Saturday, December 31, 2016

CA can't exercise lien over client's documents for nonpayment of fees

As per decision of Ethical Standard Board (ESB) of ICAI, A chartered accountant cannot exercise lien over the client documents/records for non-payment of his fees. In this regards section 170 of the Indian Contract Act, 1872 reads as under: "Bailee's particular lien - Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.


(A) A delivers a rough diamond to B, a jeweller, to be cut and polished, which is accordingly done. B is entitled to retain the stone till he is paid for the services he has rendered.

(B) A gives cloth to B, a tailor, to make into a coat, B promises A to deliver the coat as soon as it is finished, and to give a three months' credit for the price, B is not entitled to retain the coat until he is paid." [Emphasis supplied]

The above view is based on the general principles of law under which any person having lawful possession of someone else's property may retain the property for non-payment of his dues. As section 170 uses the words 'goods' and not the word 'property' and as client's books of account and papers are not 'goods', lien under section 170, will not be available to lawyers/CAs/CWAs/CSs.

Therefore, withholding books and papers of the client for unpaid fees appears to be not legally tenable and even amounts to professional misconduct.

Tax collection isn’t valid if made from ‘tax illiterate person’ due to ignorance of law: ITAT

(a) The assessee filed return of income which was picked up for scrutiny where he was required to explain the deposits in his saving bank account. The AO made additions on account of unexplained cash deposits.

(b) The CIA (A) upheld the addition made by AO without considering fresh evidences filed by assessee. Evidences were considered as not admissible by the Commissioner (Appeals). Since as per record, no application seeking admission of fresh evidences under rule 46A was filed. ITAT held as under:

(1) The tax so collected on the foundation of the ignorances of a 'tax illiterate tax payer' could not be termed to be a collection of either 'just' nor 'due' taxes collected by the State in accordance with law. The assessee represented by an equally ignorant counsel, should have been appropriately guided by the First Appellate Authority. The fact that the Commissioner (Appeals) while exercising his discretion refused to admit evidence inspite of sufficient cause being shown as a matter of record was unwarranted and arbitrary.

(2) Since in the facts of the instant case due to his wife's illness the assessee was prevented by sufficient cause from producing the evidences in support of his claim, the impugned order was set aside and the issue to be restored back to the Commissioner (Appeals) with a direction to permit the assessee to produce the evidences in support of his claim.

Govt. approves ordinance, proposes jail term for people holding old notes

The Union Cabinet has approved an ordinance to impose penalty and a jail term for people holding demonetized notes of Rs 5,00 and 1,000. Only specified category of people will be allowed to keep demonetized notes. However, anyone can possess 10 old notes of Rs 5,00 or Rs 1,000 denominations.

The Government has prescribed penalty equivalent to higher of Rs 50,000 or five times of the amount of demonetized notes. The Union Cabinet has also approved an ordinance to amend RBI Act to extinguish the liability of the Government and Central bank on demonetized notes. The deadline for deposit of demonetized notes in banks is December 30, 2016. Thus, the ordinance should be cleared by the President before December 30, 2016.

(This document is prepared on basis of information gathered from sources.)

Benefit of vacancy allowance would be available even when house is under renovation: Bangalore ITAT

a) The Assessing Officer proposed to assess the annual letting value of the flat. The assessee has submitted that flats were vacant and therefore even if Annual Letting Value (ALV) has to be assessed, the vacancy allowance should be allowed. The Assessing Officer before the CIT (Appeals). The CIT (Appeals) confirmed the addition made by the Assessing Officer The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1. The assessee has explained that the house was under renovation and therefore, it could not be let out during the year under consideration. Further it was not intentionally kept vacant by the assessee. Thus, vacancy of the house was beyond the control of the assessee and, therefore, the benefit of vacancy is available to the assessee as per the provisions of section 23(1)(c).

2. The process of letting out may take some time in searching the suitable tenant and for settling the terms and conditions of the letting out. Therefore, even if it is presumed that the house is ready for occupation if it is not intentionally kept vacant by the assessee then it cannot be presumed that the assessee has deliberately not let out the house during the year under consideration.

3. Thus, the addition made by the Assessing Officer was to be deleted. - [2016] 76 278 (Bangalore - Trib.)