Amount received from client by Solicitor in capacity of principal and agent is not income

Brief of the Case

In the Case of ACIT vs Sri Pawan Kumar Jhunjhunwala, ITAT Kolkata held that solicitor is the agent of the client. The client makes over the money to the solicitor for some work being done by the solicitor as his agent. The solicitor remains liable to account by this money to his client and hence it does not become the income of the assessee.

Fact of the Case

The assessee was an individual and engaged in the legal profession under the name and style of ‘Jhunjhunwala & Co’ following regularly cash system of accounting. The total income comprises mainly of professional income, short term capital loss, long term capital gain and interest income from other sources. During the course of assessment proceedings, the Learned AO found that the assessee had shown certain sums as ‘Advance from Clients’ in the liability side of the balance sheet and sought to bring to tax the advance received from clients as income in the hands of the assessee in the year of receipt in line with cash system of accounting followed by the assessee. On an appeal disallowance was sought to restricted to 10% of advance as income in view of the the fact that the assessee could not furnish the complete details substantiating that no income actually arising in the previous year was postponed to the next year. Aggrieved by this decision, both the assessee as well as the revenue filed the appeal before Hon’ble Tribunal for various asst years.

Contention of Department

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