point in time, 
it may not be possible for all assesses to secure their services, 
except at heavy cost and delay. Noting, at para 2.148, that an 
auditor can devote more time to examination and verification of 
accounts than an Income-Tax Officer, the Wanchoo Committee 
recommended insertion of a provision for mandatory presentation 
of audited accounts and if found necessary, in practice, future 
evolution of proforma for furnishing of information by auditors. 
3.3	 It is pertinent to highlight that by the Taxation Laws (Amendment) 
Act, 1975, Section 142(2A) was inserted to the IT Act, 1961 
conferring special power of audit by a Chartered Accountant in 
certain cases where so sought by the Assessing
Officer.
3.4	 Thereby, only a few of the recommendations of the Wanchoo 
Committee were accepted in the first instance and legislated 
upon by the Parliament. As per the respondent-Institute, this 
conspicuously reflects that the Parliament did not favour 
compulsory tax audit provision of all sizeable cases by Chartered 
Accountants and as a necessary corollary, the opportunity to 
conduct tax audits must be seen as a privilege extended by 
a statute. 
3.5	 Later, the provision for compulsory audits found favour with 
the Parliament and was inserted by the Parliament through 
Finance Act, 1984. The then Finance Minister, while introducing 
the budget through the Finance Bill, 1984 stated in Parliament 
as under:
“With the reduction in rates and expeditious disposal 
of assessments, I believe there will now be no excuse
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for any leniency to be shown to those who abuse our 
laws, such cases will necessarily have to be dealt 
with severely. In order to discourage tax avoidance 
and tax evasion, I am also introducing some further 
measures. In all cases where the annual turnover 
exceeds Rs. 20 lakhs or where the gross receipts 
from a profession exceed Rs. 10 lakhs, I am providing 
for a compulsory audit of accounts. This is intended 
to ensure that the books of account and other 
records are properly maintained and faithfully 
reflect the true income of the taxpayer. …”
(emphasis supplied)
3.6	 The relevant portion of the Memorandum explaining the 
provisions in Finance Bill, 1984, which proposed to introduce 
Section 44AB, reads as under:
“16. A proper audit for tax purposes would ensure 
that the books of account and other records are 
properly maintained and that they faithfully 
reflect the income of the tax payer and claims for 
deductions are correctly made by him. Such audit 
would also help in checking fraudulent practices. It 
can also facilitate the administration of tax laws by 
proper presentation of the accounts before the tax 
authorities and considerably saving the time of 
the assessing officers in carrying out routine 
verifications, like checking correctness of totals and 
verifying whether purchases and sales are properly 
vouched or not. The time of the assessing officers 
thus saved could be utilized for attending to more
important investigational aspects of a case.” 
(emphasis supplied)
3.7	 Finally, Clause No. 11 of the Finance Bill, 1984 (Bill No. 11 
of 1984), was introduced in Parliament to give effect to the 
proposals of the Central Government. Resultantly, Section 44AB 
of the IT Act, 1961 was inserted and came into force w.e.f. 
01.04.1985, providing for compulsory audit. Section 44AB, as 
it stood then, provided that every person carrying on business,
[2024] 6 S.C.R. 
791
Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
if his total sale, turnover or gross receipts exceed Rs.40 Lakhs 
and every person carrying on a profession, if his gross receipts 
exceed Rs.10 Lakhs, in any previous year, is required to get 
his accounts of such previous year audited by an Accountant 
and obtain before the specified date, a report of the audit in 
the prescribed form duly signed and verified. Explanation (i) to 
the Section 44AB clarified that the word ‘accountant’ shall have 
the meaning as in the Explanation to sub-section (2) of Section 
288. The present position is that a tax audit, under Section 
44AB, can be undertaken only by a Chartered Accountant. For 
immediate reference, Section 44AB when it was introduced is 
extracted as under:
“44AB. Audit of accounts of certain persons 
carrying on business or profession.—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 
by an accountant, it shall be sufficient compliance 
with the provisions of this section if such person gets
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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 year or years relevant to an 
assessment year, means the date of the expiry 
of four months from the end of the previous 
year or, where there is more than one previous 
year, from the end of the previous year which 
expired last before the commencement of the 
assessment year, or the 30th day of June of the 
assessment year, whichever is later.’.”
3.8	 Pragmatically, the insertion of Section 44AB meant that persons 
covered by the provision must compulsorily get their accounts 
of relevant assessment year audited by a Chartered Accountant 
before the specified date and obtain a report of such audit in 
the prescribed form duly signed and verified by the Chartered 
Accountant furnishing the particulars stipulated in the rules 
made by the Central Board of Direct Taxes (for short, “CBDT”) 
and annex them to their returns filed in accordance with Section 
139 of the IT Act, 1961. Consequently, Rule 6G to the Income 
Tax Rules, 1962 was inserted.
3.9	 At this
chronological juncture, a perusal of relevant material 
indicates that the objective of the insertion of Section 44AB 
was multifold: firstly, it was intended that compulsory audit will 
discourage tax avoidance and tax evasion by allowing faithful 
reflection of income of the taxpayer and only appropriate 
claims for deductions. Secondly, and importantly, as Chartered 
Accountants can devote more time to examination and verification 
of accounts than an Assessing Officer, it was believed that a 
compulsory audit would save considerable and precious time of
[2024] 6 S.C.R. 
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
assessing officers. Thirdly, it was hoped that proper presentation 
of income and records in a structured and presentable manner 
will be facilitated by compulsory audit. Comprehensively, it is 
apparent that the intent behind Section 44AB was not to codify 
an essential extant practice of the Chartered Accountant’s 
profession but to mandate tax audits to prevent evasion of taxes, 
plug loopholes leading to tax avoidance and also facilitate tax 
administration, thereby ensuring that the economic system does 
not result in concentration of wealth to the common detriment. 
3.10	Post insertion of Section 44AB in the statute book and in 
pursuance of its operation, CBDT noted that the quality of 
tax audits was deteriorating as some Chartered Accountants 
were completing fifty tax audits a month. It is apparent on the 
face of the material perused that such a finding would run 
counter to the long sought and deliberated goal of plugging the 
loopholes in tax administration and saving considerable and 
precious time of assessing officers by presentation of quality 
audit reports. To remedy this, authorities in tax administration 
were of the view that the Government could impose a ceiling 
on maximum number of audits an auditor could undertake. 
Vide letter dt. 19.01.1988, CBDT sought comments from the 
Secretary, Institute of Chartered Accountants of India on possibly 
restricting the
number of tax audits a Chartered Accountant may 
be permitted to complete in a year. The contents of the CBDT 
letter dated 19.01.1988 are reproduced as under:
“F.No.225/2/88-IT.ALL 
Government of India  
Ministry of Finance 
Department of Revenue 
(C.B.D.T.)
New Delhi, Dated the 19th January, 1988.
Shri R.L. Chopra, 
Secretary, 
Institute of Chartered Accountants of India, 
I.P. Estate, 
New Delhi.
Sub: Fixation of number of tax audit per auditor.
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Dear Sir,
As per the provisions of Section 44AB of the Income 
Tax Act, a class of assesses have to get their accounts 
audited by auditor. This audit has to be completed 
by a particular date as provided in Section 44AB of 
the Act. It has been represented that some of the 
auditors are completing around 50 audits in a month 
which result in the deterioration of the quality of audit. 
It has, therefore, been that the Government may fix 
the maximum number of audits which an auditor 
may be allowed to undertake under the provisions of 
Section 44AB of the Income Tax Act. In this connection 
reference has also been invited to Section 224 of 
the Companies Act whereby the number of company 
audits which a Chartered Accountant can do has 
been restricted to 20.
2. You are requested to kindly send your comments 
regarding the suggestion of restricting the number 
of audits under Section 44AB of the Income Tax Act 
which a Chartered Accountant may be permitted 
to complete. The number of audits as in the case 
of Section 224 of the Companies Act may also be 
indicated. I would request you to kindly forward the 
comments of the Institute at the earliest.
Yours faithfully, 
Sd/- 
(M.G.C. Goyal) 
Officer on Special Duty (IT.ALL) 
Central Board of Direct Taxes.”
3.11	After consideration of the aforesaid letter, the Professional 
Development Committee of the respondent-Institute at its 
90th Meeting held on 22.02.1988 recommended that
every 
Chartered Accountant be permitted to conduct a maximum of 
twenty tax audits of non-corporate assessees every year in 
addition to entitlement of audits conducted under the Companies 
Act and other statutes. Considering the recommendation of 
the Professional Development Committee, on 28.04.1988–
30.04.1988, the Council of the respondent-Institute in its 133rd
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
Meeting decided to issue a Notification under Clause (ii) of 
Part II of the Second Schedule of the 1949 Act specifying 
that w.e.f. 01.04.1989 a member of the respondent-Institute 
in practice shall be deemed guilty of professional misconduct, 
if he accepts in a financial year more than thirty assignments 
of tax audit, be they in respect of corporate or non-corporate 
assessees. It was further decided that in case of a partnership 
firm, the number of tax audits shall be counted at the rate of 
thirty assignments per partner of thirty tax audit. In pursuance 
of this decision, Notification No.1/CA(7)/3/88 dated 13.01.1989 
was issued by the Council, setting the limit of thirty tax audits. 
Admittedly, at this point, the ceiling limit was intended as only 
a self-regulatory mechanism to be followed by all members. 
3.12	The vires and constitutionality of aforesaid Notification No. 
1/CA(7)/3/88, dated 13.01.1989 was the subject of much 
litigation before several High Courts. In fact, the Notification was 
successfully challenged by a practicing Chartered Accountant, 
in Writ Petition No.5925 of 1989 before the Madras High Court. 
The legality and validity of the Notification No.1/CA(7)/3/88, 
dated 13.01.1989 as also Notification No.1-CA(7)/15887 
dated 25.05.1987 was also assailed in Writ Petition No.5926 
of 1989. The central challenge in both writ petitions was to the
Notifications being violative of Article 19(1)(g) of the Constitution. 
Of imminent interest is the constitutional challenge to the ceiling 
limit in Writ Petition No.5925/1989. The Madras High Court 
observed that ‘accepting a legitimate professional engagement 
by a professional can never be considered unprofessional 
and be made a misconduct’. It was further noted that, once a 
person acquires the requisite qualifications to be a Chartered 
Accountant, he would be free to engage himself in the profession 
restricted only by conduct marred with dishonesty and inviting 
condemnation. Therefore, it was observed that the Act and 
the Rules could bring in restrictions or provisions only for the 
purpose of attaining the aforesaid professional standards. The 
judgment in Writ Petition No.5925 of 1989 was affirmed by 
the Division Bench in Writ Appeal Nos.1452-1453 of 1998, on 
24.03.2005. Furthermore, in SLP(C) Nos. 14370-14371/2005 
preferred by respondent-Institute, this Court vide Order dated 
29.07.2005, issued notice and granted a stay on the operation
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of the judgment of learned Division Bench of Madras High Court. 
The aforesaid captioned Special Leave Petitions were admitted 
as Civil Appeal Nos. 7208-7209 of 2005.
3.13	Certain other High Courts dismissed the challenge to the 
vires and constitutionality of the Notification dated 13.01.1989. 
Amongst others, four such petitions filed before the Madhya 
Pradesh High Court have been brought to our attention, being 
Miscellaneous Petition No.2844 of 1989 – Prem Chand vs. 
Institute of Chartered Accountants of India; Miscellaneous 
Petition No.2792 of 1990 – Ram Narain vs. Institute of Chartered 
Accountants of India; Miscellaneous Petition No.4202 of 1992 – 
Arun Grover vs. Institute of Chartered Accountants of India; and 
Miscellaneous Petition No.3307 of 1993 – Anil Kumar Gupta 
vs. Institute of Chartered Accountants of India. The challenge in 
all the above captioned petitions was to the validity and legality 
of the Notification dated 13.01.1989. By way of a common 
judgment dated 18.04.1995 passed by the Division Bench of the 
Madhya Pradesh High Court, the aforesaid writ petitions were 
dismissed holding that the Notification does not take away the 
right of petitioners to carry on their profession but only placed 
a ceiling limit for purposes of effective and business-like audit. 
Furthermore, the Division Bench of the High Court found that 
public interest was met by distribution of work amongst many 
Chartered
Accountants. Against the aforesaid judgment of the 
Division Bench of Madhya Pradesh High Court, leave was 
granted by this Court in Special Leave Petition (Civil) No.21988 
of 1995 but the Civil Appeal was dismissed as withdrawn by 
order dated 04.05.1999. Before the Madhya Pradesh High Court, 
in another Writ Petition No.2085 of 1993 – Prakash Mehta vs. 
ICAI, the validity and legality of the Notification dated 13.01.1989 
was challenged. However, the said writ petition was dismissed 
by the said High Court by its order dated 16.05.2005. 
3.14	Further, a challenge to Notification dated 13.01.1989 was 
dismissed by the High Court of Kerala vide judgment dated 
25.02.2003 in O.P. No. 3775 of 1991. Dismissing the challenge, 
it was noted that Section 30(2)(k) of the 1949 Act vests power on 
the Council to make regulations for regulating and maintaining the 
status of members of the Institute and standard of professional 
qualifications of members of the Institute. It was noted that the
[2024] 6 S.C.R. 
797
Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
restriction therein, as it does here, confined the ceiling limit only 
to tax audit assignments accepted under Section 44AB and not 
to any other audit work, unless otherwise restricted under any 
law. Noting the importance attributed to a certificate of audit 
issued by a Chartered Accountant and its concomitant serious 
public interest, it was further noted that audit is a time-bound 
work demanding precision and that the intent of the restriction 
was to ensure quality and accuracy in execution. It was further 
noted that on recommendation of the Professional Development 
Committee, the Notification had been issued by the Council of 
Chartered Accountants, which is composed of its members, by its 
members and for its members. Observing that under Section 15 
of the 1949 Act, it is the duty and function of the Council to make 
provision for regulating and maintaining the status of members 
of the Institute and that Section 30(2)(k) empowers the Council 
to frame regulations in that regard, the restriction was held to be 
reasonable. It is also pertinent to highlight that the judgments in 
writ petitions before the Madras High Court and Madhya Pradesh 
High Court were considered and the latter High Court found itself 
in disagreement with the Madras High Court on the ground that 
the restriction had been imposed by a competent statutory body 
of professionals in the interest of the
profession. It was reasoned 
that no interference was warranted when the statutory body had 
taken a decision within its powers in the interest of the profession. 
Against the aforesaid judgment of the High Court of Kerala, Writ 
Appeal No.1116/2003 was filed before the Division Bench of the 
Kerala High Court but was dismissed as infructuous on 14.01.2016 
on account of the death of the writ petitioner therein.
3.15	At the 184th Meeting of the Council in the year 1997, it considered 
the issue of certain Chartered Accountants exceeding the 
prescribed limit and proceeded to refer the matter to the 
Committee for Ethical Standards and Unjustified Removal of 
Auditors (CESURA) for a detailed review on the limit of thirty 
tax audits in a year and also to examine the issue of developing 
a suitable mechanism for the purpose of monitoring such limit. 
CESURA, in its 58th Meeting held on 25.02.1997 recommended 
that the Council, before developing a suitable mechanism for 
the purpose of monitoring such limit, should ask members to 
submit a report on the number of tax audits carried out by them
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in a prescribed format. At its 186th Meeting, the Council took 
up the recommendation of the CESURA and asked members 
to submit a report on the number of tax audits carried out by 
them, as per the prescribed format appearing at pages 61 to 
63 of the Guidance Note on Tax under Section 44AB of the IT 
Act, 1961. In pursuance of the decision of the Council taken 
at the 186th Meeting, an announcement was published in April, 
1998 whereby members were requested to furnish the reports 
on number of tax audits carried out by them in the financial 
year corresponding to the assessment year 1997-98. 
3.16	After several iterations of the announcement calling for the 
reports from members, the Council at its 197th Meeting, held 
on 16.01.1999-18.01.1999, considered the matter of review of 
limit of thirty tax audits in a year. It is important to note that 
members, even in the year 1999, were of the view that the 
objective of calling the information was only to review the limit 
and not to take disciplinary action and requested the President 
to suitably publish the view of the Council. In pursuance thereof, 
an announcement was published in the Institute’s Journal in 
March, 1999, the relevant portion of it is reproduced as under:
“Dear Colleague,
March is a month of marching ahead.
X X X
Ceiling on Tax Audit Under Section 44AB
The revision of ceiling on tax audit under Section 
44AB of the Income Tax Act is under consideration
of the Council. In order to enable the Council to take 
an appropriate decision in the matter, members are 
requested to comply with the requirements called for in 
the format published in the Journal. The information 
is being collected only for statistical purposes 
and will be treated as confidential.
