Hi,
If a lawyer collects fees upfront for the entire case which is estimated to go on for 5 years, the services rendered are over a period of 5 years. in such a situation, should the lawyer recognise income in year of recipt or can we pro-rata recognise the income over 5 years?
please note that the client has a right to demand the fees back and change the lawyer midway.
thanks for your help
It would be advisable to charge the fees as and when the case progresses. If you charge the fees in advance, then the same shall be taxable in the year of receipt. And later on if the client demands back his fees, then there would be a loss to you as you have already paid the Income tax on it in the year of its receipt. And you won't be able to claim the fees paid back by you to the client as expense.
Therefore, it would be advisable to charge the fees on the basis of each hearing, consultation or any other work carried by you.
Regards,
Devendra Kulkarni
How the lawyer has come to know about the fortune of the case ?
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If the case is like " continuous supply of service" I think, Devendras verdict is quite practical and useful.
CAclubindia
