A business enterprise must keep a systematic record of its daily transaction. It is a legal duty. It helps to know where its stand and adjudge its performance. This systematic recording of transactions is known as accounting. Since legal profession is a trade, lawyers are under duty to maintain systematic accounts relating to the profession.

The basic purpose of accounting is to present a complete financial picture of the Advocates profession. This can be done with the help of two financial statements like (i) Profit and loss account and (ii) Balance sheet showing the assests and liabilities. It is necessary to maintain proper accounts to calculate the following (i) Annual Income (ii) Income Tax (iii) ProfessionalTax (iv) Amount due to the client or amount due by the client.

1. To calculate the annual income : To calculate the annual income of the Advocate from the legal profession, it is necessary to maintain proper accounts of his income from the profession. Maintaining this account is useful for Advocates also. By knowing his Annual Income , he can take steps to improve his profession.

2. To Calculate income Tax : Advocates are liable to Pay Income tax for the income derived from the profession. In order to calculate the amount payable as income tax, he has to maintain proper accounts relating to his income and expenditure. To calculate the taxable income he is entitled to deduct certain expenditure like rent, salary, telephone bill and other administrative expenditure. For this purpose also he has to maintain proper accounts.

3. To calculate professional tax: Every six months the advocates are liable to pay professional tax to the Government. The amount of professional tax varies depending on the income. In order to calculate the amount of professional tax he has to maintain the proper accounts.

4. To Ascertain the amount due from the client or due to the client: The account relating to the amount received from the client and the amount received on behalf of the client from others or from the court should be properly maintained. Then only the amount due from the client can be calculated. This will help not only the client but also the Advocate.

PLACE OF KEEPING THE ACCOUNTS BOOKS.

The accounts books and documents relating to the accounts should be kept and maintained by the advocate,

(i) At his office.

(ii) Where he is carrying on the profession more than one office, then at his head office. But accounts can also be maintained separately for each branch at the respective branch office. Penalty for not keeping Account Books: A Lawyer who is legally liable to maintain account books, fails to maintain it or fails to retain it for the prescribed period (cash book and ledger-16 years, other books-8 years) is liable to pay penalty ranging from Rs.2000/- to 1,00,000/- (S.271 A ).

Bar council Rules relating to accounting

Accounting is an art of recording, classifying and summarizing in a significant manner the event which are financial in character and interpreting the result there of . An Advocate is under a duty to maintain proper accounts of money received from his client and the amount received on behalf of client from others or from the court. The rules relating to such accounting is dealt in rules 25 to 32 of the Bar Council Of India Rules 1975.

Rule 25: An advocate should keep the accounts of the client’s money entrusted to him. The accounts should show the amounts received from the client, the expenses incurred for him and the debits made on the account of Advocate fees with the respective dates and all other necessary particulars.

Rule 26 : Where moneys are received from the client, it should be entered whether the amount have been received for the advocates fees or expenses. Amount received for the expenses shall not be diverted towards Advocates fees without the consent of the client in writing.

Rule 27: Where any amount is received on behalf of his client the fact of such receipt must be intimated to the client as early as possible.

Rule 28 : After the completion of the proceeding, the advocate shall be at the liberty to take the settled fee due to hi to the unspent money in his hand.

Rule 29: Where the fee has been left unsettled, the advocate shall take the fees which he is legally entitled from the moneys of the client remaining in his hands, after the completion of the proceeding. The balance shall be returned to the client.

Rule 30: A copy of the client account shall be furnished to him after getting the necessary copying charges from him.

Rule 31: An advocate shall not make any agreements whereby client’s funds in his hands are converted into loans to the advocate.

Rule 32: An Advocate shall not lend money to his client for the purpose of conducting the case

Rules Relating to Accounting Under Income Tax Act.

Under the Income Tax Act, every lawyer is required to maintain the following books of accounts and other documents to enable the Assessing Officer to calculate his total income (i) cash book (ii) Receipt Voucher (iii) payment voucher (iv) journal (v) ledger. The accounting year is 1st April to 31st March next year.

1. Cash book : It is the book in which the amount received by the Advocates from the clients and others and the amount spent for the clients are written. This book is useful for the Advocate to know the amount in his hand on each day.

2. Receipt Voucher : It is the document prepared for recording the receipt of money by cash or cheque. When an Advocate received money from the client, the Advocate has to issue a receipt to the client. Advocate shall maintain receipt books with serially numbered receipt forms in duplicate. The original receipt should be given to the client and the duplicate shall be retained by the Advocate.