X X X
Yours in professional fellowship 
New Delhi 
S.P. Chhajed, 
March 1, 1999
President”
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
3.17	At the 66th Meeting of the CESURA, held on 08.09.1999 and 
05.10.1999, 12,196 reports received from members/firms were 
examined and it was concluded that the average number of 
Tax Audits done by a member came out to be about 14-15 
audits per partner/proprietor. Reviewing the same at the 205th 
Meeting of the Council held from 15.12.1999-17.12.1999, it 
was decided that since the average number of tax audits 
done by a member/partner of a firm came to be about 14 to 
15 audits, therefore, no change was warranted. Notably, the 
minutes of 205th Meeting of the Council record the Institute’s 
President’s reference to a relevant paper presented in CAPA 
Conference at Korea in 1989. The minutes of the said Meeting 
describe the paper discussed in the Meeting of the Council 
as under:
“The main thrust of the Korean paper was that when 
there was ceiling on audit, there was less competition. 
When less competition was there, the audit reports 
were qualified. When there was no ceiling, a member 
was free to accept any number of Tax Audits as a 
result of which there was more competition finally 
resulting in unqualified audit reports.”
3.18	Considering that fourteen years had passed since the last ceiling 
limit was fixed in 1989 and that the number of persons eligible 
to tax audit had considerably increased due to the change in 
limits prescribed under Section 44AB, IT Act, 1961,
the Financial 
Law Committee meeting of the respondent-Institute, held on 
12.09.2003, recommended that the Council may increase the 
ceiling limit for tax audit assignments to fifty. However, the 
Council at its 236th Meeting decided against increasing the limit 
from thirty to fifty tax audits per member.
3.19	In exercise of powers conferred on the respondent-Institute 
by clauses (c) and (d) of Sub-section (2) of Section 29A, 
read with Sub-section (4) of Section 21 and Sub-sections 
(2) and (4) of Section 21B of the 1949 Act, the Central 
Government notified the Chartered Accountants (Procedure 
of Investigations of Professional and Other Misconduct and 
Conduct of Cases) Rules, 2007. The said Rules came into 
effect from 27.02.2007.
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3.20	At the 268th Meeting, held on 30.04.2007 – 02.05.2007, the 
Council discussed whether it should revise the ceiling limit on 
number of tax audits. The Council was divided on the issue 
whether the Council should increase the ceiling limit of tax 
audits although factors such as the increased permeation of 
access to technology and consequential increased professional 
competence of auditors, dynamic and increasing economy, 
growth of new and specialized areas of practices, and such 
other factors prevailed. The Council, finally authorized its 
President to decide upon an appropriate increase in the 
ceiling on number of tax audits after taking into consideration 
the views expressed by its members. In pursuance thereof, 
on 11.05.2007, the respondent-Institute increased the limit 
on number of tax audits from thirty to forty-five per Chartered 
Accountant per year. 
3.21	At this stage it is pertinent to note that the respondent-Institute 
was of the opinion that the extant self-regulatory mechanism 
was ineffective in ensuring compliance of the maximum limit. 
Therefore, the 1949 Act was amended by the Parliament by 
the Chartered Accountants (Amendment) Act, 2006 (hereinafter 
referred to as “Amendment Act, 2006”) by which the erstwhile 
Notifications were superseded by Guidelines dated 08.08.2008. 
In view of the above development, this Court by order dated 
01.04.2013 dismissed the Civil Appeal Nos.7208-7209 of 2005
as having become infructuous. For ease of reference, the said 
order is extracted as under:
“Civil Appeal No(s). 7208-7209 of 2005
Decided on April 1, 2013
ORDER
These appeals have been preferred against the 
impugned judgment and order dated 24.3.2005 
passed in Writ Appeal No .1452 & 1453/1998 by 
the High Court of Madras quashing the notifications 
issued by the appellant by which it has quashed the 
notifications dated 25.5.1987 and 13.1.1989 by which 
certain regulatory measures have been taken by the 
appellant against its members.
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
Mr. N.K. Poddar, learned senior counsel appearing 
for the appellant stated that both these notifications 
do not survive. They have been withdrawn and 
subsequently two guidelines have been issued by 
the appellant on 8th August, 2008 for regulating the 
business of its members. However, subsequently one 
of them had also been withdrawn in 2011 and today 
only one guidelines is issued for which the appellant 
has not received any representation, ventilation or 
any grievance from any member of the appellant 
association in respect of the existing guidelines which 
deals with Section 44 A(b) of the Income Tax Act, 
1961. Mr. Poddar further submitted that in case, the 
appellant receives any representation against such 
existing guidelines, the highest body of the appellant 
will consider it and will take a decision as to whether 
such guidelines would continue or require any kind 
of modification.
In view of the above, we do not propose to hear 
the appeals on merit and the same are dismissed 
as having become infructuous. However, in case 
any member is aggrieved of the existing guidelines 
and files a representation before the appellant, the 
appellant shall consider it and pass appropriate order, 
and if any member is aggrieved thereof whether he 
has made representation or not, would have right to 
challenge it before the appropriate forum.
With the aforesaid observations, the
appeals stand 
dismissed. Before parting with the case, we express 
our thanks to Shri K.V. Vishwanathan, learned senior 
counsel, Amicus Curiae, for rendering assistance in 
the instant case.”
3.22	In a further exercise of review of the limit, at the 331st Meeting 
of the Council held in February 2014, it was again decided to 
increase the limit on accepting tax audits from forty-five to sixty 
w.e.f. from the financial year 2014-15.
3.23	In order to establish that the restriction has been incisively 
deliberated upon and the need of the restriction has been
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supported by expert practitioners over an extended period of 
time, the respondent-Institute has placed heavy reliance on 
the above-discussed CBDT letter dated 19.01.1988 and the 
Report of the Comptroller and Auditor General of India (for 
short, “CAG”), being No. 32 of 2014, tiled “Performance Audit 
on Appreciation of Third Party (Chartered Accountant) 
Reporting in Assessment Proceedings”, presented to the 
Parliament on 19.12.2014. 
3.24	Our attention was drawn to ‘Section 3.6 Control on number of 
tax audit assignment’ of the CAG’s Report wherein pertinent 
observations were made on effectuating control on Chartered 
Accountants undertaking tax audit assignments under Section 
44AB of the IT Act, 1961. Highlighting the relationship between 
the number of tax audits undertaken and the quality of tax audits, 
the CAG reported that there was no system in field offices of 
Income-Tax Department (for short, “ITD”) to monitor compliance 
by Chartered Accountants of ceiling limit set by respondent-
Institute. The CAG was informed by the respondent-Institute, 
in September 2014, that even though Chartered Accountants 
have been provided with Form of Tax Audit particulars to be 
maintained by members/Firm, maintenance of such records is a 
self-regulatory mechanism and can be called upon by respondent-
Institute for checking adherence to the Guidelines. However, any 
formal complaint received by respondent-Institute was acted
upon 
within the framework provided in the Chartered Accountants Act 
and the Misconduct Rules, 2007 framed thereunder.
3.25	As per information provided by DGIT(Systems), ITD to the CAG 
in August, 2014:
a.	
65,898 Chartered Accountants submitted at least one Tax 
Audit Report (TAR) for AY 2013-14. Further, out of total 
65,898 records of Chartered Accountants:
i.	
81.13% Chartered Accountants adhered to the limit 
of forty-five prescribed by ICAI (Institute of Chartered 
Accountants of India).
ii.	
18.87% submitted more than forty-five TARs (Tax 
Audit Reports).
iii.	
Excess number of tax audits ranged from 46 to 2471.
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
b.	
A table showing twenty-two Chartered Accountants who 
issued more than forty-five TARs for the annual year 2013-
2014 ranged from 401 TARs up to 2471 TARs.
The CAG Report pointed out that the purpose of maintenance of 
quality audit work had suffered due to no monitoring mechanism of 
this crucial ceiling limit by either respondent-Institute or ITD as per 
the following statistics:
Stratification of total TARs issued by Chartered Accountant 
for Assessment Year 2013-14
(vide CAG Report No. 32/2014, Section 3.6)
Range of TARs 
issued
Total Number of 
Accountants
Percentage of Total 
Accountants
1-45
53,463
81.13
46-100
10,838
16.45
101-200
1,364
2.07
201-300
166
0.25
301-400
45
0.07
401-500
10
0.02
501-1000
11
0.02
> 1000
1
0
Total Accountants
65,898
100
Note: 81.13% adhered to the ceiling limit.
Therefore, the CAG, at Section 3.11(d) Recommendations of the 
same Report recommended that the:
d.	
Ministry may ensure limiting the tax audit assignments 
in order to ensure quality of Tax Audit.
3.26	The Ministry replied contending that the respondent-Institute, 
as an expert statutory body, would lay down restrictions on the 
number of tax audits and be capable of enforcing it. However, 
the CAG noted that Chartered Accountants have been assigned 
very crucial work of tax audit and therefore, the introduction of 
a suitable control mechanism in the IT system, by the Ministry,
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in consultation with respondent-Institute, was in the interest of 
the revenue for ensuring quality of tax audit.
3.27	Respondent-Institute at its 339th Meeting held from 23.12.2014 
to 25.12.2014 discussed the report of the CAG and in pursuance 
thereof, a group of Council Members was constituted on 
24.01.2015 to study the report of the CAG for the year ending 
March, 2014 and place its findings before the Council for 
appropriate direction. The Council decided to refer all cases, 
where ceiling was exceeded, to the Director (Discipline).
3.28	It is averred that respondent-Institute had no mechanism to 
record exact data on number of tax audits undertaken by a 
Chartered Accountant until the respondent-Institute made it 
mandatory in 2019 that submission of all tax audit reports 
undertaken by a Chartered Accountants be marked with a 
‘Unique Document Identification Number (‘UDIN’). Lacking 
such a mechanism, the respondent-Institute, seeking to initiate 
disciplinary proceedings for professional misconduct for carrying 
out tax audits assignments under Section 44AB of the IT 
Act, 1961, treated data gathered by the CAG as complaints 
and issued communications to some petitioner-Chartered 
Accountants who accepted more than specified limit of tax 
audits for the Assessment Year 2013-14, namely, forty-five.
3.29	It was submitted on behalf of respondent-Institute in the course 
of proceedings that it decided to issue
communications to only 
those Chartered Accountants who had conducted more than 
200 tax audits in a relevant Assessment Year. As of date, the 
respondent-Institute has issued only 276 notices although 
there has been violation by over ten thousand Chartered 
Accountants.
3.30	Aggrieved by the aforesaid communications seeking initiation 
of disciplinary proceedings for professional misconduct, 
several petitioner-Chartered Accountants have challenged 
the impugned Guidelines dated 08.08.2008 as well as the 
communications initiated by the respondent-Institute before 
respective High Courts having jurisdiction. In some writ petitions 
pending before various High Courts, stay of the disciplinary 
proceedings initiated by the respondent-Institute has been 
granted.
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3.31	In order to avoid multiplicity of proceedings and conflicting 
decisions by various High Courts seized of identical issues, 
respondent-Institute filed Transfer Petition (Civil) Nos. 2849-
2859 of 2019 and 727-728 of 2020 before this Court seeking 
transfer of the various Writ Petitions pending in the High Courts 
of Kerala, Madras and Calcutta to this Court. By order dated 
09.12.2020, a three-Judge Bench of this Court, in T.P.(C) 
Nos. 2849-2859 of 2019, noting in paragraph 16 that the 
question involved was of public importance and necessitated a 
comprehensive settlement of the question of law, allowed the 
transfer petitions. Consequently, the writ petitions were withdrawn 
from the respective High Courts and transferred to this Court. 
Thereafter, by subsequent orders passed by this Court, all the 
identical writ petitions pending before various High Courts were 
transferred to this Court. That is why, all these transferred cases 
and the writ petitions filed under Article 32 of the Constitution of 
India have been heard together. The relief sought in these writ 
petitions are similar and hence the relief sought in Writ Petition 
No. 25662 of 2016 before Kerala High Court [Transferred Case 
(Civil) No.29 of 2021 before this Court] are extracted as under:
“RELIEFS:- 
(a)	 Declare that the restriction imposed by Ext 
P2 circular on the number of tax audits is
discriminatory, unreasonable and violative of 
article 19(1)(g) of the Indian Constitution. 
(b)	 To call for records leading to Ext P2 guidelines 
2008 and issue a writ in the nature of certiorari 
or any other appropriate writ, order or direction 
and quash and set aside chapter VI of Ext P2, 
which deals with tax audit assignments under 
section 44AB of the Income Tax Act 1961. 
(c)	
To call for records leading to Exhibit P3, Exhibit 
P7 and Exhibit P9 and issue a writ in the nature 
of certiorari or any other appropriate writ order 
or direction, setting aside Ext P3, P7 and P9 
as the same is violative of fundamental rights 
guaranteed under Article 14 and l9(1)(g) and 
also against the direction in Ext Pl judgment.
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(d)	 To direct the highest body of the 1st respondent 
to pass orders on Ext P5 representation filed 
by the petitioner.
(e)	 To grant such other appropriate reliefs to the 
Petitioner as this Hon’ble Court may deem fit 
and proper in the interest of justice.”
Hence, this Court has now come to be seized of the present petitions 
and questions involved therein.
Submissions:
4.	
We have heard learned senior counsel Sri V. Giri, Sri P.S. Patwalia, 
Sri Preetesh Kapur, Sri Rajashekhar Rao, Sri Tapesh Kumar Singh 
and learned counsel Sri Manish K. Bishnoi, Sri Pai Amit, Sri Goutham 
Shivshankar, Sri Nirmal Kumar Ambastha, Sri Ashwin Kumar Das, 
Sri B. Ramana Kumar and other learned counsel for the petitioners 
and learned senior counsel for the respondents Sri Arvind P. Datar 
ably assisted by Sri Nikunj Dayal, Advocate and learned counsel for 
the intervenors Sri Wills Mathews.
Submissions of the Petitioners:
4.1	 Leading the arguments, Sri V. Giri submitted that the primary 
case of the petitioners is that the impugned Chapter VI of 
the Guidelines dated 08.08.2008 imposing an unreasonable 
restriction on a Chartered Accountant duly qualified to practice 
the profession of Chartered Accountancy in India is violative of 
Article 19(1)(g) of the Constitution. Furthermore, the impugned 
Guidelines are arbitrary and lack any rational nexus with the 
objects sought to be achieved by the 1949 Act, namely, the 
regulation and
maintenance of the status and standard of 
professional qualifications of the members of the Institute.
4.2	 Learned senior counsel appearing for petitioners submitted that 
the intention of the 1949 Act was to provide for a rigorous test and 
exemplary qualification to enter into the sphere of the profession 
of accountants in practice and once in possession of requisite 
qualification, such a person is entitled to follow a profession 
which is exclusive and special on its own merit without any kind 
of restriction except for a conduct amounting to misconduct 
within the rigours of the 1949 Act. As a consequence, petitioners
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contended that accepting a legitimate professional engagement 
by a professional can never be considered unprofessional or 
be considered a misconduct. 
4.3	 To highlight the arbitrariness of the restriction, it was contended 
on behalf of the petitioners that the restriction lacks any 
reasonable classification and reasonable nexus with the objects 
sought to be achieved. If the ceiling limit has been imposed 
on audits under Section 44AB, to achieve purity and quality of 
work, the restriction should have been imposed on the volume 
of work, as evidenced from the number of transactions and not 
on the number of audits. It was argued that a single audit work 
itself could be voluminous and occupy significant amount of a 
Chartered Accountant’s time, whereas another audit work itself 
could be completed with relative ease and within a limited time.
4.4	 Furthermore, it was contended that the impugned Guidelines 
lack any reasonable classification or reasonable differentia on 
putting a ceiling limit on the number of tax audits under Section 
44AB, IT Act, 1961 insofar as no maximum cap is placed on 
other audit assignments under the IT Act, 1961 that are carried 
out by Chartered Accountants with similarly taxing reporting 
requirements, such as Sections 44AD, 44AE, 44AF of the IT 
Act, 1961. In furtherance of the above, it was also urged that 
the impugned Guidelines, in effect,
also discriminate between 
Chartered Accountants practicing in smaller cities and towns 
as they are not in a position to charge the fee for each tax 
audit assignment in the same manner which can be charged 
by a Chartered Accountant practicing in big metropolitan cities. 
In effect, it was contended that the restriction will cause a 
more significant drop in the income of Chartered Accountants 
practicing in mofussil areas. As a result of this uneven restriction, 
an efficient Chartered Accountant may be able to complete the 
entire audit work within a short duration and remain unemployed 
for the rest of the year, was the submission made.
4.5	 As further contended by the petitioners, the main object of the 
1949 Act, is to regulate the conduct of the members of the 
respondent-Institute in carrying out their professional duties and 
the exercise of agency by a Chartered Accountant in choosing 
his own volume of work cannot be considered professional
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misconduct. Furthermore, where the Act and Rules made 
thereunder would be entitled to bring restrictions or provisions 
only for the purpose of attaining the prescribed professional 
standards, a mere choice of work could not be considered 
professional misconduct.
