Author: inavatiq

Case Details: Income-tax Officer vs. Arcil Retail Loan Portfolio - 001- A- Trust [2026] 182 taxmann.com 849 (Mumbai-Trib.)

Judiciary and Counsel Details

• Amit Shukla, Judicial Member & Makarand Vasant Mahadeokar, Accountant Member
• Rajesh Kumar Yadav, CIT-DR for the Appellant.
• Jeet Kamdar for the Respondent.

Facts of the Case

The assessee was a securitisation trust constituted by an Asset Reconstruction Company (ARC) under the SARFAESI Act and RBI Guidelines. It filed its return of income, claiming exemption under sections 61 to 63 in the hands of Security Receipt holders.

During the proceedings, the Assessing Officer (AO) treated the assessee as neither a revocable nor a determinate trust; accordingly, he treated it as an Association of Persons (AOP) under section 2(31) and denied exemption under sections 61 to 63. On appeal, the CIT(A) deleted the additions.

The matter then reached the Mumbai Tribunal.

ITAT Held

The Tribunal held that the issue was whether the assessee-trust was liable to be assessed as an AOP and whether the trust was revocable or irrevocable for sections 61 to 63. Sections 61 to 63 form a self-contained code dealing with the taxation of income arising from revocable transfers. The legislative scheme is explicit that where the transferor retains the right to re-assume control over income or assets, such income cannot be assessed in the hands of an intermediary entity but must be taxed in the hands of the transferor.

Section 63 deliberately adopts a broad and inclusive definition of both “transfer” and “revocable transfer”. The statute does not prescribe that revocation must be unilateral, unconditional, or exercisable by an individual contributor. What is required is a contractual or legal mechanism for the re-transfer of assets or the re-assumption of power.

On a plain reading of the trust deed, Security Receipt Holders were expressly conferred a right to revoke their contributions. Upon such revocation, the entire trust fund stands re-transferred to the Security Receipt Holders or their designees in proportion to their holdings, the scheme itself stands dissolved, the trustee ceases to act, and the Security Receipts stand extinguished. These provisions clearly satisfied both limbs of section 63(a).

The AO’s contention that revocation requiring consent from a specified percentage of holders negates the bench has been expressly rejected by the coordinate bench. The statutory position was further clarified by the coordinate bench, observing that section 63 does not require that the power of revocation should be unconditional or exclusively vested in a single transferor, and that it is sufficient if the trust deed contains provisions vesting the power of revocation, even if such power is exercisable collectively or subject to specified conditions.

Further, once it was held that the trust was revocable, section 164 had no independent application. Sections 61 to 63 override section 164 in cases of revocable transfers. The AO’s attempt to apply section 164, therefore, proceeded on an incorrect legal premise. Accordingly, the assessee could not be assessed as an AOP, as the beneficiaries were identifiable and the trust was statutorily mandated under the SARFAESI Act and RBI Guidelines, and Section 164 had no application.

List of Cases Reviewed

• ITO-21(3)(2), Mumbai v. Scheme A1 of ARCIL CPS 002 XI Trust [2020] 119 taxmann.com 216/[2021] 186 ITD 136 (Mumbai – Trib.)
• ARCIL CPS 002 XIII Trust v. ITO [ITA No. 434(Mum) OF 2017, dated 7-6-2021] (para 26) followed.

List of Cases Referred to

• ITO-21(3)(2), Mumbai v. Scheme A1 of ARCIL CPS 002 XI Trust [2020] 119 taxmann.com 216/[2021] 186 ITD 136 (Mumbai – Trib.) (para 9)
• ITO v. ARCIL AARF-I-1 Trust [ITA No. 7353(Mum) of 2019, dated 15-9-2021]. (para 9)
• ARCIL CPS 002 XIII Trust v. ITO [ITA No. 434(Mum) OF 2017, DATED 7-6-2021] (para 9)
• ARCIL Retail Loan Portfolio 004 BTrust v. ITO [ITAppeal No. 256 (Mum) of 2024, dated 28-5-2024] (para 9)
• ARCIL Retail Loan Portfolio 001 J Trust v. ITO [ITA No. 4199 and 2909(Mum) OF 2023, DATED 7-6-2024] (para 9)
• Indian Corporate Loan Securitisation Trust v. ITO-9 (3) (2), Mumbai [2017] 80 taxmann.com 315 (Mumbai) (para 18).