3. Payment Voucher : Payment vouchers are used to record such payments for which receipts are not obtainable from the person to whom such payments are made. For example bus fare, auto fare, court fees, stamps, refreshment expenses etc. In such cases the Advocate signature in the payment voucher and the signature of the person to whom payment is made may be obtained.

4. Journal : Journal is the book of first entry or original entry. In the journal the transactions are recorded in the order of their occurrence. It should contain the following details (i) Date of Transactions (ii) Account to which the transaction relates (iii) Amount to be debited, (iv) Amount to be credited (v) Explanation of the transaction.

5. Ledger : The transactions recorded in the journal are to be posted to the separate heads of account in other book called as Ledger. In the ledger different pages are allotted to the different heads of accounts. When the journal entries are posted to the concerned heads of account in the ledger, the page number of the ledger should be noted in the journal for easy reference.The ledger account of an advocate shall contain the following heads.

Clients Account :

For each and every client separate pages shall be allotted in this ledger and separate account shall be maintained for them.

(i) Fees Account : In this account the fees received from each and every client shall be entered separately. From this account the total amount of fees received from all the clients in a financial year can be ascertained.

(ii) Rent Account.

(iii) Salary Account.

(iv) Library Account.

(v) Printing and Stationary Account.

(vi) Postage and Telegram Account.

(vii) Electricity Charges.

(viii) Conveyance Charges.

(ix) Repair and Maintenance.

(x) Office Miscellaneous Expenses Account.

At the beginning of the ledger book the index may be given with the name of the different heads of account and their respective pages for easy reference.

Case Laws:

1. Manilal Kher Ambalal And Co. vs A.G. Lulla, Seventh Income-Tax ..1989 176 ITR 253 Bom

Facts of the case:

The Petition is files advocates who are solicitor and advocates enrolled more than 50 years age and has been filing accounts every year with in the rules framed by High court, Bombay with related to their professional work.Petitioner were maintain separate accounts in the banks as per rule 10 of the Bombay High court. When an IT Officer sent the advocates notice furnish the details as per new rules against the method followed by advocates from several years. Advocate preferred this appeal against the change of accounting system.

Issues of the case:

1. When an advocate is accountable for money received from client towards case and is that of a quasi trust and he holds such money in a fiduciary capacity?
2. whether the change the accounting system for an advocate can be entitled by IT officer with out proper amendment?

Judgment:

The Bombay High Court ruled that the High Court Rules are unquestionably created in conformity with professional standards and cannot be held accountable. As a result, the petition was approved, and the respondent was required to cover the petitioners’ costs.

2. Associated Law Advisers Antriksh Bhawan v/s ITO Ward  I.T.A. No. 5336 & 5846/DEL of 2014

Facts of the Case:

The aforesaid cross appeal have been filed by the Assess as well as the revenue against the impugned order dated 22/8/ 2014 past by under section 143 ( 3) for the assessment year 2010-11

Issues

1. weather a law firm can treat advance payment received for the payment to senior advocate and for the payment to its own partners in similar manner?
2. Can an advocate receive money as an address advance in his judiciary capacity?

Judgment:

Once the case has been determined, the advocate may accept the funds in his official capacity as a judge and may treat them solely as advances rather than as profits. The Revenue of Appeal is dismissed, and the Assessor’s Appeal is upheld.

3. Income Tax officer And Anr vs Sudesh Sharma CRM No A-959 of 2014

Facts of the Case:

The special leave petition was filed by appellant against by the acquittal of respondent from case where, respondent acting as Council service clients in many cases submitted the requiste documents and TDS Certificate for the purpose of furnishing clients income tax returns, which were not genuine and also the returns work client wrongly.

Issues:

1. Weather in advocate maybe held liable for submission of wrong income tax returns showing name of non existing persons in order to derive pecuniary benefits in the shape of refund or it was?
2. such filing can be considered as the harmful to public servant?

Judgment:

The motion for leave to appeal was denied by the court, which determined that there was insufficient evidence, even if it were cogent, to support any interference with the appealed acquittal judgements. As a result, this petition was dismissed because it lacked merit.