4.6	 During the course of arguments, analogies were often drawn to 
the legal profession to argue that, it is, firstly, inconceivable that 
a cap could be put on the number of cases that an advocate can 
take up and, secondly, there is no norm, custom, or practice of 
the profession that would require the rule-making body to ensure 
equitable distribution of work to younger Chartered Accountants. 
Relatedly, it was contended that the equitable distribution of 
work cannot automatically lead to betterment of the standards 
of chartered accountancy profession in the country.
4.7	 It was further submitted on behalf of the petitioners that a 
Chartered Accountant’s fundamental right to practice the 
profession is unreasonably restricted as there is no sanctity in 
the ceiling limit prescribed by the respondent-Institute. According 
to the petitioners, such a restriction ignores the differentiation 
in professional competence, sincerity, experience, ability and 
other factors that would enable a Chartered Accountant to 
complete more than the specified limit while simultaneously 
ensuring compliance with all quality standards. The petitioners 
also vehemently argued
that all auditors cannot be assumed to 
take equal time in completing a tax audit and the consequential 
conclusion that a Chartered Accountant would be able to 
satisfactorily fulfil his obligations only up to specified tax audit 
assignments under Section 44AB of the IT Act, 1961 would be 
fallacious. Furthermore, according to petitioners, by classifying 
both in the same category, the Guidelines fail to acknowledge 
the difference in competency between a senior Chartered 
Accountant who has years of experience, reputation, facility 
of ten articled clerks and availability of other audit staff with a 
fresh Chartered Accountant who has no articled clerk and no 
audit staff. Reliance in this regard was placed on Raja Video 
Parlour vs. State of Punjab, (1993) 3 SCC 708 (“Raja Video 
Parlour”), wherein this Court held that limiting the maximum 
seating capacity to 50, irrespective of the size of the screen in a 
cinema hall was unconstitutional and violative of Article 19(1)(g).
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4.8	 Learned counsel for the petitioners have vehemently argued 
that in the absence of any statistics or data supporting the 
restriction on the number of tax audits and a related reasonable 
explanation justifying such a cap, this restriction could not be 
justified under Article 19(6) of the Constitution. Thereby, the 
petitioners have contended, that the limit on the number of tax 
audits a Chartered Accountant could accept has no reasonable 
nexus with the provisions of Section 44AB.
4.9	 The petitioners have also drawn our attention to allegedly-
identical Notification No.1/CA(7)/3/88 dated 13.01.1989 issued 
by the Council of the respondent-Institute in exercise of powers 
conferred under Clause (ii) of Part II of Second Schedule to 
the 1949 Act. It was highlighted that said Notification brought 
a restriction of the exact nature, function and importantly, 
restrictive effect wherein a ceiling limit of thirty tax audits was 
imposed under Section 44AB of the IT Act, 1961. The petitioners 
have placed most significant reliance on the fact that the 
said Notification was quashed and held to be ultra vires the 
Constitution by a judgment of the Madras High Court dated 
13.07.1998 in Writ Petition (C) No.5925 of 1989 and the same 
was affirmed by a Division Bench of the same Court. 
4.10	The contention is that the respondent-Institute issued impugned 
Guidelines dated 08.08.2008
during the pendency of the 
challenge to the Madras High Court judgment before this Court, 
solely to negate the binding dictum of judgment of the Madras 
High Court. Neither was any permission of this Court sought by 
respondent-Institute nor was this Court informed on 01.04.2013 
that new Guidelines were of identical nature as the Notification 
impugned therein. Importantly, the argument of the petitioners 
is that the respondent-Institute could not have issued notices 
or instituted disciplinary proceedings, as doing so would be in 
teeth of the dictum laid by the Madras High Court which had not 
been reversed on merits by this Court. Reliance was placed by 
learned counsel for the petitioners on Kusum Ingots & Alloys 
Ltd. vs. Union of India, (2004) 6 SCC 254 (“Kusum Ingots 
& Alloys Ltd.”), to contend that when the Madras High Court 
had quashed an identical Notification dated 13.01.1989, the 
same was in effect throughout the territory of India. It was held 
in Kusum Ingots & Alloys Ltd. as under:
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“22. The Court must have the requisite territorial 
jurisdiction. An order passed on a writ petition 
questioning the constitutionality of a parliamentary 
Act, whether interim or final keeping in view the 
provisions contained in clause (2) of Article 226 of the 
Constitution of India, will have effect throughout the 
territory of India subject of course to the applicability 
of the Act.”
4.11	Challenge to procedural impropriety in issuance of the 
impugned Guidelines was also advanced by the petitioners. It 
was highlighted that impugned Guidelines were not issued in 
compliance with provisions of the 1949 Act as the Regulations 
made by the Council of the respondent-Institute were not notified 
in the official Gazette of India and despite the requirements 
of Section 30B of the Act, Impugned Guidelines were not laid 
before both Houses of Parliament. Thereby, it was contended, 
that the impugned Guidelines do not have the sanction of law. 
Therefore, learned senior counsel and learned counsel for the 
petitioners contended that the Guidelines dated 08.08.2008 
may be struck down as running foul of Articles 19(1)(g) and 14 
of the Constitution of India. 
4.12	Learned senior counsel for petitioner in Writ Petition(C) No.1360 
of 2021, Sri P.S. Patwalia relied upon the judgment of this 
Court in Institute of Chartered Financial Analysts of India 
vs. Council of the Institute of Chartered Accountants of 
India, (2007) 12 SCC
210, (“Institute of Chartered Financial 
Analysts of India”) to contend that undertaking more tax audits 
could not possibly classify as professional misconduct. According 
to the learned senior counsel, the aforesaid case assists their 
submissions insofar as it was held that classification of an activity 
must be looked at pragmatically and within the structural context 
and realities. Therein, it was held that acquiring a qualification 
could not be construed as a professional misconduct and 
consequentially, such a restriction was held to be violative of 
Articles 14 and 19(1)(g). On a similar ground, emphasizing the 
sanctity of a right guaranteed under Article 19(1)(g), reliance was 
placed on paras 14 and 15 of the judgment in B.P. Sharma vs. 
Union of India, (2003) 7 SCC 309, (“B.P. Sharma”), wherein 
this Court held as unconstitutional, a ban on carrying on a
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private profession or self-employment on attaining a certain age 
specified by the State in the absence of any reasons therefor.
4.13	Learned senior counsel appearing for the petitioners in Writ 
Petition (C) No.267/2021 argued that by no stretch of imagination 
could the restriction as sought to be imposed herein could be 
achieved simply through a resolution – a delegated legislation 
not specifically provided for by the Parliament to impose 
a quantitative restriction. It was further contended that the 
Guidelines are ultra vires the provisions of the Act inasmuch as 
there is no power at all under the Act to lay down a maximum 
limit on the number of tax audits. Learned senior counsel focused 
on the language of the Preamble of the 1949 Act to argue that 
the Act was sought by the Parliament to ‘make provisions’ to 
regulate the profession. Thereby, any regulation made has to 
relate to a specific provision and no omnibus power to regulate 
has been granted to the Council.
4.14	Learned senior counsel Sri Patwalia further contended that the 
power to issue Guidelines has been conferred for the first time 
by the Amendment Act, 2022 by way of insertion of sub-clause 
(fa) and hence the impugned Guideline issued earlier in the year 
2008 is without authority of law. Furthermore, it was contended 
that where Section 30B of the 1949 Act provides for power to 
make Regulations “for
the purpose of carrying out the objects 
of the Act”, subject to the following conditions: (i) prior approval 
of the Central Government under Sub-section (3) of Section 30 
and (ii) the requirement under Section 30-B of laying the same 
before Parliament. The Council could not have circumvented the 
aforesaid mandatory safeguards by resorting to power under 
Section 15, especially when creating penal consequences. 
Reliance in this regard was placed on Municipal Corporation 
of Greater Mumbai vs. Anil Shantaram Khoje, (2016) 15 
SCC 726, (“MCGM”) to contend that a regulation comes into 
operation only after promulgation in the official gazette.
4.15	Furthermore, learned senior counsel Sri Preetesh Kapur 
submitted that a restriction of this nature, to be found good 
in law, must have a legitimate nexus to the object sought and 
also, necessarily satisfy the proportionality test elucidated by 
this Court in Modern Dental College and Research Centre
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vs. State of Madhya Pradesh, (2016) 7 SCC 353, (“Modern 
Dental College and Research Centre”). Learned counsel 
contended that where a fundamental right of an individual is 
abridged, justification of the restriction needs more than mere 
demonstration of power; that the aforesaid position forms a 
part of our jurisprudence. 
4.16	Learned senior counsel elucidated that a significant effect of 
the present restriction would be that a structural advantage 
is accrued to partnership firms over sole practitioners as a 
partnership firm of Chartered Accountants will be able to take 
up more multiples of tax audits than an individual practitioner 
permissibly can under the Guidelines. Learned counsel 
contended that a Chartered Accountant has a fundamental 
right to carry out tax audit, guaranteed under Article 19(1)(g) 
and such a right could not be bartered away to colleagues in 
a partnership firm.
4.17	Learned senior counsel also argued that the impugned Guideline 
is hit from the vice of excessive delegation as a resolution, 
by itself, could not penalize as misconduct for taking on 
more clients. Also, reliance was placed on V. Sasidharan vs. 
Peter and Karunakar, (1984) 4 SCC 230, (“V. Sasidharan”) 
wherein this Court had held that the office of a lawyer is not a 
commercial establishment under the Shop & Establishments Act, 
1968 (Kerala Act). Relying on the aforesaid, it was contended 
by learned counsel that a technical
profession stands on a 
different footing to other professions and while a prescription 
for technical qualification would be a reasonable restriction 
under Article 19(6), any other restriction on a profession must 
be carefully construed.
4.18	It was argued by learned senior counsel Sri Singh that 
professions have existed even before the Constitution came into 
being. Prior to the enforcement of the Constitution, an attempt 
to move a legislation to restrict the practice of a profession was 
subject to seeking the assent of Governor-General, in case of 
Federal Legislature, and the Governor in case of provincial 
legislature. Importantly, the Governor-General could not have 
given sanction, if a legislation was framed to restrict lawful 
practice of the profession, except in ‘public interest’. As per
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learned counsel, the position could not have been said to be 
worse off after the coming into force of our Constitution, i.e. 
after repeal of the Government of India Act, 1935. That even 
if there were some safeguards and guardrails, the same could 
only be further emboldened. To buttress his submissions, learned 
counsel Sri Singh also laid emphasis on the judgment of a 
Constitution Bench of this Court in Aswini Kumar Ghose vs. 
Arabinda Bose, (1952) 2 SCC 237, (“Aswini Kumar Ghose”) 
and Devata Prasad Singh Chaudhuri vs. Chief Justice and 
Judges of Patna High Court, (1962) 3 SCR 305, (“Devata 
Prasad Singh Chaudhuri”), to contend that a rule made by an 
authority to deny the right to exercise essential part of a function 
would be a serious invasion on the statutory right to practice. 
4.19	Learned senior counsel, Sri Rajshekhar Rao, appearing for some 
of the petitioners submitted on the importance of professional 
identity of a Chartered Accountant. He also argued that the object 
of attaining quality has no nexus with the imposed restriction 
which, effectively restricts both the practitioner and the client 
in making a choice. It was pressed that the consequences of 
a punishment being imposed by the respondent-Institute are 
grave insofar as besides the punishment imposed, various 
audit works namely, Bank Audit etc. have a requirement that 
the auditor must not have
suffered any kind of punishment for 
professional misconduct.
4.20	According to learned senior counsel, the Council of respondent-
Institute, under powers conferred on it by the 1949 Act, deems 
a member to be qualified and competent to dutifully practice 
the services required of a Chartered Accountant and thereby, 
imposition of a blanket ban by the same Council without 
any qualitative assessment imposes an onerous penalty 
on the rights of a Chartered Accountant. More so, to attach 
a label of professional misconduct without any qualitative 
assessment, simply due to exceeding the maximum limit, 
would be incongruous with the object sought and damage 
future potential prospects without any established relationship 
between numerical benchmark and quality. 
4.21	Reliance was placed by the petitioners on a judgment of the 
High Court of Delhi in Shri R. Nanabhoy vs. Union of India,
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1982 SCC Online Del. 210 : CWP No. 2398/81, (“Shri R. 
Nanabhoy”). It was held by Wad, J. therein that Section 
233(B) and Section 637(A) of the Companies Act, 1956 did 
not empower the Central Government to impose any restriction 
on the number of cost audits which a cost accountant may 
undertake. Noting that there was no material to base such 
a restriction, he further found that such a cap on maximum 
number of audits was arbitrary and in violation of Article 14 of 
the Constitution. 
4.22	It was also canvassed on behalf of the petitioners that where 
the challenge to an erstwhile in pari materia Notification was 
not decided on merits the respondent-Institute erred in initiating 
disciplinary proceedings and imposing punishments, especially 
where a stay on the operation of the judgment of Madras 
High Court had been granted. Reliance was placed on Shree 
Chamundi Mopeds Ltd. vs. Church of South India Trust 
Association CSI CINOD Secretariat, Madras, (1992) 3 SCC 1 
(‘Chamundi Mopeds’). Petitioners therefore sought the reliefs 
as noted above by allowing the writ petitions. 
Submission of the Respondents:
5.	
Per contra, learned senior counsel Sri Arvind Datar, ably assisted 
by learned counsel Sri Nikunj Dayal, contended that the Guideline 
with regard to exceeding the specified number of tax audits being a 
misconduct was inserted pursuant to the communication received 
from the CBDT and with the aim of maintaining
quality in tax audits. 
According to learned senior counsel, putting a cap on the tax audits to 
be undertaken by the Chartered Accountants under Section 44AB of 
the IT Act, 1961, would not in any way restrict the freedom envisaged 
under Article 19(1)(g) of the Constitution of India. The said cap has 
been envisaged in public interest and therefore saved under Article 
19(6) of the Constitution of India.
5.1	 Learned senior counsel Shri Datar submitted that all writ 
petitioners herein have breached the Guideline and undertaken 
more than the specified number of tax audits as envisaged, 
thereby clearly committing a misconduct. Therefore, they 
would have to face the disciplinary proceedings initiated by 
the respondent-Institute and cannot assail the validity of 
the Guideline by either questioning the competence of the
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respondent-Institute in making such a Guideline or the manner 
in which the said Guideline was introduced on the statute book.
5.2	 That, the Guidelines dated 08.08.2008 were issued in exercise 
of powers under clause (i) of Part II of the Second Schedule 
of the 1949 Act and in its role as the only statutory body 
for regulating and governing the profession of Chartered 
Accountants, the respondent-Institute can define misconduct 
to ensure quality and professional good conduct. Further, the 
object is not to prohibit practice of but only to maintain quality in 
audit work, which is wholly in the interest of the general public 
including the ITD. It was further contended that the objects of 
both, the instant Guidelines dated 08.08.2008 and the erstwhile 
Notification dated 13.01.1989 have been to ensure efficiency, 
improve quality service, ensure maintenance of high standards 
of performance and to have equitable distribution of tax audit 
work amongst members of the respondent-Institute.
5.3	 Learned senior counsel for the respondent-Institute submitted 
that the notified limit on tax audits has been decided by the 
Council, an expert body, on consideration of all pragmatic 
limitations and other work undertaken by a Chartered Accountant 
besides tax audit under Section 44AB, IT Act,1961. Section 
139 of the IT Act, 1961 mandatorily requires every assessee, 
governed by
provisions of Section 44AB of the IT Act, 1961, to 
file tax audit report along with his return before the due date – 
presently, 30th September of every year. That being the case, 
the respondent-Institute contended that a Chartered Accountant 
cannot conceivably complete more than the specified number 
of audits in a period of 25-30 weeks, i.e., from April-September 
of the relevant assessment year.
5.4	 Learned senior counsel sought to repel the argument that 
the petitioners’ right under Article 19(1)(g) is violated by the 
restriction. Instead, it was argued that the right of an Indian 
citizen under the Constitution to practice any profession is not 
an absolute right but can be appropriately limited under Article 
19(6). It was submitted that the right to practice as a Chartered 
Accountant is conferred by the 1949 Act and the same may be 
limited by conditions and limitations stipulated under the Act or 
Regulations or Guidelines framed thereunder. The contention
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of the respondent-Institute was that under Article 19(1)(g), what 
is available is a right to practice as a Chartered Accountant in 
accordance with the 1949 Act and the Guidelines or regulations 
made thereunder which is subject to reasonable restrictions.