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Circular no. RBI/2025-26/205 A.P. (DIR Series) Circular No. 21; Dated: 06.02.2026

The Reserve Bank of India (RBI) has announced further rationalisation of the Voluntary Retention Route (VRR) for Foreign Portfolio Investors (FPIs), with a view to enhancing operational flexibility and ease of doing business in the Indian debt markets.

1. Background of the Voluntary Retention Route

The VRR was introduced by the RBI in March 2019 as an additional investment channel for FPIs with long-term investment interests in Indian debt markets.

Since its introduction, the RBI has periodically recalibrated the VRR framework to respond to market developments and stakeholder feedback.

2. Removal of Separate VRR Investment Limit

The RBI has now decided to:

• Remove the ₹2.5 lakh crore long-term investment limit prescribed under the VRR.

Going forward:

• Investments under the VRR shall be subsumed within the overall investment limits applicable to FPIs under the General Route.

3. Treatment of VRR Investments Under the General Route

Accordingly, all FPI investments made through the VRR in the following instruments shall be reckoned under the respective General Route limits:

• Central Government Securities, including Treasury Bills
• State Government Securities (State Development Loans)
• Corporate debt securities

This change eliminates the need for a separate VRR investment cap while retaining the route as a facilitative framework.

4. Exit Flexibility for FPIs Under VRR

To further enhance flexibility, the RBI has provided that:

• FPIs that have availed retention periods longer than the minimum prescribed retention period
• Shall have the option to liquidate their portfolio, either in whole or in part, and
• Exit the VRR after the completion of the minimum retention period

This measure allows FPIs greater freedom in managing portfolio duration and exit timing.

5. Effective Date

• These directions shall come into force from 1 April 2026.

FPIs and market intermediaries are required to align their investment monitoring and compliance processes accordingly.

6. Key Takeaway

The revised framework:

• Integrates VRR investments seamlessly with the General Route
• Removes quantitative constraints while retaining long-term investment discipline
• Enhances exit flexibility for FPIs
• Supports stable and sustained foreign investment in Indian debt markets

Click Here To Read The Full Circular

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Informal Guidance; Dated: 06.02.2026

The Securities and Exchange Board of India (SEBI) has clarified the manner in which the quarterly compliance report on Corporate Governance and the related affirmation under Regulation 27(2)(a) of the LODR Regulations, read with SEBI Circular dated 31 December 2024, are to be reviewed by listed entities.

1. Mandatory Placement Before the Board of Directors

SEBI has clarified that:

• The quarterly compliance report on Corporate Governance, along with the required affirmation, must be placed before the Board of Directors of the listed entity.
• Delegation of compliance monitoring to a Board committee, even if permitted under RBI norms, does not fulfil the requirement prescribed under the LODR Regulations.

The obligation is specifically to place the report before the full Board.

2. Inapplicability of Committee-Level Review

SEBI has expressly stated that:

• Review or monitoring of the compliance report by a Board committee
• Even where such delegation is allowed under sectoral regulations (such as RBI norms)

Cannot be treated as compliance with Regulation 27(2)(a) of the LODR Regulations.

3. Applicability to Public Sector Banks

The clarification applies to all listed entities, including:

• Listed Public Sector Banks

Sector-specific governance frameworks do not dilute or override the requirements under the SEBI (LODR) Regulations.

4. Regulatory Intent

The clarification reinforces SEBI’s intent to:

• Ensure direct Board-level oversight of corporate governance compliance
• Strengthen accountability at the highest governance level
• Maintain uniform standards across all listed entities

5. Key Takeaway

• Placing the quarterly corporate governance compliance report before the Board is mandatory
• Committee-level review is insufficient, regardless of sectoral regulatory permissions
• The requirement applies uniformly to all listed entities, including PSBs

Click Here To Read The Full Update

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CA Rakesh Kedia, Manish Pareek & Gautam Kamra – [2026] 183 taxmann.com 215 (Article)

An argument to relive LIFO and align inventory valuation with economic reality.