4 .S.S. Industries Vs Union of India Special civil application no 8841/2000

Facts of the Case:

The person chargeable with law makes an interest and the subsection 8 of Sec.73 of the case maybe tax interested and penalty

Issues:

1. Whether the interpretations of Rules 86a of the CGST rules inserted vide notifications number 75 /2019 procedure for power and blocking the input tax credit in the electronic credit ledger is true or not?
2. Whether the scope of exercise of power and the Rule 86 a of IT rule is valid or not?

Judgment:

Hear in this case both by the appellant petitions were rejected and failed with appropriate observations.

5. Commissioner of income tax Vs Tanu Bai D. Desai 1972 ITR 713 Bom

Facts of the Case:

The assessee is a practicing solicitor and in the course of caring his profession used to deposit money in a separated bank account, received by his clients. The income tax officer and the appellant assistant commissioner held that the interest earned by advocate on fixed deposits earn out of money paid by client should be should be considered as and should be included in the personal assessment of the assessee aggrieved by the tribunal appellant preferred this petition before the High Court.

Issues:

1. Weather in advocate interest earned as a practice in solicitor by him and a section 66 (1) of the income Tax Act
   In the clients accounts are included in the computation of total income in his personal assessment or not?

Judgment:

After thoroughly discussing the law high Court held that tribunal judgement is correct and high Court held that interest earned by an advocate of fixed deposit maintained in client account need not be considered is that assessment of an advocate personal account.

6. Commissioner of Income tax Sundersons and AIR 1969 cal 211 ITA 453

Fats of the Case:

The petitioner was filed by the appellant under section 66 ( 1) of the Income Tax Act rules on interesting question about solicitor clients relationship

Isssued:

1. Weather the unclaimed balance in the accounts of the client are credited to the profit and loss account of the law firm or an advocate can be considered as revenue receipts?
2. Weather search amounts are taxable under the Income Tax Act?

Judgment:

Since the solicitor did not stand in the position of the trustee to the client and limitation Act.the remedy of the client to recover sum of the balance where where the limitations. Amount of such wages could not be added to income of solicitor

7.. Shiv ram das Vs B.V Nerurkar (1937) Bom LR 633

Facts of the case

This is a chamber of s taken summons taken out by the applicants, who are a firms at solicitors against the respondents Who wear the defendant in the suit in the matter of costs incurred by them depending the suit on behalf of the desfendants. respond in contended that before the tax in master that the applicants are not entitled to any profit cost but only to pay their out of pocket.

Issues:

Whether implied or constructive Trustee of a public Charity trust are entitled only to their out of pockets costs of the suit and their offices expenses or else to their profit costs?

Judgment:

Coat held that the appealents are entitled to the costs of their appearance before the taxing master on the taxation of their bills of costs and on the hearing of the objections filed they their quote the petition was allowed

8. VFD and Sopher Vs Waglf & Co (1925) 27 Bom

Facts of the case

In this case the plaintiff ask for the payment to them of the amount at a degree obtained by the defendant R.P Wagle & co against one narotonda attached in executions of the decree in favor of lied sopher in the suit and relised by shering.

Issues:

Whether the priority should be given to the solicitor or a judgment creditor in credit to the lien on judgment?

Judgment:

Court held that the ” All cause should come out of the money is first court decided that applicant or solicitor should be the first priority in lien on judgement Council certified.

9. Dharnraj Giriji Narsingioji Vs. Dayne and Co (1933) 35 Boml 554 ,145, Ind 641

Facts of the case

This is an appeal from an order made by Justice mirzaa or motion taken out by the attorney for the defendant in a Suit against merits to the company who were solicitors for the notice ask that masseive be ordered to pay defendant costs which defendants cause of their suit less certain cost which the defendant head already been directed to bear.

Issues:

1. where the solicited his personally liable for the costs to the opposing party?

Judgment:

In this case Appeal allowed with cost of the notice motions and appeal. Court held that notice of motions absolutes . Costs to be taxed as if the plaintiff exists.

10. Haji Ismail And Co Vs Rabiabaz & Another

Fact s of the case:

The two diffent in this suit where partners number 96 of 1907 title by the first defendant against the second descendant to dissolution of partnership receiver was appointed to get in the assets.
The plaintiff in this suit having obtained degree a against the defendant were granted leave to issue executions against the assets of the partnership in the hands of the receiver and prohibitorary order was issue on the 19 June 1908 they have taken out a garmishree of notice against the receiver to pay to the plaintiff money.

Issues:

1. whether a solicitor is entitle to a lean for his costs in property recovered or preserved by his exertions.

Judgment:

petition is allowed by the Court and held that plaintiff a charge or the money.