5.5	 Sri Datar took us through a wide variety of professional work 
that can be undertaken by a Chartered Accountant in practice 
such as statutory corporate audit, representation before tax 
authorities, consultation, audits under Section 44AF, audits 
under Section 141(3)(g) of the Companies Act, etc. It was 
contended that the ceiling has been imposed only in respect 
of the statutory tax audits under Section 44AB of the IT Act, 
1961, which form a class by themselves as they involve more 
time and effort and are significantly more onerous.
5.6	 On the question of professional misconduct, respondent-Institute 
sought to argue that the expression ‘professional misconduct’ 
cannot be construed to mean only an irregularity or an act of 
lowering of dignity of the profession. Rather, the respondent-
Institute being a regulatory body of professionals can define 
misconduct to control and penalize a deviation from the quality 
compliance standards, inter alia, for which the respondent-
Institute has been established by the Parliament to ensure. 
Reliance was placed on Section 30 of the 1949 Act, read with 
clause (i) of Part II of the Second Schedule of the 1949 Act, to 
act
effectively for ensuring compliance with standards of the 
Institute by penalizing a deviation as a misconduct.
5.7	 Learned senior counsel for the respondent-Institute argued 
that a serious public purpose involved behind the Notification 
is visible under the 1949 Act which seeks to regulate the 
profession, hence the impugned Guidelines are issued to ensure 
maintenance of quality and standards in the work done and 
services rendered by Chartered Accountants. This would also aid 
in better and equitable distribution of work amongst the Chartered 
Accountants and to avoid concentration of professional work 
in a few hands, to ensure which is also a duty cast upon the 
Council in furtherance of its regulatory functions under the said 
Act. As per the respondent-Institute, the Council is in the best 
position to have definite information about deterioration in the 
quality of work, as also monopolization – both relevant factors
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in taking a decision on the maximum number of tax audits to 
be accepted.
5.8	 It was also contended that a reduction in income and/or client 
base is not a ground in itself to say that fundamental rights of 
a professional are affected. Nor can there by a comparison with 
the Advocate’s profession.
5.9	 To contravene the contention raised by petitioners that neither 
does the 1949 Act contemplate distribution of available work 
amongst Chartered Accountants, nor is there any obligation 
to provide work for young Chartered Accountants, it was 
contended that under the 1949 Act, the respondent-Institute 
has a responsibility to regulate the profession and hence, the 
Guidelines have been made to ensure quality work and equitable 
distribution of work amongst Chartered Accountants which 
objects are indisputably in furtherance of that statutory duty. 
It was also submitted that the Division Bench of Madras High Court 
did not consider the judgment of the learned Single Judge of the 
Kerala High Court in B.K. Kamath vs. The Institute of Chartered 
Accountants, (2003) 2 KLJ 21, (“B.K. Kamath”). However, the 
judgment of learned Single Judge of the Madras High Court was 
considered and dealt with by the Kerala High Court.
5.10	Learned senior counsel, Sri Datar placed reliance on a judgment 
of this court in Pathumma vs. State of Kerala, (1978) 2 SCC 
1, (“Pathumma”), in support of his
contention that a just 
balance between the fundamental rights and the larger and 
broader interest of society must be struck by this Court while 
trying to protect fundamental rights. Furthermore, it was argued 
that this Court should defer to the Legislature in appreciating 
the needs of the people and interfere only when the statute 
is clearly violative of the right conferred on the citizens under 
Part III of the Constitution. In addition to the foregoing, reliance 
was also placed on M/s Laxmi Khandsari vs. State of U.P., 
(1981) 2 SCC 600, (“M/s Laxmi Khandsari”), to submit that 
if the restrictions imposed appear to be consistent with the 
Directive Principles of State Policy in Part IV of the Constitution 
they would have to be upheld as the same would be in public 
interest and reasonable. Further, according to learned senior 
counsel, in judging the reasonableness, this Court should bear
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in mind that the present restriction is imposed in furtherance of 
Part IV of the Constitution.
5.11	Further reliance was also placed on Minerva Talkies, 
Bangalore vs. State of Karnataka, AIR 1988 SC 526 
(“Minerva Talkies”), in support of the contention that Chartered 
Accountants have no unrestricted fundamental right to carry 
on the profession unregulated by the provisions of the the 
1949 Act, including the regulations made and the Guidelines 
issued thereunder in the interest of general public and the 
society at large. In Minerva Talkies, this Court had upheld 
the restriction to limit the number of cinema shows to four in 
a day. This Court had further held that no law can be held to 
be unreasonable merely because it results in reduction in the 
income of the citizen.
5.12	Learned senior counsel, Sri Datar, also argued that the power 
to regulate a particular business or profession implies the power 
to prescribe and enforce all such just and reasonable rules 
and regulations, as may be deemed necessary for conduct of 
business or profession in a proper and orderly manner vide 
Deepak Theatre, Dhuri vs. State of Punjab, 1992 Suppl. (1) 
SCC 684, (“Deepak Theatre”). Reliance was further placed by 
the respondents on T. Velayudhan Achari vs. Union of India, 
(1993) 2 SCC 582, (“T. Velayudhan Achari”), wherein it was 
held that limiting the number of depositors that can be accepted 
by an individual, firm or
unincorporated associations under 
Section 45S(1) of the Banking Laws (Amendment) Act, 1983 
is not violative of Article 19(1)(g) of the Constitution, as it is in 
public interest that larger interests of the depositors are protected.
5.13	The judgment of Delhi High Court in Shri R. Nanabhoy, was 
sought to be distinguished from the present case by citing the 
presence of both legislative sanction and expert opinion, vide 
CBDT Letter dated 19.01.1988 and CAG Report No.32 of 2014, 
supporting the utility of the measure in achieving the objects 
sought, namely, quality and accuracy in such audits.
5.14	Therefore, it was prayed by the respondent-Institute that all 
the writ petitions/transferred cases filed before various High 
Courts and this Court challenging the validity of Chapter VI of 
the Council Guidelines No.1-CA(7)/02/2008 dated 08.08.2008
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issued by the respondent-Institute be held to be devoid of any 
merits and thereby dismissed.
Points for Consideration:
6.	
Having heard learned senior counsel and learned counsel appearing 
for the respective parties and upon perusal of the record, the following 
points would arise for our consideration:
(i)	
Whether the Council of the respondent-Institute, under the 1949 
Act, was competent to impose, by way of Guidelines, a numerical 
restriction on the maximum number of tax audits that could be 
accepted by a Chartered Accountant, under Section 44AB of 
the IT Act, 1961, in a Financial Year by way of a Guideline?
(ii)	
Whether the restrictions imposed are unreasonable and 
therefore, violative of the right guaranteed to Chartered 
Accountants under Article 19(1)(g) of the Constitution?
(iii)	 Whether the restrictions imposed are arbitrary and illegal and 
therefore, impermissible under Article 14 of the Constitution? 
(iv)	 Whether exceeding such specified number of tax audits can 
be deemed to be ‘professional misconduct’?
(v)	
What order?
Legal Framework:
7.	
At this stage, the relevant provisions of the 1949 Act must be perused. 
The Government of India framed the Auditors Certificate Rules in 
1932 in exercise of the powers conferred by Section 144 of the Indian 
Companies Act, 1913. While the accountancy profession in India was 
regulated under those Rules, in order to have
a permanent regulation 
of accountancy profession, it was found necessary to have a body 
to secure and maintain all the requisite standards of professional 
qualifications, discipline and conduct of the accountancy.
7.1	 In the above context, of particular relevance is the Statement 
of Objects and Reasons of the 1949 Act (see Gazette of India, 
11-09-1948, Pt. V, p. 709), which is reproduced hereunder:-
“STATEMENT OF OBJECTS AND REASONS
1. The accountancy profession in India is at present 
regulated by the Auditors Certificates Rules framed
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in 1932 in exercise of the powers conferred on the 
Government of India by Section 144 of the Indian 
Companies Act, 1913, and the Indian Accountancy 
Board advises Government in all matters relating 
to the profession and assists it in maintaining the 
standards of the professional qualifications and 
conduct required of the members of the profession. 
The majority of the Board’s members are elected by 
Registered Accountants members of the profession 
from all parts of India. These arrangements have, 
however, all long been intended to be only transitional, 
to lead up to a system in which such accountants 
will, in autonomous association of themselves, 
largely assume the responsibilities involved 
in the discharge of their public duties by 
securing maintenance of the requisite standard 
of professional qualifications, discipline and 
conduct, the control of the Central Government being 
confined to a very few specified matters.
2. The Bill seeks to authorise the incorporation by 
statute of such an autonomous professional body 
and embodies a scheme which is largely the result 
of a detailed examination of the whole position by an 
ad hoc expert body constituted for the purpose, after 
taking into account the views expressed by the various 
Provincial Governments and public bodies concerned.”
(emphasis supplied)
Therefore, the 1949 Act was enacted with the object of incorporating an 
autonomous professional body of
accountants that would, in respect 
of discharge of their public duties, provide for uniform regulation 
of the profession. Thereby, it is apparent that the relationship of 
the profession to public duty is closely present even in the earliest 
statutory prescription.
7.2	 It is pertinent to note that the long title and preamble of the 
1949 Act was amended, w.e.f. 10.05.2022, vide the Chartered 
Accountants, the Cost and Works Accountants and the Company 
Secretaries (Amendment) Act, 2022, to substitute “regulation 
and development” instead of the extant “regulation”.
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The amended long title and preamble of the 1949 Act reads as under:
“An Act to make provision for the regulation and 
development of the profession of Chartered Accountants.”
(emphasis supplied)
7.3	 Section 2 of the 1949 Act deals with interpretation and the 
relevant clauses of Section 2 are extracted as under:
“2. Interpretation.- (1) In this Act, unless there is 
anything repugnant in the subject or context,−
x x x
(b) “chartered accountant” means a person who is a 
member of the Institute;
(c) “Council” means the Council of the Institute;
x x x
(e) “Institute” means the Institute of Chartered 
Accountants of India constituted under this Act;
x x x
(2) A member of the Institute shall be deemed “to be 
in practice”, when individually or in partnership with 
chartered accountants in practice, or in partnership 
with members of such other recognised professions 
as may be prescribed, he, in consideration of 
remuneration received or to be received,−
(i)	
engages himself in the practice of accountancy; 
or 
(ii)	
offers to perform or performs services involving 
the auditing or verification of financial transactions, 
books, accounts or records, or the preparation, 
verification or certification of financial accounting 
and related statements or holds himself out to 
the public as an accountant; or 
(iii)	 renders professional services or assistance in 
or about matters of principle
or detail relating 
to accounting procedure or the recording,
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presentation or certification of financial facts 
or data: or 
(iv)	 renders such other services as, in the opinion 
of the Council are or may be rendered by a 
chartered accountant in practice;
and the words “to be in practice” with their 
grammatical variations and cognate expressions 
shall be construed accordingly.
Explanation.− An associate or a fellow of the Institute 
who is a salaried employee of a chartered accountant 
in practice or a firm of such chartered accountants or 
firm consisting of one or more chartered accountants 
and members of any other professional body having 
prescribed qualifications shall, notwithstanding such 
employment, be deemed to be in practice for the 
limited purpose of the training of articled assistants.”
7.4	 Section 3 deals with incorporation of Institute of Chartered 
Accountants of India while Section 7 states that every member 
of the Institute is to be known as Chartered Accountant. Vide 
Section 9, the Council of the Institute is constituted for the 
management of the affairs of the Institute and for discharging 
the functions assigned to it under the Act and its functions are 
delineated in Section 15. The above-mentioned Sections are 
extracted as under:
“3. Incorporation of the Institute.- 
(1) All persons whose names are entered in the 
Register at the commencement of this Act and all 
persons who may hereafter have their names entered 
in the Register under the provisions of
this Act, so 
long as they continue to have their names borne 
on the said Register, are hereby constituted a body 
corporate by the name of the Institute of Chartered 
Accountants of India, and all such persons shall be 
known as members of the Institute. 
(2) The Institute shall have perpetual succession and 
a common seal and shall have power to acquire,
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hold and dispose of property, both movable and 
immovable, and shall by its name sue or be sued.
x x x
7. Members to be known as Chartered 
Accountants. - Every member of the Institute in 
practice shall, and any other member may, use 
the designation of a chartered accountant and 
no member using such designation shall use any 
other description, whether in addition thereto or in 
substitution therefor:
 Provided that nothing contained in this Section shall 
be deemed to prohibit any such person from adding 
any other description or letters to his name, if entitled 
thereto, to indicate membership of such other Institute 
of accountancy, whether in India or elsewhere, as 
may be recognised in this behalf by the Council, or 
any other qualification that he may possess, or to 
prohibit a firm, all the partners of which are members 
of the Institute and in practice, from being known by 
its firm name as Chartered Accountants.
x x x
9. Constitution of the Council of the Institute.- 
(1) There shall be a Council of the Institute for the 
management of the affairs of the Institute and for 
discharging the functions assigned to it under this Act. 
(2) The Council shall be composed of the following 
persons, namely :− 
(a)	 not more than thirty-two persons elected by 
the members of the Institute from amongst the 
fellows of the Institute chosen in such manner 
and from such regional
constituencies as may 
be specified: 
Provided that a fellow of the Institute, who has been 
found guilty of any professional or other misconduct 
and whose name is removed from the Register or has
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been awarded penalty of fine, shall not be eligible to 
contest the election,− 
(i)	
in case of misconduct falling under the First 
Schedule of this Act, for a period of three years; 
(ii)	
in case of misconduct falling under the Second 
Schedule of this Act, for a period of six years, 
from the completion of the period of removal of 
name from the Register or payment of fine, as 
the case may be;
(b)	 not more than eight persons to be nominated in 
the specified manner, by the Central Government.
(3) No person holding a post under the Central 
Government or a State Government shall be eligible 
for election to the Council under clause (a) of sub-
section (2). 
(4) No person who has been auditor of the Institute 
shall be eligible for election to the Council under 
clause (a) of sub-section (2), for a period of three 
years after he ceases to be an auditor.
x x x
15. Functions of Council.- 
(1) The Institute shall function under the overall 
control, guidance and supervision of the Council and 
the duty of carrying out the provisions of this Act shall 
be vested in the Council.
(2) In particular, and without prejudice to the generality 
of the foregoing powers, the duties of the Council 
shall include –
(a)	 to approve academic courses and their contents; 
(b)	 the examination of candidates for enrolment 
and the prescribing of fees therefor; 
(c)	
the regulation of the engagement and training 
of articled and audit
assistants; 
(d)	 the prescribing of qualifications for entry in the 
Register;
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(e)	 the recognition of foreign qualifications and 
training for the purposes of enrolment; 
(f)	
the granting or refusal of certificates of practice 
under this Act; 
(g)	 the maintenance and publication of a Register 
of persons qualified to practice as chartered 
accountants; 
(h)	 the levy and collection of fees from members, 
examinees and other persons; 
(i)	
subject to the orders of the appropriate authorities 
under the Act, the removal of names from the 
Register and the restoration to the Register of 
names which have been removed; 
(j)	
the regulation and maintenance of the status 
and standard of professional qualifications of 
members of the Institute;
(k)	
the carrying out, by granting financial assistance 
to persons other than members of the Council or 
in any other manner, of research in accountancy; 
(l)	
the maintenance of a library and publication of 
books and periodicals relating to accountancy; 
(m)	 to enable functioning of the Director (Discipline), 
the Board of Discipline, the Disciplinary Committee 
and the Appellate Authority constituted under the 
provisions of this Act; 
(n)	 to enable functioning of the Quality Review 
Board; 
(o)	 consideration of the recommendations of the 
Quality Review Board made under clause (a) 
of Section 28B and the details of action taken 
thereon in its annual report; and 
(p)	 to ensure the functioning of the Institute in
accordance with the provisions of this Act and 
in performance of other statutory duties as may 
be entrusted to the Institute from time to time.”
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7.5	 Clause (fa) was inserted by the ‘Chartered Accountants, the 
Cost and Works Accountants and the Company Secretaries 
(Amendment) Act, 2022’ and the same reads as under:
“15. Functions of Council.- 
(2) In particular, and without prejudice to the generality 
of the foregoing powers, the duties of the Council 
shall include –
x x x
(fa) to issue guidelines for the purpose of carrying 
out the objects of this Act;”
7.6	 Chapter V of the 1949 Act deals with Misconduct. Section 22 
defines professional or other misconduct as under:
“22. Professional or other misconduct defined.- 
For the purposes of this Act, the expression 
“professional or other misconduct” shall be deemed 
to include any act or omission provided in any of 
the Schedules, but nothing in this Section shall be 
construed to limit or abridge in any way the power 
conferred or duty cast on the Director (Discipline) 
under sub-section (1) of Section 21 to inquire into 
the conduct of any member of the Institute under any 
other circumstances.”