The current prohibition of LIFO (Last-In, First-Out) inventory valuation under AS-2 and ICDS-II creates severe financial hardships for gold and silver traders operating in highly volatile markets. LIFO was prohibited in India effective from the financial year 2016-17 when the Central Government notified ten Income Computation and Disclosure Standards (ICDS), with ICDS-II mandating that businesses use either FIFO (First-In, First-Out) or weighted average cost method for inventory valuation. This prohibition aimed to align Indian accounting practices with international standards and prevent potential tax manipulation, but it has created unintended hardships for commodity traders facing extreme price volatility. This article demonstrates how mandatory FIFO accounting forces businesses to pay excessive taxes on unrealised paper profits, depletes working capital, and ultimately threatens business viability during periods of rapid price appreciation. We argue that LIFO should be permitted as an inventory valuation method for commodity trading businesses dealing with precious metals.

1. The Cash Flow Crisis – A Real-World Example

Consider a gold trader who purchased inventory at the following prices:

• 1 gram @ Rs. 5,450 (opening stock from January 2024)
• 1 gram @ Rs. 14,380 (recent purchase in January 2026)

Now, gold prices rise to Rs. 14,500 per gram. The trader sells 1 gram of gold.

1.1 Under FIFO (Current Mandatory Method)

• Sale – Rs. 14,500
• COGS – Rs. 5,450 (oldest inventory)
• Gross Profit – Rs. 9,050
• Tax @ 30% – Rs. 2,715
• Cash remaining after tax – Rs. 11,785
• Closing stock – 1 gram valued at Rs. 14,380

The Problem – To replace the 1 gram sold, the trader needs Rs. 14,500 (current market price). But after paying Rs. 2,715 in taxes, only Rs. 11,785 remains. The trader is short by Rs. 2,715 and cannot replenish inventory at current prices!

This forces the trader to either borrow funds (incurring interest costs) or reduce inventory levels, both of which harm business operations. In a highly competitive market with thin margins, this cash drain can be devastating.

1.2 Under LIFO (Proposed Solution)

• Sale – Rs. 14,500
• COGS – Rs. 14,380 (most recent inventory)
• Gross Profit – Rs. 120
• Tax @ 30% – Rs. 36
• Cash remaining after tax – Rs. 14,464
• Closing stock – 1 gram valued at Rs. 5,450

The Solution – With Rs. 14,464 in hand, the trader is much closer to the Rs. 14,500 needed to replace inventory. LIFO saves Rs. 2,679 in taxes compared to FIFO (Rs. 2,715 – Rs. 36), which significantly improves working capital and business sustainability. The trader can continue operations without borrowing or depleting inventory. Under FIFO, the trader retains only 81.3% of the sale proceeds after tax (Rs. 11,785 out of Rs. 14,500), making it difficult to fully replenish inventory. Under LIFO, the trader retains 99.8% of proceeds (Rs. 14,464 out of Rs. 14,500), enabling near-complete inventory replenishment.

2. The ‘Paper Profits’ Problem – When Prices Fluctuate

FIFO forces businesses to pay taxes on paper profits that do not reflect economic reality. This becomes especially problematic when prices fluctuate:

Scenario – Price Surge Followed by Correction

Year 1 (Price at Rs. 14,500):

• Under FIFO – Trader pays tax on Rs. 9,050 profit (Rs. 2,715 in taxes)
• Under LIFO – Trader pays tax on Rs. 120 profit (Rs. 36 in taxes)
• Remaining inventory under FIFO – 1 gram valued at Rs. 14,380
• Remaining inventory under LIFO – 1 gram valued at Rs. 5,450

Year 2 (Price crashes to Rs. 6,000):

• Under FIFO – Remaining 1 gram is sold at Rs. 6,000

1. 1. Loss – Rs. 6,000 – Rs. 14,380 = Rs. 8,380 loss
   2. Net position – Paid Rs. 2,715 tax in Year 1, have Rs. 8,380 loss to carry forward

• Under LIFO – Remaining 1 gram is sold at Rs. 6,000

1. 1. Profit – Rs. 6,000 – Rs. 5,450 = Rs. 550 profit
   2. Tax – Rs. 165 (30% of Rs. 550)
   3. Net Position – Total tax over 2 years – Rs. 36 + Rs. 165 = Rs. 201

The FIFO trader paid Rs. 2,715 in taxes in Year 1 on profits that largely evaporated when prices crashed. Even with a Rs. 8,380 loss to carry forward, if the business closes or cannot generate sufficient future profits, that Rs. 2,715 is permanently lost.

