TMI Blog1988 (6) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is required to be kept in a separate account in the bank in the name of the advocates which is known as "Client's account". Rule 12 describes what money can be paid into a client's account. Rule 13 prescribes what money can be withdrawn from a client's account. It, inter alia, provides that no money shall be drawn from a client's account other than money properly required for payment to or on behalf of a client or for or towards payment of a debt due to the advocate from a client or money drawn on client's authority. For over 35 years, the petitioners have followed a system of accounting which is consistent with these rules. As per their accounting practice, the petitioners treat all deposits received from their clients as deposits towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses incurred on behalf of the clients and not set off against the deposits should not be added to the professional receipts and taxed accordingly." The petitioners objected to being called upon to give these particulars which would require them to re-examine their accounts for the last several years. Ultimately, the Income-tax Officer, by his letter dated January 25, 1988, made a reference to the Inspecting Assistant Commissioner under section 144A of the Income-tax Act, 1961, regarding the taxability of clients' deposits. By his order dated March 23, 1988, the Inspecting Assistant Commissioner has given directions to the Income-tax Officer that he should call upon the petitioner to furnish the information called for by the Income-tax Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are following regularly a method of accounting which is acceptable in their profession and this method of accounting has been accepted as disclosing the correct income of the assessee by the Income-tax Officer for the past 30 years and more. In Principles and Practice of Book-keeping and Accounts by B. G. Vickery, Twenty-first edition, at page 380, there is a discussion on solicitors' accounts. It says "The fiduciary relationship which is usually found to exist between solicitor and client points to the need for a careful and accurate system of accounting." The rules relating to the maintenance of accounts which are cited in this connection are very similar to the rules which are framed by the Bombay High Court under its rules on the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and offer it to tax in the year of receipt ; while expenses are deducted as and when they are incurred. Whether one method is followed or the other, the result is the same. Anyway it is not possible to co-relate deposits received with expenses incurred. There was, therefore, absolutely no basis for coming to the conclusion that the method of accounting adopted by the petitioners was such that income could not properly be deduced therefrom or that any change was required in the method of accounting. In fact, if adjustments are required to be made against deposits in each year in which expenses are incurred, the accounts of several years will have to be reopened. It would cause tremendous hardship and harassment to the petitioners through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court and any breach committed by him of these rules is capable of entailing what would be a disastrous consequence to him of his name being struck off the roll of solicitors maintained by this court. Therefore, not only do these rules provide for the segregation and holding in water-tight compartment of the amounts received by a solicitor from or on behalf of his clients, but there also is enough sanction provided by the rules for enforcing that what these rules provide is complied with ... In view of the provisions of the said rules of this High Court, the position of a solicitor vis-a-vis the moneys received by him from or on behalf of his clients is that of a quasi-trust and he holds such moneys in fiduciary capacity." In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n method of accounting on the assessee. (See in this connection CIT v. K. Sankarapandia Asari and Sons [1981] 130 ITR 541). The directions, therefore, which are given by the Inspecting Assistant Commissioner are without jurisdiction. They would result in great harassment and severe hardship to the petitioners and this is a fit case where intervention is called for under article 226. It was submitted by Mr. Bhatia that the Income-tax Act is a complete code by itself. No intervention, therefore, is warranted under article 226. He has relied upon a decision of the Karnataka High Court in the case of Karnataka Industrial Areas Development Board v. CIT [1987] 168 ITR 96. This decision, however, does not support his contention. In that case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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