Section 22 of the 1949 Act defines “professional or other misconduct” 
to include any act or omission provided in any of the Schedules 
to the Act. Clause (1) of Part II of the Second Schedule to the 
Act stipulates that a member of the Institute, whether in practice 
or not, shall be deemed to be guilty of professional misconduct if 
he contravenes any of the provisions of the Act or the regulations 
made thereunder or
any Guidelines issued by the Council of the 
respondent-Institute. For immediate reference the same reads as 
under:
“PART II: Professional misconduct in relation to 
members of the Institute generally
A member of the Institute, whether in practice or not, shall 
be deemed to be guilty of professional misconduct, if he –
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(1)	 contravenes any of the provisions of this Act or the 
regulations made thereunder or any guidelines issued 
by the Council;”
Therefore, if a member of the Institute contravenes the provisions 
of the aforesaid Chapter VI of the Guidelines dated 08.08.2008, he 
shall be deemed to be guilty of professional misconduct under the 
1949 Act. Clause 6 is extracted as under:
“Chapter VI
Tax Audit assignments under Section 44AB of the 
Income-tax Act, 1961 
6.0.	 A member of the Institute in practice shall not accept, 
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 where 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. 
Provided also that the audits conducted under 
Section 44AD, 44AE and 44AF of the Income-tax 
Act, 1961 shall not be taken into account for the
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purpose of reckoning the “specified number of tax 
audit assignments”. 
6.1.	 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 
Accountant, 45 tax audit assignments, in a 
financial year, whether in respect of corporate 
or non-corporate assesses. 
(b)	
in the case of firm of Chartered Accountants in 
practice, 45 tax audit assignments per partner in 
the firm, in a financial year, whether in respect 
of corporate or non-corporate assesses. 
6.1.1	 In computing the “specified number of tax audit 
assignments” each year’s audit would be taken 
as a separate assignment. 
6.1.2	 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. 
6.1.3	 The audit of the head office and branch offices 
of a concern shall be regarded as one tax audit 
assignment.
6.1.4	 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. 
6.1.5	 A Chartered Accountant being a part time 
practicing partner of a firm shall not be taken 
into account for the purpose of reckoning the 
tax audit
assignments of the firm.
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6.1.6	 A Chartered Accountant in practice shall 
maintain a record of the tax audit assignments 
accepted by him relating to each financial 
year in the format as may be prescribed by 
the Council.”
The Council at its 331st meeting held from 10th to 12th February, 2014 
decided to increase the “specified number of tax audit assignments” 
for practicing Chartered Accountants, as an individual or as a partner 
in a firm, from forty-five to sixty. The said limit will be effective for the 
audits conducted during the financial year 2014-15 and onwards. 
7.7	 Section 21 refers to Disciplinary Directorate, while Section 
21A deals with Board of Discipline and Section 21B deals 
with Disciplinary Committee. Section 21C states that the 
Authority, the Disciplinary Committee, Board of Discipline 
and the Director (Discipline) shall have the powers of a Civil 
Court. These provisions have to be read with the Schedules 
to the 1949 Act. The First Schedule of the 1949 Act deals with 
professional misconduct in relation to Chartered Accountants 
in practice and it enumerates various types of misconduct. It 
has four Parts. Part I deals with professional misconduct in 
relation to Chartered Accountants in practice. Part II deals with 
professional misconduct in relation to members of the Institute 
in service. Part III deals with professional misconduct in relation 
to members of the Institute
generally. Part IV deals with other 
misconduct in relation to members of the Institute generally. Part 
I of the Second Schedule speaks about professional misconduct 
in relation to Chartered Accountants in practice while Part II 
deals with professional misconduct in relation to members of 
the Institute generally. Part III thereof refers to other misconduct 
in relation to members of the Institute generally.
7.8	 The First Schedule has to be read as part of Sections 21(3), 
21A(3) and 22, while the Second Schedule has to be read as 
part of Sections 21(3), 21B(3) and 22. 
In particular, what is relevant is with regard to a member of the 
Institute, whether in practice or not, contravening any of the 
provisions of the Act or the regulations made thereunder or any 
Guideline issued by the Council, who shall be deemed to be guilty 
of professional misconduct. What falls for interpretation in this batch
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of cases is the expression “any Guidelines issued by the Council”. 
The Institute issued, inter alia, the Guidelines by Notification dated 
08.08.2008.
7.9	 According to the petitioners, the object of ensuring quality of 
audits would be served better by frequent reviews by the Quality 
Review Board established under Section 28A. The said section 
is reproduced as under:
“28A. Establishment of Quality Review Board 
(1)	 The Central Government shall, by notification, 
constitute a Quality Review Board consisting of 
a Chairperson and ten other members. 
(2)	 The Chairperson and members of the Board 
shall be appointed from amongst the persons of 
eminence having experience in the field of law, 
economics, business, finance or accountancy. 
(3)	 Five members of the Board shall be nominated 
by the Council and other five members shall be 
nominated by the Central Government.” 
7.10	Section 30 gives the Council of respondent-Institute the power 
to make regulations to fulfil its functions and duties. For ease 
of reference, relevant portions of Section 30 read as under:
“30. Power to make regulations 
(1)	 The Council may, by notification in the “Gazette 
of India”, make regulations for the purpose of 
carrying out the objects of this Act. 
(2)	 In particular, and without prejudice to the 
generality of the foregoing power, such 
regulations may provide for all or any of the 
following matters :− 
(a)	 the standard and conduct
of examinations 
under this Act; 
(b)	 the qualifications for the entry of the name 
of any person in the Register as a member 
of the Institute;
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(c)	
the conditions under which any examination 
or training may be treated as equivalent 
to the examination and training prescribed 
for members of the Institute; 
(d)	 the conditions under which any foreign 
qualification may be recognised; 
(e)	 the manner in which and the conditions 
subject to which applications for entry in 
the Register may be made; 
(f)	
the fees payable for membership of the 
Institute and the annual fees payable by 
associates and fellows of the Institute in 
respect of their certificates; 
x x x
(k)	
the regulation and maintenance of the 
status and standard of professional 
qualifications of members of the Institute; 
x x x
(t)	
any other matter which is required to be or 
may be prescribed under this Act. 
(3)	 All regulations made by the Council under this 
Act shall be subject to the condition of previous 
publication and to the approval of the Central 
Government. 
(4)	 Notwithstanding anything contained in sub- 
sections (1) and (2) the Central Government 
may frame the first regulations for the purposes 
mentioned in this Section, and such regulations 
shall be deemed to have been made by the 
Council, and shall remain in force from the 
date of the coming into force of this Act, until 
they are amended, altered or revoked by the 
Council.” 
7.11	Section 30B deals with laying procedure before the Parliament 
and the same is extracted as under:
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“30B. Rules, regulations and notifications to be 
laid before Parliament 
Every rule and every regulation made and every 
notification issued under this Act shall be laid, as soon 
as may be after it is made or issued, before each 
House of Parliament, while it is in session, for a total 
period of thirty days which may be comprised in one 
session or in two or more successive sessions, and if, 
before the expiry of the session immediately following 
the session or the successive sessions aforesaid, 
both Houses agree in making any modification in the 
rule, regulation or notification, or both Houses agree 
that the rule, regulation or notification should not be 
made or issued, the rule, regulation or notification, 
shall thereafter have effect only in such modified form 
or be of no effect, as the case may be; so, however, 
that any such modification or annulment shall be 
without prejudice to the validity of anything previously 
done under that rule, regulation or notification.” 
7.12	Chapter VIII of the Chartered Accountants Regulations, 1988, 
framed under the provisions of the 1949 Act, relates to ‘Meetings 
and Proceedings of the Council’. Regulation 163 provides 
that the President of the respondent-Institute will assume the 
Chairmanship of the Council. Regulation 166 prescribes the 
manner of passing of resolution at a meeting. The aforesaid 
regulations are reproduced as under:
“163. Chairman of meeting 
At a
meeting of the Council, the President, or in his 
absence the Vice-President, shall preside, or in the 
absence of both, a member elected from among the 
members who are present, shall preside.
x x x
166. Passing of resolution at a meeting 
At a meeting of the Council, a resolution shall be 
passed by a majority of the members present unless 
otherwise require by the Act or these Regulations,
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and in the case of equality of votes, the Chairman 
of the meeting shall have a casting vote.”
7.13	The Council of the respondent-Institute, in exercise of its 
powers conferred by clause (ii) of Part II of the Second 
Schedule of the 1949 Act, issued a Notification bearing 
No.1/CA(7)/3/88 dated 13.01.1989 specifying 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 specified number of tax audit assignments under 
Section 44AB of the IT Act, 1961, the specified number being 
thirty (now sixty) in a financial year, whether in respect of 
corporate or non-corporate assesses.
7.14	As for relevant provisions of the IT Act, 1961 is concerned, 
Section 44AB of the IT Act, 1961 was inserted in the statute 
book by the Finance Act, 1984 and the same came into force 
with effect from 01.04.1985. Presently, Section 44AB provides 
that every person carrying on business, whose total sale, 
turnover or gross receipts exceed Rs.10 crore, and every person 
carrying on a profession, if his gross receipts exceed Rs.50 
lakhs, in any previous year, is required to get his accounts of 
such previous year audited by a Chartered Accountant, and 
obtain before the specified date, a report of the audit in the 
prescribed form duly signed and verified by such Chartered 
Accountant. The said provision is
popularly called “compulsory 
tax audits”. The object and purpose of Section 44AB is to prevent 
evasion of taxes, plug loopholes enabling tax avoidance and 
also facilitate tax administration, which would ensure that the 
economic system does not result in concentration of wealth to 
the common detriment. For immediate reference, Section 44AB 
of the IT Act, 1961 as it stands presently is extracted as under:
“44AB. Audit of accounts of certain persons 
carrying on business or profession.—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 one crore 
rupees in any previous year;
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Provided that in the case of a person whose-
(a)	 aggregate of all amounts received including 
amount received for sales, turnover or gross 
receipts during the previous year, in cash, 
does not exceed five per cent of the said 
amount; and
(b)	 aggregate of all payments made including 
amount incurred for expenditure, in cash, during 
the previous year does not exceed five per cent 
of the said payment,
this clause shall have effect as if for the words “one 
crore rupees”, the words ten crore rupees had been 
substituted; or
Provided further that for the purposes of this clause, 
the payment or receipt, as the case may be, by a 
cheque drawn on a bank or by a bank draft, which 
is not account payee, shall be deemed to be the 
payment or receipt, as the case may be, in cash.
(b)	 carrying on profession shall, if his gross receipts 
in profession exceed fifty lakh rupees in any 
previous year; or
(c)	
carrying on the business shall, if the profits and 
gains from the business are deemed to be the 
profits and gains of such person under section 
44AE or section 44BB or section 44BBB, as the 
case may be, and he has claimed his income 
to be lower than the profits or gains so deemed 
to be the profits and gains of his business, as 
the case may be, in any previous year; or 
(d)	 carrying on the profession shall, if the profits and 
gains from the profession are deemed to be the 
profits and gains of such person under section
44ADA and he has claimed such income to be 
lower than the profits and gains so deemed to 
be the profits and gains of his profession and 
his income exceeds the maximum amount
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
which is not chargeable to income-tax in any 
previous year; or
(e)	 carrying on the business shall, if the provisions of 
sub-section (4) of section 44AD are applicable in 
his case and his income exceeds the maximum 
amount which is not chargeable to income-tax 
in any previous year,
get his accounts of such previous year audited by an 
accountant before the specified date and furnish by 
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 this section shall not apply to a person, 
who declares profits and gains for the previous year 
in accordance with the provisions of sub-section (1) 
of section 44AD or sub-section (1) of Section 44ADA: 
Provided further that this section shall not apply to 
the person, who derives income of the nature referred 
to in section 44B or section 44BBA, on and from the 
1st day of April, 1985, or, as the case may be, the 
date on which the relevant section came into force, 
whichever is later:
Provided also 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 furnishes by 
that date the report
of the audit as required under 
such other law and a further report by an accountant 
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;
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(ii)	
“specified date”, in relation to the accounts of 
the assessee of the previous year relevant to 
an assessment year, means date one month 
prior to the due date for furnishing the return of 
income under sub-section (1) of section 139.”
Discussion:
8.	
We have heard the matter at length and perused the compilations 
submitted by learned senior counsel and learned counsel and perused 
the material on record.
9.	
During the course of submissions, we observed that the catalyst for 
filing these writ petitions was the issuance of the communications/
notices to the petitioners herein pursuant to the Guideline dated 
08.08.2008, violation of which is a misconduct. Although by an 
amendment made to the said Guidelines, a new type of misconduct 
was envisaged, since the respondent-Institute had initially not taken 
any steps vis-à-vis the said misconduct, there was no challenge as 
such to the Guideline as well as amendment thereto in question by 
any of the petitioners herein. Admittedly, the writ petitioners have 
undertaken audits under Section 44AB of the IT Act, 1961 over and 
above the number of tax audits specified as per the Guidelines 
dated 08.08.2008. Thereby, it is in the guise of challenging the 
disciplinary proceedings initiated by the respondent-Institute against 
the petitioners herein for conducting the audits over and above the 
specified number of tax audits that has led to the constitutional 
challenge to
the Guidelines as well as to the disciplinary proceedings.
10.	 This challenge is on three grounds: first, the manner in which the 
Guideline was brought about was not in accordance with law; second, 
that the Guideline is violative of Article 19(1)(g) of the Constitution 
of India and not protected by Article 19(6) thereof and third, the 
Guideline which constitutes a misconduct within Clause (c) of Part II 
of the Second Schedule to the 1949 Act has not at all been enforced 
until very recently and it has been enforced only selectively, and 
therefore, there is non-compliance of the equality clause envisaged 
under Article 14 of the Constitution of India.
11.	 During the course of submissions, learned senior counsel Sri 
Datar submitted that although a little over ten thousand Chartered 
Accountants had violated the Guideline in question, notices for
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
initiation of disciplinary proceedings were at first issued only in 
respect of a few of them, including writ petitioners herein and those 
who had undertaken more than two hundred tax audits. In regard 
to others, who had exceeded the specified number of tax audits, no 
disciplinary proceedings have been initiated as yet.
12.	 At the outset, we consider it useful to examine the privilege conferred 
under the 1949 Act to practise the profession of a Chartered 
Accountant. Reference to the observation of this Court in All-India 
Federation of Tax Practitioners vs. Union of India, (2007) 7 SCC 
527, (“All-India Federation of Tax Practitioners”), is helpful in this 
regard. In answering the question of whether the Parliament was 
competent to levy service tax on services rendered by Chartered 
Accountants, this Court observed at para 34 that a Chartered 
Accountant or a Cost Accountant obtains a license or a privilege from 
the competent body to practise. We find ourselves in agreement with 
this observation. Reading along with Section 2(1)(b) of the 1949 Act 
which defines a Chartered Accountant as a person who is a member 
of the respondent-Institute, we find it right to infer that a member of 
the respondent-Institute is conferred with the privilege of being able 
to practise as a Chartered Accountant. 
12.1	As held by this Court in Kerala Ayurveda Paramparya Vaidya 
Forum vs. State
of Kerala, (2018) 6 SCC 648, (“Kerala 
Ayurveda Paramparya Vaidya Forum”) a right to practice a 
profession is indeed an acknowledged fundamental right, but 
not unrestricted and is subject to any law imposing regulatory 
measures aiming to ensure standards of the profession and 
nature of public interest involved in the practice of the profession.
Re: Point No.1: Whether the Council of the respondent-Institute, 
under the 1949 Act, was competent to impose, by way of 
Guidelines, a numerical restriction on the maximum number of 
tax audits that could be accepted by a Chartered Accountant, 
under Section 44AB of the IT Act, 1961, in a Financial Year by 
way of a Guideline?
13.	 We have perused the impugned Guideline dated 08.08.2008 which 
is extracted above. The same has to be read in the context of the 
respondent-Institute functioning under the overall control, guidance 
and supervision of the Council which means the Council of the 
Institute has to carry out the duties so as to achieve the objects of
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the Act as delineated in its various provisions of the 1949 Act, vide 
Section 15. The power vested in the Council is general insofar as the 
carrying out the provision of the Act is concerned and in particular 
and without prejudice to the generality of the aforesaid powers, 
certain duties have been specifically delineated. This is evident on 
a reading of sub-sections (1) and (2) of Section 15 of the 1949 Act. 
One of the objects of the 1949 Act is to ensure that the profession of 
the Chartered Accountant in the country maintains high professional 
ethics and renders quality service inasmuch as Chartered Accountants 
are absolutely necessary for the efficient tax administration in the 
country. That on account of their services, the onerous duties cast 
on the assessing officer as well as the ITD is reduced. This would 
however depend upon the quality of service that is rendered by 
the Chartered Accountant as a professional for which regulation of 
the profession is necessary and the respondent-Institute has been 
established for, inter alia, such regulation of the profession. 