The LIFO trader paid only Rs. 201 total over both years, accurately reflecting the real economic gain. LIFO matches current costs with current revenues, avoiding tax on temporary price spikes.

Click Here To Read The Full Article

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Press Release, dated 07-02-2026

The Central Board of Direct Taxes (CBDT) has released the draft Income-tax Rules, 2026 for public consultation. Stakeholders and members of the public have been invited to submit their feedback and comments on the draft rules and forms.

1. Timeline for Submission of Comments

• Last date to submit comments – 22 February 2026

The consultation process is intended to ensure stakeholder participation before finalisation of the new rules.

2. Philosophy and Approach Behind the Draft Rules

The drafting of the Income-tax Rules, 2026 and the associated forms follows the same guiding philosophy as the Income-tax Act, 2025, with a strong focus on simplification and usability.

Key drafting principles include:

• Use of simple and clear language
• Incorporation of formulas and tables wherever required to improve clarity
• Logical structuring of provisions to enhance readability

3. Elimination of Redundancy and Consolidation

CBDT has sought to eliminate redundancies present in the Income-tax Rules, 1961.

The draft rules aim to simplify and consolidate provisions, resulting in a significant reduction in volume:

• Number of rules reduced – from 511 to 333
• Number of forms reduced – from 399 to 190

This consolidation is intended to make the tax framework more streamlined and easier to navigate.

4. Alignment with the Income Tax Act, 2025

While preserving the overall policy intent, the draft rules incorporate necessary changes aligned with amendments introduced under the Income-tax Act, 2025.

The intent is to ensure consistency between the Act and the Rules without altering substantive policy outcomes.

5. Simplification and Standardisation of Forms

The draft rules place significant emphasis on simplifying tax compliance through improved form design:

• Forms have been simplified to a large extent to make them more taxpayer-friendly
• Standardisation of common information across forms has been implemented to reduce repetitive disclosures
• Forms are designed to:

1. 1. Enable automated reconciliation
   2. Support prefill of data
   3. Make filing more intuitive and less error-prone

These changes aim to reduce the compliance burden on taxpayers and improve the overall filing experience.

6. Key Takeaway

The draft Income-tax Rules, 2026 represent a major step towards:

• Simplified tax administration
• Reduced compliance complexity
• Greater use of automation and standardisation

Stakeholders are encouraged to review the draft rules and submit comments by the stipulated deadline.

Click Here To Read The Full Press Release

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Case Details: Bhola Nath vs. State of Jharkhand [2026] 183 taxmann.com 59 (SC)

Judiciary and Counsel Details

• Vikram Nath & Sandeep Mehta, JJ.
• Kumar Shivam, Nishant Kumar, Aors, Pradeep Kumar Tripathi, Gaurav Prakash Pathak, Aashish Kumar, Advs., Saurabh Mishra & K. Parameshwar, Sr. Advs. for the Petitioner.
• Ms Ruchira Gupta, Nilesh Kumar, Ms Adya Shree Dutta, Ms Pooja Tripathi, Mohtisham Ali, Ms Dorjee Ongmu Lachungpa, Areen Gulati, Aniruddha Saha, Mangaljit Mukherji, Karma Dorjee, Anil Kumar, Gunjesh Ranjan, Prakash Kumarmangalam, Manoneet Dwivedi, Abhishek Kumar Gupta, Advs., Jayant Mohan & Shantanu Sagar, Aors for the Respondent.

Facts of the Case

In the instant case, the appellants were appointed by the respondent-State against sanctioned posts of Junior Engineers (Agriculture), with engagement being described from inception as contractual in nature. The terms and conditions governing engagement stipulated that appointment would be for an initial period of one year, extendable thereafter subject to satisfactory performance.

The Respondent-State accordingly granted extensions to the appellants from time to time until 2023, when it was expressly clarified that the extension granted would be the last. It was only towards the end of the year 2022 that respondents communicated that no further extension of the appellants’ engagement was likely to be granted.

