Date 13.7.2013 To, The Chairman, Bar Council of India. The General Council appointed me and Mr. Rameshchandra G. Shah to examine issuing direction to the Central Board Direct Taxes to delete person other than Legal Practitioner under section 288(2) of the Income Tax Act, 1961. I, after thorough examination of the Income Tax Act-Rule and the Advocates Act, we are of the opinion the Legal Practitioners authorized to practice Income Tax Law u/s 288(2)(iii) of Income Tax Act at original side. Except salaried class, business class approach Tax Law Professionals to file Income Tax Returns. U/s 44AB of Income Tax Act, persons carrying on business having turnover exceeding Rs. 60 Lakhs per annum have to submit Tax Audit Report in Form No. 3CD duly signed by Chartered Accountants only. With effect from 1-4-2011, section 44AD of the Income Tax Act has been redefined, so as to include all business class assessees having turnover of Rs. 60 Lakhs & below per annum, within the ambit of tax audit u/s 44AB by Chartered Accountants only. In view of redefined section 44AD, assessees approaching Chartered Accountants can declare less income and pay less tax, just by attaching Tax Audit Report u/s 44AB- Form No. 3CD, if they approach legal practitioner, they have to declare fixed percentage of income & pay more tax, because of no authority to attaché such Tax Audit Report u/s 44Ab. Now, nobody will approach Legal Practitioners and they are indirectly threatened to extinction from Income Tax Practice. This amounts to virtual withdrawal of right conferred to Legal Practitioners u/s 288(2)(iii) of Income Tax Act. Therefore, this position is comparable to decree of court, which cannot be executed. Rule 12A of Income Tax Act Rule, 1962 still authorizes both Legal Practitioners & Chartered Accountants to furnish a report on the scope and results of examination of assessees books of accounts, statements or documents. This rule was inserted by Notification No. SO 2029 Dt. 13.06.1962 i.e., well before introduction of Tax Audit u/s 44AB for Non-Corporates. Further assessing officers who verify (Audit) the accounts of assessees in the process of scrutiny to ascertain wrong claims towards deductions, are not Chartered Accountants. This being the case, I do not understand why Tax Audit Report u/s 44AB, once again by Chartered Accountants only? Central Board of Direct Taxes Circular F. No. 225/168/2000/ITA-II Dt. 16.10.2000 (See Exhibit-1) authorizing Tax Practitioners to sign Tax Audit Report u/s 44AB- Form No. 3CD was struck down by amendment made in Finance Act, 2001 to 2nd Proviso to Section 44AB. This has lead to a situation that Chartered Accountant can sign & furnish Tax Audit Report u/s 44AB- Form No. 3CD without actually conducting audit by them. [Example:- In case of Co-operative Societies, accounts are audited by State Co-Operative Auditors of respective State Govt., but in view of amendment made in the Finance Act, 2001 only Chartered Accountants are signing Tax Audit Report- Form No. 3CD of State Co- operative Societies as per 2nd Proviso to Section 44AB, with out actually conducting Audit}. If, Central Board of Direct Taxes holds that the above situation is correct, it has to agree that Tax Audit Report –Form No. 3CD can be signed and furnished by a person with out actually conducting Audit. In this situation, Legal Practitioners should be authorized to sign & furnish Tax Audit Report - Form No. 3CD on the following grounds, keeping in mind that more persons in the line of Income –Tax Practice more revenue:- 1. Audit means Verification, depending on the purpose they are classified as Energy Audit, Environment Audit, Product Audit, Process Audit, Pollution Audit, System Audit, Cost Audit, Legal Audit in USA & Tax Audit in India so on. Here, person should be specialized for that purpose to conduct Audit. Therefore the word “Audit” is not the domain of only Chartered Accountants. 2. Objectives for introduction of Tax Audit U/s 44AB published in Para No.17.1 & 17.2 of CBDT Circular No. 387 dated 6.7.1984 clearly says that, it is an audit for tax purpose (Tax Audit) introduced for Non- Corporates (See Exhibit- 2). Tax Audit Report Form No. 3CD contains information of wrong claims towards deductions to be reported to the Income- Tax authorities to ease assessment. Here, Tax Auditor should have sound knowledge of Income- Tax Law. 3. In this computer era, accounts are maintained in computer and the question of checking correctness of totals does not arise and also computer gives out final accounts for presentation & application of Income- Tax Law. Chartered Accountants are trained in accounts only & not in interpretation of tax law & procedures. In order to practice Income – Tax Law & to fill up Tax Audit Report- Form No. 3CD, one should be specialized in interpretation of Income Tax Law on analyzing intention of legislature, Civil Procedure Code and impact of furnishing Affidavit, Sworn Statements in the course of Income- Tax proceedings. 