13.1	In this context, Chapter V of the 1949 Act assumes importance. 
The said Chapter deals with misconduct. Section 22 of the Act 
defines “professional or other misconduct” to deem to include 
any act or omission provided in any of the Schedules. However, 
nothing in Section 22 shall be construed to limit or abridge 
in any way the power
conferred or duty cast on the Director 
(Discipline) under sub-section (1) of Section 21 to inquire into 
the conduct of any member of the Institute under any other 
circumstances. The two prongs of Section 22 are expansive 
and wide inasmuch as there is no limitation in any way on the 
power conferred or duty cast on the Director (Discipline) under 
Sub-section (1) of Section 21 to inquire into the conduct of 
any member of the Institute under circumstances other than 
what is stated in the Schedules. Also, professional or other 
misconduct is defined by a deeming provision which implies 
that the Schedules which have enumerated various kinds of 
misconducts are not exhaustive or static. With the passage of 
decades and with the emerging varieties of misdemeanour, 
omissions or commissions of Chartered Accountants which 
are not in consonance with professional ethics and would 
amount to misconduct can be defined under the Schedules so 
as to ensure quality service being rendered by the Chartered 
Accountants as professionals. Therefore, the deeming provision
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
would imply that with the passage of time, there could be newer 
misconducts which could be included in the Schedules in the 
form of regulations or Guidelines. The Schedules are a part of 
the 1949 Act which has been passed by the Parliament. But 
bearing in mind the fact that in future, it may not always be 
possible for the Parliament to go on amending the Schedules 
to the Act so as to incorporate newer professional misconducts 
particularly with emerging technology and its applicability to the 
profession of Chartered Accountancy in India, Part II of Second 
Schedule by way of a foresight has delegated the power to the 
Council to make any regulation or Guideline, the breach of which 
would amount to a misconduct. This delegation to define and 
enumerate a misconduct by way of a regulation or a Guideline 
is a legislative device adopted by the Parliament so as to leave 
it to the discretion of the Council of the respondent-Institute to 
incorporate, define and insert a Guideline or a regulation, the 
breach of which would result in a misconduct committed by a 
Chartered Accountant.
13.2	The delegation of this power under Part II of the Second 
Schedule of the 1949 Act made by Parliament in favour of the 
Council of the respondent-Institute cannot be faulted with. This 
is on account of the fact that the 1949 Act itself defines certain 
types of misconduct vis-à-vis a Chartered
Accountant. But in 
the year 1949, the Parliament could not have envisaged every 
possible variety or type of commission or omission which could 
be a misconduct by a Chartered Accountant. Therefore, the 
delegation has been made by the Parliament to the Council 
of the respondent-Institute to make regulations or Guidelines, 
the breach of which would result in a professional misconduct. 
The aforesaid delegation of the Parliament to the Council of 
the respondent-Institute is clearly to define possible types 
of misdemeanours in the Second Schedule in the form of a 
regulation or a Guideline, the breach of which would result in 
a misconduct in futuro. This is in order to avoid the Parliament 
itself amending the Schedules to the 1949 Act every time a 
different type of misconduct is to be inserted to the Schedules 
by way of an amendment to the Act. Therefore, the regulation 
or Guideline issued by the Council, the breach of which would 
result in a professional misconduct, being a part of clause 1 of
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Part II of the Second Schedule have to be read as part and parcel 
of the 1949 Act itself. The delegation of powers to add newer 
types of misconducts by way of a regulation or a Guideline is 
neither excessive nor ultra vires under Section 22 of the 1949 
Act which deems any breach of a regulation or Guideline as 
a misconduct as per Clause 1 of part II of Schedule II to the 
1949 Act. 
13.3	In the circumstances, we hold that the Council of the respondent-
Institute had the legal competence to frame the impugned 
Guideline restricting the number of tax audits that a Chartered 
Accountant could carry out which was initially thirty and later 
raised to forty-five and thereafter to sixty in an assessment 
year. Therefore, the Council of the respondent-Institute having 
the legal competence to frame the Guidelines, the breach of 
which would result in professional misconduct, in terms of 
clause 1 of Part II of the Second Schedule of the 1949 Act 
cannot be held to be vitiated on account of there being lack of 
competency or powers to frame the impugned Guideline by the 
Council of the respondent-Institute. The argument advanced by 
the petitioners regarding the issuance of the Guidelines dated 
08.08.2008 by the respondent-Institute is hit by the vice of 
excessive delegation, is hence without substance. Accordingly, 
we answered the point No.1.
Re: Point No. 2: Whether the restrictions imposed are 
unreasonable and therefore,
violative of the right guaranteed to 
Chartered Accountants under Article 19(1)(g) of the Constitution? 
And,
Re: Point No.3: Whether the restrictions imposed are arbitrary 
and illegal and therefore, impermissible under Article 14 of the 
Constitution? 
14.	 Before answering these points for ready reference and convenience, 
Article 19(1)(g) and (6) are reproduced as under:
“19. Protection of certain rights regarding freedom of 
speech, etc.—
(1) All citizens shall have the right—
x x x
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
(g) to practise any profession, or to carry on any 
occupation, trade or business.
x x x 
6) Nothing in sub-clause (g) of the said clause shall affect 
the operation of any existing law in so far as it imposes, 
or prevent the State from making any law imposing, in the 
interests of the general public, reasonable restrictions on 
the exercise of the right conferred by the said sub-clause, 
and, in particular, 
nothing in the said sub-clause shall affect the operation 
of any existing law in so far as it relates to, or prevent the 
State from making any law relating to,—
(i) the professional or technical qualifications necessary for 
practising any profession or carrying on any occupation, 
trade or business, or
(ii) the carrying on by the State, or by a corporation owned 
or controlled by the State, of any trade, business, industry 
or service, whether to the exclusion, complete or partial, 
of citizens or otherwise.”
15.	 Firstly, Article 19(6) of the Constitution empowers the State to 
impose reasonable restrictions upon the freedom of trade, business, 
occupation or profession in the interest of the general public, which 
freedom is recognised under Article 19(1)(g). Secondly, it empowers the 
State to prescribe professional and technical qualifications necessary 
for practising any profession or carrying on any occupation, trade 
or business. Thirdly, pursuant to the enactment
of the Constitution 
(First) Amendment Act, 1951 — it enables the State to carry on any 
trade or business, either by itself or through a corporation owned 
or controlled by the State, to the exclusion of private citizens wholly 
or in part. It is trite law that restrictions imposed by the State upon 
the freedom guaranteed by Article 19(1)(g) cannot be justified on 
any ground outside Article 19(6) vide Nagar Rice and Flour Mills 
vs. N. Teekappa Gowda and Bros., (1970) 1 SCC 575, (“Nagar 
Rice Milling”).
16.	 The ambit of reasonable restrictions on the exercise of rights under 
Article 19(1)(g) in the interest of the general public under Article
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19(6) was further explained in Hathising Manufacturing Co. Ltd. 
vs. Union of India, (1960) 3 SCR 528 (“Hathising Manufacturing 
Co. Ltd.”), which concerned the challenge to the validity of Section 
25FFF(1) of the Industrial Disputes Act, 1947, which required the 
industries to pay compensation on closure of their undertakings:
“10. …Whether an impugned provision imposing a fetter on 
the exercise of the fundamental right guaranteed by Article 
19(1)(g) amounts to a reasonable restriction imposed in 
the interest of the general public must be adjudged not 
in the background of any theoretical standards or pre-
determinate patterns, but in the light of the nature and 
incidents of the right the interest of the general public 
sought to be secured by imposing the restriction and the 
reasonableness of the quality and extent of the fetter 
upon the right.”
17.	 On the scope of restrictions that may be imposed on fundamental 
rights, it is apposite to refer to Justice Holmes in Stephen Otis & 
Joseph F. Gassman vs. E. A. Parker, 187 U.S. 606 (1903); 1903 
SCC OnLine US SC 22, (“Stephen Otis & Joseph F. Gassman”), 
wherein it was held that if the State thinks that an admitted evil 
cannot be prevented except by prohibiting a calling or transaction 
not in itself necessarily objectionable, the courts cannot interfere, 
unless in looking at the substance of the matter they can see that 
it ‘is a clear, unmistakeable infringement
of rights secured by the 
fundamental law.’ 
18.	 The respondent-Institute has placed reliance on the letter of CBDT 
and the CAG Report No. 32/2014 in order to satisfy us of the 
overwhelming need and appropriateness of the decision to place 
a ceiling limit as the best conceivable and practical measure at 
rectifying the targeted mischief. A perusal of the material on record 
reflects that the respondent-Institute’s assertion that there is a 
probable link between the number of tax audits undertaken and the 
quality thereof is supported by concerns and suggestions shared by 
experts and practitioners over a span of time extending over thirty 
years. In fact, the preceding sentiment is evidenced by both CBDT’s 
letter dated 19.01.1988 seeking views of the respondent-Institute 
on the imposition of a limit and the CAG’s Report presented to the 
Parliament on 19.12.2014 discussed above.
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
19.	 Following the dicta of the Constitution Bench of this Court in Saghir 
Ahmad vs. State of U.P., (1954) 2 SCC 399 (“Saghir Ahmad”), the 
burden to establish that the instantiation of the specified number of 
tax audit assignments was within the purview of the exception laid 
down in Article 19(6) is on the respondent-Institute. We find that the 
respondent-Institute has placed ample material before this Court to 
establish that the legislation comes within the permissible limits of 
clause (6). But the factual matrix herein is dissimilar to Saghir Ahmad, 
wherein this Court had ‘absolutely no materials’ before it to say in 
which way the establishment of State monopoly in road transport 
service would be conducive to the general welfare of the public.
20.	 In this regard, we place reliance upon Sakhawant Ali vs. State of 
Orissa, (1954) 2 SCC 758 (“Sakhawant Ali”), wherein this Court was 
seized of a challenge to a disqualification from electoral candidature of 
legal practitioners who were employed on payment, on behalf of the 
municipality or to act against the municipality. This Court emphasised 
upon the salutary object of the disqualification, i.e., the purity of public 
life, which would invariably be thwarted if there arose a situation 
where there was a conflict between interest and duty. This Court took 
note of the possibility of a conflict of interest and duty of a
municipal 
councillor employed as a paid legal practitioner and was alive to the 
possibility that such a councillor may misuse his position to obtain 
municipal briefs, get unreasonable fees sanctioned or compromise the 
interests of the municipality while acting on behalf of private parties. 
What is of pertinence here is that this Court was alive to the fact that 
cases of misuse may be an exception because lawyers would be 
loathe to stoop to such tactics, yet, it upheld the restriction because 
it sought to prevent a possible abhorrent misconduct and malpractice 
that would be corrosive to public life. The reasoning in Sakhawant 
Ali was to the effect that disqualification of a legal practitioner from 
contesting elections did not prevent him from practising his profession 
of law and as such, the right to practice the profession of law under 
Article 19(1)(g) did not imply the existence of a fundamental right in 
any person to stand as a candidate for election to the municipality.
21.	 Therefore, the present petitioners’ assertion that the undertaking of 
more than a specified number of tax audit assignments would not 
imperil the integrity and quality of the tax audit does not persuade 
us because a reasonable possibility of the fall in quality owing to the 
surfeit of tax audit assignments exists. Therefore, we find it proper to
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trust the wisdom of the respondent-Institute as it has acted on bona 
fide and genuine recommendations of the CAG and the CBDT. We 
find no fault in the endeavour of the respondent-Institute to eliminate 
the possibility of the conduct of tax audits in an insincere, unethical 
or unprofessional manner.
22.	 Keeping the aforesaid in mind, there is no difficulty in concluding that 
by virtue of being a licensee, a privilege is conferred on Chartered 
Accountants. An elaborate and extensive process of recommendations 
and policy-making preceded the insertion of Section 44AB in order to 
achieve the public interest of prevention of tax leakages and more 
efficient tax administration. It is in pursuance of this primary goal 
of public interest that a further privilege under Section 44AB was 
extended to Chartered Accountants to conduct quality tax audits, so 
as to enable the interest of the public exchequer. 
23.	 The present discussion would be enriched by a comparative discourse 
on State regulation of licensed professions as under:
(i)	
Justice Powell, in Ohralik vs. Ohio State Bar Association, 
436 U.S. 447 (1978), (“Ohralik”), held that the State’s interests 
implicated in the case of regulatory restriction on the practice of 
a licensed profession are particularly strong. The case pertained 
to the conviction of an attorney for misconduct on the basis of 
his in-person solicitation from accident victims. Repelling the
attorney’s claims regarding the violation of the right to freedom, 
Justice Powell laid stress on the need for prophylactic regulation 
to safeguard the interests of the lay public. This is for the reason 
that the State bears a special responsibility for maintaining 
standards amongst members of the licensed professions. This 
view is strengthened by the reasoning in Williamson vs. Lee 
Optical Co., 348 U.S. 483 (1955), (“Williamson”) and Semler 
vs. Oregon State Board of Dental Examiners, 294 U.S. 608 
(1935), (“Semler”).
(ii)	
On this point, the dicta from Goldfarb vs. Virginia State Bar, 
421 U.S. 773, 792, (1975), (“Goldfarb”) is also instructive and 
the relevant portion of the judgment reads as follows: 
“….The interest of the States in regulating 
lawyers is especially great, since lawyers are 
essential to the primary governmental function
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Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
of administering justice, and have historically 
been ‘officers of the courts.’”
24.	 We now look at how this Court has understood public interest in 
matters pertaining to abridgment of Article 19(1)(g).
(i)	
A Constitution Bench of this Court, through JC Shah J, in 
Mohd. Faruk vs. State of M.P., (1969) 1 SCC 853, held that 
the Notification issued by the State Government prohibiting the 
slaughter of bulls and bullocks in premises maintained by a local 
authority infringed upon the right to freedom of profession under 
Article 19(1)(g) of the Constitution. This Court had emphasized 
that even though such a Notification may be issued under the 
authority of law that was enacted by a competent legislature, 
it would nevertheless be liable for directly infringing the 
fundamental right of the petitioner guaranteed by Article 19(1)
(g) unless it is established that it seeks to impose reasonable 
restrictions in the interest of the general public and a less drastic 
restriction will not ensure the interest of the general public. It 
was reasoned that the judicial determination of the validity of 
the law imposing a prohibition on the carrying on of a business 
or profession should be informed by:
a.	
an evaluation of the direct and immediate impact of the 
prohibition upon the fundamental rights of the citizens 
affected thereby;
b.	
the larger public interest sought to be ensured in
the light 
of the object sought to be achieved;
c.	
the necessity to restrict the citizen’s freedom;
d.	
the inherently pernicious nature of the act prohibited or its 
capacity or tendency to be harmful to the general public;
e.	
the possibility of achieving the object by imposing a less 
drastic restraint; and 
f.	
in the absence of exceptional exigent situations like the 
prevalence of a state of emergency national or local, the 
existence of a machinery to satisfy the administrative 
authority that no case for imposing the restriction is made 
out or that a less drastic restriction may ensure the object 
intended to be achieved.
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(ii)	
A reasonable restriction, within the meaning of Article 19(6) 
must also be ‘in the interests of the general public.’ Our 
Constitution, by establishing a welfare State, emphasises a 
fine balance between the public interest of the community and 
the liberties of the individual. Indeed, this is not to say that 
individual rights and liberties are not a matter of vital public 
interest but any policy or law may not be struck down at the 
instance of an individual alone. In other words, there is a basic 
unity between fundamental rights and the public interest. The 
public interest inherent in the said individual’s exercise of a 
fundamental right under Part III would need to be delicately 
balanced with the imminent constitutional imperative of the 
‘ordered progress of society towards a welfare state,’ vide K. 
K. Kochuni vs. States of Madras and Kerala, 1958 SCC 
OnLine SC 12, Pr. 33.
(iii)	 In Krishnan Kakkanth vs. Govt. of Kerala, (1997) 9 SCC 495, 
(“Krishnan Kakkanth”), this Court held as under:
“27. The reasonableness of restriction is to be 
determined in an objective manner and from the 
standpoint of the interests of general public and 
not from the standpoint of the interests of the 
persons upon whom the restrictions are imposed 
or upon abstract consideration. A restriction cannot 
be said to be unreasonable merely because in a 
given case, it operates harshly and even if the 
persons affected be petty
traders (Mohd. Hanif v. 
State of Bihar [AIR 1958 SC 731] ). In determining 
the infringement of the right guaranteed under 
Article 19(1), the nature of right alleged to have 
been infringed, the underlying purpose of the 
restriction imposed, the extent and urgency 
of the evil sought to be remedied thereby, the 
disproportion of the imposition, the prevailing 
conditions at the time, enter into judicial verdict 
(Laxmi Khandsari v. State of U.P. [(1981) 2 SCC 600 
: AIR 1981 SC 873] ; D.K. Trivedi and Sons v. State 
of Gujarat [1986 Supp SCC 20] and Harakchand 
Ratanchand Banthia v. Union of India [(1969) 2 SCC 
166 : AIR 1970 SC 1453] ).
