CA firms classified as professional, not eligible for ESI benefits - Gujarat HC
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The Gujarat high court has ruled that a Chartered Accountancy (CA) firm should be classified as a professional establishment rather than a shop, commercial or retail entity and as a result, its employees are deemed ineligible for inclusion under the Employees’ State Insurance (ESI) benefit scheme.
The long-standing dispute concerning the inclusion of employees from CA firms, which has been going on for almost eight years, was initiated when the Employees’ State Insurance Corporation (ESIC) issued a recovery notice following its evaluation of Deloitte Haskins & Sells, an international professional services network.
Deloitte challenged this decision before an ESI court which in 2016 pronounced that CA firms do not fall within the purview of the ESIC Act. While the matter was subsequently referred to the regional director, it remained unresolved, ultimately reaching the high court, where Deloitte became a central party to the legal proceedings.
Deloitte’s lawyer Palak Thakkar had argued that based on the previous legal case and the evidence presented, it was determined by the ESI court that the ESI Corporation could not prove the appellant’s business is a shop or commercial establishment.
After hearing the case, a bench of justice Bharav D Karia had observed that the activity of a CA includes that of accounting, auditing, refereeing, receivers, arbitrators and special commissioners as prescribed by the ICAI (The Institute of Chartered Accountants of India) to be carried out on-premises and at places of managing partner may determine.
“Similarly, management consultancy services to be rendered by the Chartered Accountants include services to be provided at the places of the client. Thus, the activity of the CA is not confined to the office premises only. The firm of the Chartered Accountant therefore cannot be covered in the definition of shop or commercial establishment so as to attract the provisions of the Act,” the order stated.
An oral order in the matter was passed on July 10 and a copy of the judgement was put online on October 27.
The order further read that the CA’s firm could operate at various places having different branches spread over either in India or across the globe providing professional services to its clients.
“Therefore, the firm of a Chartered Accountant cannot be said to be engaged only in statutory audit work but is also providing tax consulting, financial advisory, risk management and related services to its clients for consideration in terms of fees,” ruled justice Karia.
“...In such circumstances, confining the office of the Chartered Accountant within the definition of ‘shop’ cannot be accepted. Shop as per the provisions of the Bombay Shop and Establishment Act, 1948 only refers to a place from where service is rendered to its customers by any establishment,” he said.
Quashing the ESI court’s order, the high court further directed the ESI Corporation to refund the amount deposited by Deloitte with interest accrued thereon.
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