4. If, CBDT is of the view that because of Tax Audit from CA’s returns are filed, it is wrong. In view of Tax Audit ceiling for each Chartered Accountant, Legal Practitioners handling Tax Audit cases have to roam around for CA Signature at the time of due date for filing Tax Audit Returns. This situation is very typical one, prevailing only in India to pay taxes due to Govt. This position restricts filing of returns under Income – Tax Act. 5. U/s 35 (1) of Advocates Act, Legal practitioners may be punished not only for professional misconduct, but also for other misconduct to maintain Dignity of profession. As far as my knowledge is concerned, Central Board of Direct Taxes inclined to authorize Legal Practitioner to furnish such Tax Audit Report U/s 44AB of Income – Tax Act introduced for limited purpose of Non- Corporates. 1. As per latest data of CBDT furnished for financial year 2010-11, only 59,472 Chartered Accountants are involved in collection of revenue under Direct Taxes from business class. Still in India many business class people does not have knowledge of Income- Tax Law and declaration of Income , assets & white money etc. It is because of indirect confinement of Income – Tax Practice by virtue of certification from only Chartered Accountants since, 1984, who are less in numbers to propagate Income- Tax Law. Now, if such authority is given to Legal Practitioners who outnumber CA’s, Income- Tax will be propagated very well through out India & definitely collection of revenue will go up in due course. Hence, it is suggested to Govt. not to confine Income- Tax Law practice to one particular class of Tax professionals at the point of collection of tax (original side) as it amounts to restriction of growth in revenue also, which is directly proportional to in number of such one particular class of professionals. In India little over 28 of population are under the tax net of Income- Tax Deptt; whereas in developed countries 708 to 808 of population are in the tax net. 2. Income- Tax Act, 1961 being a law practitioners should be fully authorized to act on behalf of assesses before the Income- Tax Deptt. starting from preparation of returns till conclusion of assessment, which is prevailing in USA. In due course of time, Bar Council can also avoid crowding of Legal practitioners before regular law courts. 3. In view of redefining Section 44AD of Income Tax Act, all business class assessees fall within the ambit of Tax Audit U/s 44AB by only chartered Accountants. Now the matter is the question of meeting livelihood of legal practitioners practicing at original side of Income- Tax Law. . The Following are the varied class of professionals provided by legislature to practice in the respective area of operation with specific demarcation:- (a} Legal Practitioners in Advocates Act to practice law. (b) Functions of Accounting are classified based on the area of operation:- Cost Accounts: Manufacturing/ processing Activity Financial Accounts: Trading Activity. Management Accounts: Ratio Analysis & preparation of Cash flow Statement on Cost & Financial Accounts. a. Cost & Management Accountants in Cost Accountants of India Act to practice both Cost Accounts & Management Accounts. b. Chartered Accountants in Chartered Accountants of India Act to practice Financial Accounts only. c. Company Secretaries in Company Secretaries Act to practice Secretarial work of Corporate Bodies. 2. Practice of Income- Tax Law involves preparation & submission of Income Tax returns & appear before authorities in assessment proceedings. In Section 288(2) of Income- Tax Act, all the above four class of persons are authorizes to prepare returns on behalf of assesses under Rule 12 A of Income- Tax Rules & represent the assesses in Income- Tax proceedings (See Exhibit-1). On the behest of Institute of Chartered Accountants of India Section 44AB Tax Audit Certificate from only Chartered Accountants introduced in 1984. This certificate has to be furnished along with the return of income, wherein wrong claims made by assessee have to be reported on interpreting Income- Tax law. CA Certificates started entering Income- Tax Act since 1984 and stands at 46 plus in numbers on date. 3. In fact, there is no such Certificates/ Reports in revenue side in any country throughout the world. Due to mandatory CA certificates in Income- Tax Act, Legal Practitioners find it very difficult to practice Income- Tax law independently & are force to bow down before Chartered Accountants frequently. This is against the proverb “Noble Profession”. On that other hand ICAI has fixed ceiling of 45 number of 44AB Certificates by each Chartered Accountant. Because of this, Legal Practitioners have to search out for empty slots of CA Signature at the time of due date for filing Income – Tax returns, which is more troubling us for giving compliance for clients. As Chartered Accountants are enjoying both the power of issuing certificates in Income- Tax act & representation U/s 288(2) of Income – Tax Act, clients prefer to approach only chartered Accountants. This position of Legal Practitioners in Income- Tax Law practice is comparable to decree in the court which cannot be executed. . Legal Grounds 1. Bar Council of India Vs. A. K. Balaji (SLP (Civil) No(s) 17150-171454/2012) it was clearly held