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28. Under clause (1)(g) of Article 19, every citizen has 
a freedom and right to choose his own employment or 
take up any trade or calling subject only to the limits 
as may be imposed by the State in the interests of 
public welfare and the other grounds mentioned 
in clause (6) of Article 19. But it may be emphasised 
that the Constitution does not recognise franchise or 
rights to business which are dependent on grants 
by the State or business affected by public interest 
(Saghir Ahmad v. State of U.P. [(1955) 1 SCR 707 : 
AIR 1954 SC 728] ).”
(emphasis by us)
Therefore, it follows that this Court must consider the public interest 
involved not only from the perspective of the Chartered Accountants 
but rather from the perspective of the general public. In the present 
cases, it has been contended that public interest manifests as a 
benefit to the public exchequer in terms of appropriate quality of tax 
audit reports under Section 44AB.
25.	 At this juncture, it is useful to reiterate the thread of public interest 
visible in the 1949 Act since its inception. The Statement of Objects 
and Reasons of the 1949 Act makes it clear that the Act was brought in 
to ensure that accountants all over the country, in discharge of their 
public duties, are governed by a central body that is not transitional. 
Our words should not be mistakenly understood to suggest that the 
profession of
Chartered Accountants is not a private enterprise and 
is concerned solely with rendering of public duties. We rather only 
highlight that it is a profession – licensed by the State – that also 
discharges public duties crucial in public interest. 
26.	 In our opinion, a perusal of the Wanchoo Committee Report, Finance 
Bill, 1984 and the accompanying Memorandum makes it explicitly 
clear that the intent of insertion of Section 44AB of the IT Act, 1961, 
was to facilitate the process of tax administration to the benefit of 
the public exchequer. The genesis of the opportunity to conduct tax 
audits was not regulation of a practice essential to the Chartered 
Accountant profession per se but rather to take assistance of auditors, 
in discharge of their public duties, for plugging tax leakage and 
thereby saving the time of the Assessment Officers on presentation 
of quality tax audit reports in a prescribed format. Therefore, it is for
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these intents and purposes, the privilege of conducting tax audits 
was extended to Chartered Accountants by creating a privilege to 
conduct such audits subject to reasonable restrictions. 
27.	 We must be careful in our delineation between a right and a privilege. 
As discussed above, the idea of compulsory tax audits was neither an 
inherent part of the practice of a Chartered Accountant nor an essential 
function which could be claimed as a fundamental right under Article 
19(1)(g). Furthermore, an examination of the nature of the supposed 
right that was being enjoyed by Chartered Accountants reflects that 
in practice, an assessee, seeking to comply with the requirements 
of Section 44AB, would approach a Chartered Accountant to obtain 
a certificate of audit. We have already observed and noted that 
Section 44AB, IT Act, 1961 was inserted to assist the Revenue 
Department in public. Thereby, it is only through the extension of 
statutory privilege by the presence of Section 44AB, IT Act, 1961, 
that a Chartered Accountant gets the opportunity to undertake tax 
audits under the said section. If the Parliament, in its wisdom, at a 
certain future date, due to technological developments or any other 
reason, finds that expeditious and accurate assessments can be 
ensured without imposing on assessees the burden of additional 
requirement of tax audit report and thereby deletes Section 44AB 
from the IT Act, 1961, it
could not be possibly argued that the right 
under Article 19(1)(g) has been abridged. What follows is that when 
a privilege is being granted, as a privilege by statute, which could be 
effaced completely, a reasonable restriction could also be imposed, 
the latter being a restriction of a lesser degree than a complete ban 
on an activity. 
28.	 On the scope of restrictions imposed to maintain quality of service 
where a privilege had been extended by the Government to medical 
officers, this Court, in Sukumar Mukherjee vs. State of W.B., (1993) 
3 SCC 723, (“Sukumar Mukherjee”), held that the restriction was 
reasonable where the State of West Bengal had, vide Section 9 of 
the West Bengal State Health Service Act, 1990, prohibited private 
practice by members of W.B. Medical Education Service who were 
also teaching in medical institutions. It was held that where the State 
Government had concluded that the regime of permitting private 
practice of those teaching in medical institutions led to a considerable 
decline in quality of teaching, such restriction was reasonable and 
in the interest of general public as the ban on private-practice would
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make available to the teachers-doctors the time required for reading 
and research which was absolutely essential for maintaining quality 
in their main profession as teachers in medicine. Furthermore, 
where for a brief period, in the facts of that case, private practice 
by teaching post-holders was also permitted and then withdrawn, 
this Court held that such an extension was only a privilege extended 
on people who were regulated by the relevant Act and rules made 
thereunder and therefore, the revocation of that privilege was not 
the violation of any right. 
29.	 Where public interest was the genesis of a privilege being extended 
to Chartered Accountants and not a right, it is reasonable that the 
respondent-Institute, an expert body, would have the authority 
to regulate the privilege extended to Chartered Accountants in a 
reasonable manner deemed appropriate to serve public interest. That 
the public interest involved in the present petitions being pervasive 
is evidenced through CAG’s recommendation to the Government to 
insert a provision in the statute book putting a cap on the number of 
tax audits permissible. According to the CAG, in the matter of revenue, 
the IT Act, 1961 should have provision to prescribe for quality of tax 
audit assignments rather than relying on respondent-Institute. 
30.	 It would be apposite at this juncture to refer to the judgment in P.V.
Sivarajan vs. Union of India, AIR 1959 SC 556, (“P.V. Sivarajan”), 
delivered by a Constitution Bench of this Court. Petitioner therein was 
aggrieved by the rejection of his application as a registered exporter 
of coir products, on the ground that he had not already exported 
the minimum specified quantity of 500 Cwts. It was observed by 
this Court that Parliament had enacted the Coir Industry Act, 1953, 
finding it expedient in public interest that the Union should take under 
its control the coir industry as several malpractices had crept in the 
export trade such as non-fulfilment of contracts, supplying goods of 
inferior quality in an industry crucial to the repute of India’s products 
and national economy. With the intent of limiting these losses due to 
qualitative underperformance, the Central Government, under powers 
conferred by the statute, framed Rules in 1958. The Rules were 
assailed by the petitioner therein, contending that they erroneously 
prescribed a quantitative test for registration of established exporters, 
when in fact, a qualitative test would be more suitable. This argument 
was rejected, holding that once it is accepted that regulation of coir 
industry is in public interest, then it would be erroneous to assert that
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regulation must be introduced only on the basis of a qualitative test. 
This Court was mindful of the potential difficulties in introducing and 
effectively enforcing a qualitative test and thereby held that it would 
be for the rule-making authority to decide as to which test would 
meet the requirements of public interest and what method would 
be most expedient in controlling the industry for national good. This 
Court noted as under:
“7. If it is conceded that the regulation of the coir industry 
is in the public interest, then it would be difficult to entertain 
the argument that the regulation or control must be 
introduced only on the basis of a qualitative test. It may 
well be that there are several difficulties in introducing 
and effectively enforcing the qualitative test. It is well 
known that granting permits or licences to export or import 
dealers on the basis of a quantitative test is not unknown 
in regard to export and import of essential commodities. It 
would obviously be for the rule-making authority to decide 
which test would meet the requirements of public 
interest and what method would be most expedient 
in controlling the industry for the national good. 
Besides, even the adoption of a qualitative test may tend 
to extinguish the trade of those who do not satisfy the 
said test; but such a result cannot obviously be treated 
as contravening the fundamental rights under Article 19. 
Control and
regulation of any trade, though reasonable 
within the meaning of Article 19, sub-Article (6), may 
in some cases lead to hardship to some persons 
carrying on the said trade or business if they are 
unable to satisfy the requirements of the regulatory 
rules or provisions validly introduced; but once it is 
conceded that regulation of the trade and its control 
are justified in the public interest, it would not be open 
to a person who fails to satisfy the rules or regulations 
to invoke his fundamental right under Article 19(g) 
and challenge the validity of the regulation or rule in 
question. In our opinion, therefore, the challenge to the 
validity of the rules on the ground of Article 19 must fail.
8. The challenge to the validity of the said rules on the 
ground of Article 14 must also fail, because the classification
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of traders made by Rules 18 and 19 is clearly rational 
and is founded on an intelligible differentia distinguishing 
persons falling under one class from those falling under 
the other. It is also clear that the differentia has a rational 
relation to the object sought to be achieved by the Act. 
As we have already pointed out, the export trade in 
coir commodities disclosed the existence of many 
malpractices which not only affected the volume of 
trade but also the reputation of Indian traders; and one 
of the main reasons which led to this unfortunate result 
was that exporters sometimes accepted orders far beyond 
their capacity and that inevitably led to non-fulfilment of 
contracts or to supply of inferior commodities. In order 
to remedy this position the trade had to be regulated 
and so the intending exporter was required to satisfy the 
test of the prescribed minimum capacity and to establish 
the prescribed minimum status before his application for 
registration is granted. In this connection it may also be 
relevant to point out that the rules seem to contemplate 
the granting of exemption from the operation of some of 
the relevant tests to cooperative societies; and that shows 
that the intention of the legislature is to encourage small 
traders to form co-operative societies and carry on export 
trade on behalf of such societies; and so it would not be 
possible to
accept the argument that the impugned rules 
would lead to a monopoly in the trade. It is thus clear that 
the main object which the rules propose to achieve is 
to improve the anomalies and malpractices prevailing 
in the export trade of coir commodities and to put the 
said trade on a firm and enduring basis in the interest 
of national economy. We are, therefore, satisfied that 
the challenge to the impugned rules on the ground of 
infringement of Article 14 of the Constitution must also fail.”
(emphasis supplied)
31.	 The further contention that a quantitative test discriminates between 
persons carrying on business on a large scale and those who carry 
on business on a small scale as even the prescription of a qualitative 
test would also lead to hardship on those who cannot satisfy the 
test was rejected.
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32.	 We must also now consider further arguments advanced by learned 
senior counsel and counsel for the petitioners. Heavy reliance 
placed on Institute of Chartered Financial Analysts of India, in 
our considered opinion, is misplaced. This case concerned whether 
acquisition of an additional qualification of Chartered Financial Analyst 
(“CFA”) by a Chartered Accountant could be termed as professional 
misconduct under Section 22 of the 1949 Act. Holding in the negative, 
this Court found that enhancement of knowledge, training and ability 
should be encouraged in an emerging economy and to term the same 
as professional misconduct would be violative of Articles 14 and 
19(1)(g). That case is clearly distinguishable. Neither did this Court 
find that the restriction placed was in public interest, nor that the 
acquisition of an additional qualification hurt the quality of statutory 
responsibilities attributed to a Chartered Accountant.
33.	 The argument advanced by learned counsel for the petitioners is that 
as a direct consequence and effect of the ceiling limit, an anomalous 
situation of discrimination between qualified professionals practicing 
in metropolitan cities as against those in mofussil areas, or those 
catering to small assessees as against those catering to bigger 
assessees, must be categorically rejected. The potential effect of the 
concerned restriction is that practitioners dealing in mofussil areas
or catering to small assessees will face a reduction in their income 
which is violative of their right to freely engage in their profession. 
We find ourselves unable to agree with this contention. There is no 
material to suggest that this partial limitation on the practise of the 
profession would lead to a significant reduction in income. In any 
case, it is trite law that reduction of income cannot be a ground for 
holding a reasonable restriction unreasonable vide Minerva Talkies 
which we shall discuss later. Where the devolution of a privilege 
is justifiably restricted in public interest and such restriction has a 
rational nexus with the objects sought to be achieved, the restriction 
cannot be held unreasonable due to hardship faced by a certain 
section of professionals. 
34.	 The following judgments of this Court are also apposite: 
(a)	 In B.P. Sharma, clause 17 of the instructions issued in 1979 by 
the Ministry of Tourism and Civil Aviation, Department of Tourism, 
Government of India prohibiting the renewal of identity cards 
to guides who were carrying on the job of conducting tourists
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to historical monuments and other places of interest and to 
explain the background and importance of such places as well 
as acquaint the tourists with the historical facts relating to the 
monuments and landmarks of the area after they attained the 
age of sixty years, was assailed. Clause 17 stated that “when 
a guide attains the age of 60 years the identity card issued to 
him or her will not be renewed further”. This was unsuccessfully 
challenged by way of a writ petition under Article 226 of the 
Constitution before the Allahabad High Court. But, this Court 
observed that the freedom guaranteed under Article 19(1)(g) of 
the Constitution is valuable and cannot be violated on grounds 
which are not established to be in public interest or just on the 
basis that it is permissible to do so. For placing a complete 
prohibition on any professional activity, there must exist some 
strong reason for the same with a view to attain some legitimate 
object and non-imposition of such prohibition might result in 
jeopardizing or seriously affecting the interest of the people in 
general. Otherwise, it would not be a reasonable restriction. We 
do not have any contrary opinion to what has been observed 
by this Court in the aforesaid judgment but the facts of each 
case would ultimately decide whether, a complete prohibition, 
ban or restriction is a reasonable one or not depending upon
the public interest it would seek to achieve. In the aforesaid 
case clause 17 of the instructions was held to be ultra vires 
Article 19(1)(g) and hence, quashed by this Court.
(b)	 In Minerva Talkies, Rule 41-A of Karnataka Cinemas 
(Regulations) Rules, 1971 made under Section 19 of the 
Karnataka Cinemas (Regulation) Act, 1964 limiting the cinema 
shows to four per day was held to be neither ultra vires the said 
Act nor violative of Article 19(1)(g) of the Constitution. It was 
observed that no licensee can claim to have an unrestricted right 
to exhibit cinematograph films for all the twenty-four hours of the 
day. Such a claim would obviously be against public interest. 
The right to exhibit cinematograph films is regulated by the 
provisions of the Act in the interest of the general public. The 
restriction to limit the number of shows to four in a day placed 
by Rule 41-A is regulatory in nature which clearly carries out 
the purposes of the Act. In the context of Article 19(1)(g), it was 
observed that the law placing restrictions on the citizens’ right
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to do business must satisfy two conditions set out in clause (6) 
of Article 19: firstly, the restrictions imposed by the law must 
be reasonable, and secondly, the restrictions must be in the 
interests of the general public. If these two tests are satisfied, 
the law placing restriction on the citizens’ right guaranteed 
under Article 19(1)(g) must be upheld. While considering the 
validity of Rule 41-A which had limited the number of films to 
be exhibit in a day to four shows, it was noted that holding of 
continuous five shows from 10 am in the morning caused great 
inconvenience to the incoming and outgoing cine-goers and 
endangered public safety. A short interval of fifteen minutes 
between two shows is too little time for cleaning the cinema 
halls and there was also rush by the cine-goers to occupy the 
seats. Moreover, licensees would start exhibiting approved 
films and slides before the cine-goers could occupy their seats, 
with the result they would not have the benefit of the same. 
The absence of interval between the shows resulted in denial 
of fresh air, ventilation and cleanliness in the cinema halls. In 
order to remove these maladies, the restriction on the number 
of shows to four per day was introduced. After analysing the 
inconvenience that would be caused to the cine-goers and also 
the fact that if the five shows were exhibited from 10 am to 1 am 
the next day, there would be great inconvenience
caused to the 
public, the State Government had promulgated the restriction 
to only four shows in a day. Consequently, the said Rule was 
upheld by this Court by observing that it was intra vires the Act 
as it carried out the purposes of the Act and it did not place any 
unreasonable restriction in violation of Article 19(1)(g) of the 
Constitution. Consequently, this Court dismissed the appeals 
as well as the writ petitions.
(c)	
In T. Velayudhan Achari, Section 45-S (1) as introduced by 
Banking Laws (Amendment) Act, 1983 limiting the number 
of depositors that can be accepted by individual, firm or 
unincorporated association, was held to be not violative of 
Article 19(1)(g) of the Constitution as the said limitation protected 
larger interest of depositors. It was observed that a ceiling for 
acceptance of deposits and to require maintenance of certain 
liquidity of funds as well as not to exceed borrowings beyond a 
particular percentage of the net-owned funds had been provided
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in the corporate sector. But for these safeguards, the depositors 
would be left high and dry without any remedy. It was held that 
the restrictions were reasonable and were in the public interest.
(d)	
In B.K. Kamath, Kurian Joseph J. (as a Judge of the Kerala High 
Court), observed that the Chartered Accountants Act was enacted 
for regulating the profession and in the process regulating and 
maintaining the status of the Chartered Accountants. Therefore, 
the measures taken, intended to maintain and improve the quality 
of work and ensure equitable distribution of work among the 
Chartered Accountants could not be held to be an unreasonable 
restriction since such restrictions are necessary for maintaining 
the status of the Chartered Accountants and also for ensuring 
the quality of the work by them. Comparing the said restriction 
to Section 224 of the Companies Act, 1956 wherein a Chartered 
Accountant is permitted to audit only twenty companies in a 
financial year since the introduction of the said provision in the 
year 1974, it was observed that such regulatory measures are 
provided in view of the onerous and time-consuming nature of 
the work of the Chartered Accountant requiring accuracy and 
perfection. The Income Tax Act attributes much importance to the 
certificate of audit by the Chartered Accountant and therefore, 
it is in public interest also to introduce
certain restrictions on 
the volume of work lest it would affect professional standards 
apart from affecting the professional status. We are in complete 
agreement with the aforesaid observations. In our view, 
the comparison made between Chartered Accountants and 
Advocates by the petitioners is also inappropriate.