by Hon’ble Supreme Court of India that Advocates alone are entitled to practice the profession of law both in litigious & non- litigious matters. (See Exhibit-2). This confirms to Section 29 of Advocates Act. With the backing of Supreme Court Verdict, Rajasthan Tax Bar Association filed petition under Article 141 of Indian Constitution before the Chief Commissioner of Income- Tax, Jaipur, not to allow other than Advocates to practice Income – Tax law. In reply, learned Chief Commissioner took shelter from the words “or in any other law” mentioned in Section 33 of Advocates Act (See Exhibit-3). In this context, it is requested to delete the words “or in any other law” from Section 33 of Advocates Act & direct CBDT adhere to the judgment of Supreme Court in the case of Bar Council of India Vs A K. Balaji. On the strength of this Apex Court verdict, BCI should ensure that only Advocates appear before the Income-Tax authorities at all levels. Further, it will also give boost to our fight against repressive policies of Ministry of Finance, Ministry of Corporate Affairs & Central Board of Direct Taxes, which are in convenience of ICAI, ignoring nation’s revenue interest. 2. Legislature provided special class of persons to practice law in Advocates Act, 1961. Hence, separate clause Section 288(2) for appearance by third person not required in Income- Tax Act. When ICAI claim that it is their prerogative to audit that too with the limitation to financial accounts only, why can’t Legal Practitioners claim that it is the prerogative to practice Income – Tax law with the backing of SC Verdict & Advocates Act. As long as the words “or in any other law” exists in Section 33 of Advocates Act, Section 288(2) of Income- Tax Act holds good & Chartered Accountants get both the power of representation & certification in Income- Tax Act and enjoy monopoly of authority, causing strict hurdle for compliance from legal practitioners. 3. Even holding Section 288(2) appearance clause required in statute book of Income- Tax Act, following points should be considered by CBDT/ Ministry of Finance to authorize Legal Practitioners to sign off Certificates / Reports in Income- Tax Act:- (a) Legal practitioners are also authorized to prepare return of Income & represent assesses U/s 288(2) of Income – Tax Act read with Rule 12A. Rule 12A inserted by Notification No. 2009 Dt. 13.6.1962, require Legal Practitioner covered U/s 288(2) to furnish report on the examination of assesses account books & documents in the assessment proceedings. Note: In Rule 12A persons referred in Clause (i) and (ii) of Section 288 (2) are not authorized to prepare return of income & furnish report on the examination of assesses account books or documents in assessment proceedings. (a)When Legal Practitioners are authorized to prepare return under 12A of Income- Tax Rules, it is presumed that such persons possess knowledge of Income- Tax Law read with accounting principle prescribed U/s 145 of Income- Tax Act. Information to be furnished in Certificates/ Reports under Income- Tax Act amounts to practice of law as it require interpretation of law more & basic accounting knowledge sufficient. Audit means verification, depending on the purpose they are classified as Energy Audit, Environment Audit, Product Audit, Process Audit, Pollution Audit, Legal Audit in USA & Tax Audit in Indian Income- Tax Act. Here, person conducting audit should be specialized in that subject. Hence the world “Audit” is not the domain of Chartered Accountants. Assessing authorities in Income- Tax Deptt. Who conduct audit assessment proceedings are not Chartered Accountants. In conclusion, person specialized in Income- Tax law should issue Certificate / Report under Income- Tax Act. Therefore in the above circumstances after perusal of the Acts & Rules. we are of the view when the legal practitioners are the only class of persons entitled to practice law U/s 29 of the Advocates Act, 1961 ( Law Professionals), there is no justification for prohibiting Advocates to issue certificates or Reports in Income- Tax Act. (This is well supported by Bar Council of India Vs. A. K. Balaji SLP (Civil) 17150-17154/2012).The activities performed by BPOs and LPOs do not constitute practice of law and hence do not conflict with the Act. The Bar Council of India may take necessary steps in relation to the practice of law by Chartered Accountants and management firms, which is contrary to the Act. In view of the above in the interest of our legal fraternity we the members of the Committee seeking the intervention of the Bar Council of India to demand to delete the words “or in any other law” from Section 33 of Advocates Act & direct Central Board of Direct Taxes to delete persons other than legal practitioners U/s 288(2) of Income – Tax Act. This report placing before the General Council of the Bar Council of India for appropriate decision. Yours Sincerely, 1. Mr. S. Prabakaran, Advocate Member, Bar Council of India, 2. Mr. Rameshchandra G. Shah, Advocate, Bar Council of India Page 11
Posted on: Sun, 01 Sep 2013 08:27:00 +0000
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