35.	 It is also noted that under Section 224 of the Companies Act, 1956 
which deals with appointment and remuneration of auditors, there is 
a bar with regard to appointment or reappointment of any person as 
an auditor of a company, if such person or firm of auditors is, at the 
date of such appointment or reappointment, holding appointment as 
auditor of specified number of companies or more than the specified 
number of companies. Explanation (1) to Section 224 defines 
specified number to mean (a) in the case of a person or firm holding 
appointment as auditor of a number of companies each of which has 
paid-up share capital of less than rupees twenty-five lakh, twenty such 
companies; and (b) in any other case, twenty companies, out of which 
not more than ten shall be companies each of which has paid-up
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share capital of rupees twenty-five lakh or more. Explanation-II states 
that in computing the specified number, the number of companies in 
respect of which or any part of which any person or firm has been 
appointed as an auditor, whether singly or in combination with any 
other person or firm, shall be taken into account. 
36.	 The restriction placed under Section 224 of the Companies Act, 1956 
with regard to the number of companies which could be audited by 
an auditor or firm of auditors is also an instance of regulation of the 
profession of Chartered Accountants intended by the Parliament 
so as to ensure that standard and quality in the audit of accounts 
of companies as defined under Section 3 of the Companies Act, 
1956 are maintained. This is to protect the rights and interest of 
the shareholders as well as the investors in the companies. Any 
omission or inadvertence in the auditing of such company accounts 
would inevitably have an adverse impact not only on the balance-
sheets of the companies but also on the potential investments and 
growth of the companies. There has not been any challenge to the 
said regulation which is in the form of a restriction. Any breach of 
the restriction placed on the Chartered Accountants under Section 
224 may lead to misconduct under the provision of 1949 Act.
37.	 It is for the foregoing reasons that we find that questions (i), (ii) and 
(iii) ought to be held in favour of
the respondent-Institute.
Re: Point No.4: Whether exceeding such specified number of 
tax audits can be deemed to be ‘professional misconduct’?
38.	 During the course of submissions, an alternative plea raised by 
learned senior counsel and learned counsel for the petitioners was 
that the respondent-Institute initiated disciplinary proceedings only 
against a few Chartered Accountants, including petitioners herein, 
while a majority of the Chartered Accountants who had breached the 
Guideline are not facing any disciplinary proceeding and have not 
been proceeded against. Secondly, it was contended that it was only 
recently that notices have been issued to the writ petitioners herein 
to respond to the same and for conducting disciplinary proceedings. 
That there cannot be a discrimination, so to say, by the respondent-
Institute in the matter. That, the impugned Guideline dated 08.08.2008 
has been on the statute book, the disciplinary proceedings have 
been initiated only recently. The impugned Guideline has not been 
effectively given effect to. Therefore, the disciplinary proceeding
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may be quashed for the aforesaid reasons. In this regard, it was 
contended that when the respondent-Institute has remained silent 
and not acted upon the Guideline, since it was issued on 08.08.2008, 
all of a sudden there could not have been initiation of disciplinary 
proceedings only against the petitioners herein and possibly others 
who may not have approached any court of law, whereas many other 
Chartered Accountants have not been proceeded against and are 
virtually scot-free. Therefore, there is discrimination and violation of 
Article 14 of the Constitution of India herein in the implementation of 
the Guideline vide Notification dated 08.08.2008. Therefore, pending 
full and effective implementation of the Guideline impugned herein of 
the impugned proceedings against the petitioners herein for the alleged 
misconduct on their part for violating the Guideline may be dropped. 
39.	 It is observed that there has been an uncertainty in law due to a similar 
Guideline being successfully assailed and during the pendency of 
the matter before this Court the impugned Guideline being enforced 
and selective implementation of the same by the respondent-Institute. 
Relying on the dictum of this Court in Chamundi Mopeds, the 
petitioners contended that a stay on the judgment of Madras High 
Court was only on the operation of the judgment and not a declaration 
that the judgment was
bad in law. As the special leave petition 
impugning the judgment of Madras High Court was dismissed as 
infructuous and any action taken by the respondent-Institute on the 
superseding Guideline dated 08.08.2008 was taken only belatedly, 
we find force in the submission that there was uncertainty in law 
only in the context of the pendency of the matter before this Court 
on there being quashing of the Guideline by the Madras High Court 
and an interim stay of the said judgment by this Court.
40.	 In this regard, we may refer to Halsbury Laws of England, [5th 
Edn. Volume 96 (2018)] dealing with the principle against doubtful 
penalisation:
“774. Principle Against Doubtful Penalisation
“It is a principle of legal policy that a person should not 
be penalised except under clear law, …”
41.	 Francis Bennion on Statutory Interpretation (8th Edn, 2020 at Section 
26.4) deals with principle against doubtful penalisation in the following 
words:
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“It is a principle of legal policy that a person should not be 
penalised except under clear law. This principle forms 
part of the context against which legislation is enacted 
and, when interpreting legislation, a court should take it 
into account.”
42.	 It was borne out during the course of arguments and through the 
submissions made in the Counter Affidavit that the tax audit monitoring 
mechanism was firstly, self-regulatory, wherein the disciplinary 
mechanism would kick in only on a complaint made/information 
received and not otherwise. Furthermore, the Tax Audit Monitoring 
Cell was created only after the CAG Report No. 32/2014, and even 
after that, initially notices were sent only selectively to Chartered 
Accountants who had completed more than two hundred audits not 
to all who had breached the impugned Guideline. 
43.	 As a rule of statutory interpretation, we find that the aforesaid 
principles, in an equitable legal system, should be applicable to the 
present circumstances. Thereby, for the limited period of uncertainty, 
the rule against doubtful penalization as a principle could, in the 
interest of justice and equity, be made applicable and the benefit of 
uncertainty be given to those subjected to misconduct proceedings 
in the instant writ petitions and to also those Chartered Accountants 
who may have received notices from the respondent-Institute and 
who may not have approached any court of law or
to other similarly 
situated Chartered Accountants who may not have been proceeded 
against.
44.	 Reference may also be made to judgment of this Court in Jindal 
Paper & Plastics vs. Union of India, (1997) 10 SCC 536, (“Jindal 
Paper & Plastics”) wherein the question on merits was settled by 
a judgment of this Court in Kasinka Trading vs. Union of India, 
(1995) 1 SCC 274, (“Kasinka Trading”), delivered on 18.10.1994 
and a larger bench on 20.12.1996 concluded that the judgment dated 
18.10.1994 was good law. This Court allowed the petitioner’s prayer 
therein that for the period of uncertainty in law, i.e., until the law, on 
merits, was settled by this Court on 18.10.1994, a lesser interest 
rate of 12% be charged instead of 17.5%, as ordered by the High 
Court. In these circumstances, this Court held as follows:
“4. We are of the view that there was uncertainty 
about the law until the decision in the case of Kasinka
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Trading [(1995) 1 SCC 274 : JT (1994) 7 SC 362] was 
rendered on 18-10-1994, and that, therefore, interest from 
the date it became payable until 18-10-1994, should be 
payable at the rate of 12% per annum. Interest for the 
further period should be at the rate of 17.5% per annum, 
as ordered by the High Court. Calculations shall be made 
accordingly and the balance and interest as aforesaid due 
by the appellants shall be paid to the respondents within 
8 weeks.”
(emphasis supplied)
45.	 We, therefore, find much force in the alternative plea made by the 
petitioners herein. In these circumstances, due to the uncertainty in 
law owing to quashing of the earlier Guideline and the pendency of 
the Special Leave Petition filed by the respondent-Institute before 
this Court and the enforcement of a fresh Guideline, we quash the 
disciplinary proceedings initiated against the petitioners herein. This 
is for the simple reason that only the writ petitioners have been 
proceeded against, while even according to the respondent-Institute, 
there were around twelve thousand Chartered Accountants who had 
breached the Guideline and had undertaken tax audits over and 
above the specified number but no action whatsoever was initiated 
against of them.
46.	 In conclusion, we must also note the dictum in Malpe Vishwanath 
Acharya vs. State of Maharashtra, (1998) 2 SCC 1, (“Malpe 
Vishwanath
Acharya”), wherein this Court, relying on Motor General 
Traders vs. State of A.P., (1984) 1 SCC 222, (“Motor General 
Traders”), reiterated that a provision which was/is reasonable may 
with the passage of time become unreasonable. In the context of 
restriction on the specified audits under Section 44AB of IT Act, 1961, 
Minutes of the Council of the respondent-Institute reflect that with 
the passage of time, the number of tax audits to be permitted have 
been repeatedly deliberated, re-evaluated and increased, subject 
to final decision taken by the Council. However, it also becomes 
apparent that decisions of the Council on whether to increase or 
maintain the status quo have been ad-hoc, influenced by several 
factors such as technological development, number of practicing 
Chartered Accountants, etc. Since the last revision to sixty tax audits 
was made a decade ago, we direct the Council to consider if the
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time is ripe to enhance the specified number of tax audits and to 
delineate the factors that it may consider in taking such a decision
47.	 In that view of the matter, the respondent-Institute is at liberty to 
enhance the specified number of tax audits that could be undertaken 
by practicing Chartered Accountants under Section 44AB of the IT 
Act, 1961. For that purpose, liberty is reserved to the practising 
Chartered Accountants to make their suggestions to the respondent.
48.	 We wish to make certain observations before parting with these 
writ petitions. The Institute of Chartered Accountants of India over 
a period of time, has received recognition as a premier accounting 
body, domestically and globally, for maintaining highest standards 
in technical, ethical areas and for sustaining stringent examination 
and educational standards. Since its inception in the year 1949, the 
profession of Chartered Accountancy and accounting has grown leaps 
and bounds in terms of the number of members, which now stands at 
over 3.5 lakhs. The respondent-Institute has also played a significant 
role in ensuring the dynamism of the Chartered Accountancy course 
curriculum and the credibility of the examinations. The financial skills 
of the aspirants are fairly consolidated, at the time of joining the 
profession itself- this is owing to the robust examination pattern. We 
commend that the respondent-Institute must be committed
towards 
convergence of accounting, auditing and ethical standards with 
international practices and for its endeavour towards securing the 
highest standards of corporate governance. The true test however, 
lies in application and enforcement of these standards in the Indian 
context.
49.	 The power to control and impose taxes is a cornerstone of State 
sovereignty. Welfare States impose taxes to generate revenue that 
enables investment in human capital, infrastructure and services for 
citizens and businesses. The Tax Law landscape in India has been one 
of the most dynamic areas of law and has witnessed several changes 
over the last few decades. The Taxation Systems in India have been 
periodically assessed and several changes have been brought about 
from time to time. Such changes have been introduced with a view 
to either widen the tax base; to simplify and rationalise laws and 
procedures; to bring about modernization through computerization 
of tax returns; to enhance efficiency of the tax administration; or to 
maintain progressivity at such levels as would not induce evasion.
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49.1	In relation to direct taxation, we believe that the taxation 
system must be one that not only incorporates the normative 
and prescriptive considerations of neutrality, fairness, certainty, 
efficiency etc. but one that also promotes the virtuous circle of 
increased trust between tax payers and the tax administration. 
We call this a “virtuous circle” because it seeks to achieve a dual 
purpose: it reinforces voluntary compliance while at the same 
time promoting good governance. Good governance is achieved 
in an attempt to secure the confidence of the taxpayer. Once 
a taxpayer is certain that tax revenue is being channelled in 
an efficient manner, consistent with the objectives of a welfare 
state, enhanced tax compliance is likely to follow. It is in this 
context that we stress on the significance of the role played by 
Chartered Accountants. They can serve as effective catalysts 
in securing this circle of trust between the taxpayer and the 
tax administration. This is because a large proportion of the 
tax payers in India seek advice of Chartered Accountants to 
understand the rules of the road. The integrity and standards of 
Chartered Accountants determine the efficiency in the functioning 
of the nation’s taxation system. 
49.2	There are many concepts and processes in the present taxation 
regime that rest, almost completely, on the vigilance of Chartered
Accountants and auditors. The very concept of self-assessment 
carries with it the requirement of good faith practices. The most 
recent tax reforms seek to achieve transparent taxation by 
“Honouring the Honest taxpayer.” The success of such initiatives 
depends, to a very large extent, on the vigilance demonstrated 
by Chartered Accountants. 
49.3	Transparency in accounting is imperative to the economy in 
many ways. For instance, in the absence of accurate financial 
reporting, it would become difficult for banks to make informed 
decisions about credit allocation. It is the quality, reliability and 
objectivity of this information which stakeholders rely upon to 
make informed judgments and allocate resources efficiently. 
The role of transparent accounting is critical in lending credibility 
to the financial market transactions. Market participants, 
investors and shareholders look towards this community for 
accurate information, which ensures market discipline and 
fosters confidence of various stakeholders. The onus is on
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Chartered Accountants to ensure that our Nation’s businesses 
do indeed conform to high corporate governance standards. 
Further, while the quality of information has immediate and far-
reaching implications for a particular enterprise, it eventually 
permeates to the market and the economy as a whole. It is 
therefore not surprising to find that the accounting profession 
is being constantly challenged to meet the demands for quality 
information. As key providers and verifiers of information, 
the bottom-line is simple: the higher the quality and integrity 
maintained by the profession, the stronger and more resilient 
will our markets be. By providing the foundation for compilation 
of credible financial statements, the accounting profession 
facilitates market discipline, engenders confidence among 
various stakeholders and reduces the possibility of misleading 
information that can disrupt stability of financial systems. 
Therefore, the need for quality assessments particularly under 
Section 44AB of the IT Act, 1961.
49.4	In the public discourse on governance, we find that the corporate 
governance agenda garners attention only during times when 
the Country is faced with the most notorious corporate scams. 
Shareholder democracy has come to stay and Chartered 
Accountants are the gatekeepers of this new corporate world 
which poses challenges as well as unprecedented opportunities. 
Thus, the importance of integrity
of auditing functions for 
maintaining financial stability is now well-recognised. 
49.5	More importantly, Chartered Accountants must themselves 
comply with the relevant laws and regulations and avoid any 
conduct that discredits the profession. Needless to specify that 
Chartered Accountants must refuse to represent clients who 
insist on resorting to unfair means. Chartered accountants 
are relevant not only in securing corporate governance, but 
governance in broader contexts too.
49.6	Chartered Accountants face many different responsibilities: to 
the profession; to the tax administration; to the client and to the 
economy at large. In that context, we stress on the importance of 
preserving their independence of view and integrity; to separate 
their client-advisory role from their role as public citizens seeking 
to improve the functioning of the tax machinery of the Nation.
[2024] 6 S.C.R. 
863
Shaji Poulose v.  
Institute of Chartered Accountants of India & Others
Integrity, objectivity, professional competence and due care and 
confidentiality must be the doctrines guiding their work ethic. 
Conclusion:
50.	 In the circumstances, we dispose of the writ petitions in the following 
manner:
a)	
Clause 6.0, Chapter VI of the Guidelines dated 08.08.2008 and 
its subsequent amendment is valid and is not violative of Article 
19(1)(g) of the Constitution as it is a reasonable restriction on the 
right to practise the profession by a Chartered Accountant and 
is protected or justifiable under Article 19(6) of the Constitution.
b)	
However, the said clause 6.0, Chapter VI of the Guidelines 
dated 08.08.2008 and its subsequent amendment is deemed 
not to be given effect to till 01.04.2024.
c)	
Consequently, all proceedings initiated pursuant to the impugned 
Guideline in respect of the writ petitioners and other similarly 
situated Chartered Accountants stand quashed.
d)	
Liberty is reserved to the respondent-Institute to enhance the 
specified number of audits that a Chartered Accountant can 
undertake under Section 44AB of the IT Act, 1961, if it deems fit. 
e)	
Liberty is also reserved to the writ petitioners or any other 
member of the respondent-Institute to make a representation 
in the above context which may be taken into consideration in 
the event respondent-Institute intends to amend the Guideline 
as per point No.(d) above.
f)	
The writ
petitions as well as all the transferred cases are 
disposed of in the aforesaid terms.
g)	
The Registry to intimate the concerned High Courts regarding 
disposal of the transferred cases accordingly.
h)	
No costs.
Headnotes prepared by: Nidhi Jain
Result of the case: 
Writ petitions and transferred 
cases disposed of.