It was noted that the abrupt discontinuance of such long-standing engagement solely based on contractual nomenclature, without either recording cogent reasons or passing a speaking order, was manifestly arbitrary and violative of Article 14 of the Constitution of India.

Further, the contractual stipulations purporting to bar claims for regularisation could not override constitutional guarantees.

Supreme Court Held

The Supreme Court held that the State, as a model employer, could not rely on contractual labels or the mechanical application of Umadevi (State of Karnataka v. Uma Devi (2006) 4 SCC 1) to justify prolonged ad hocism or to discard long-serving employees in a manner inconsistent with fairness, dignity, and constitutional governance.

In view of the foregoing discussion, the respondent-State was to forthwith regularise the services of all appellants against sanctioned posts to which they were initially appointed.

List of Cases Reviewed

• Judgments passed by the High Court of Jharkhand at Ranchi in Bhola Nath v. The State Of Jharkhand [L.P.A No. 390 of 2024, dated 17-09-2024]
• Uday Kant Yadav v.State of Jharkhand [LPA No 356 0f 2024, dated 15-10-2024]
• Prakash Kumar v. State of Jharkhand [LPA No. 368 of 2024, dated 2-12-2024] [Para 15] set aside

List of Cases Referred to

• Bhola Nath v. State of Jharkhand [LPA Nos. 390 of 2024, dated 17-9-2024] (para 3)
• Uday Kant Yadav v. State of Jharkhand [LPA No. 356 of 2024, dated 15-10-2024] (para 3)
• Prakash Kumar v. State of Jharkhand [LPA No. 368 of 2024, dated 2-12-2024] (para 3)
• Secretary, State of Karnataka v. Umadevi 2006 taxmann.com 2495 (SC) (para 6.2)
• Chandra Singh v. State of Rajasthan 2003 taxmann.com 4039 (SC) (para 9.2)
• Basheshar Nath v. Comm. Income Tax 1958 SCC OnLine SC 7 (para 11.6)
• Central Inland Water Transport Corpn. v. Brojo Nath Ganguly 1986 taxmann.com 1221 (SC) (para 12)
• Pani Ram v. Union of India (2021) 19 SCC 234 (para 12.1)
• Army Welfare Education Society v. Sunil Kumar Sharma (2024) 16 SCC 598 (para 13)
• Jaggo v. Union of India 2024 SCC OnLine SC 3826 (para 13.6)
• Vinod Kumar v. Union of India (2024) 9 SCC 327 (para 13.7)
• Shripal v. Nagar Nigam [2025] 1 taxmann.com 9348 (SC) (para 13.7)
• Dharam Singh v. State of U.P. [2025] 177 taxmann.com 556 (SC) (para 13.8).

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MASTER CIRCULAR HO/38/13/(4)2026-MIRSD-POD/I/4298/2026; Dated: 06.02.2026

The Securities and Exchange Board of India (SEBI) has issued a Master Circular for Registrars to an Issue and Share Transfer Agents (RTAs) with the objective of consolidating, updating, and streamlining the regulatory framework applicable to RTAs.

The Master Circular brings together various instructions issued earlier, providing a single reference point to enhance regulatory clarity and compliance.

1. Scope of the Master Circular

The Master Circular covers and updates regulatory provisions relating to the following key areas:

2. Online Registration Process for RTAs

The circular consolidates norms governing the online registration process, including:

• Submission of applications through the designated portal
• Documentation and eligibility requirements
• Processing and grant of registration

3. General Instructions Applicable to RTAs

SEBI has laid down general operational and governance instructions applicable to RTAs, including:

• Code of conduct and professional standards
• Maintenance of records and data confidentiality
• Systems, controls, and internal governance requirements

4. Application and Approval Framework

4.1 Change of Control and Transfer of Business

The Master Circular prescribes:

• The requirement of prior approval from SEBI for any change in control of an RTA
• Regulatory procedures for transfer of business, including documentation and disclosures

5. Net Worth Certification Requirements

RTAs are required to:

• Submit periodic net worth certificates
• Ensure compliance with minimum net worth requirements
• Provide certification from qualified professionals within prescribed timelines

6. Regulatory Compliance and Periodic Reporting

The Master Circular sets out obligations relating to:

• Ongoing regulatory compliance
• Periodic reporting to SEBI
• Timely submission of returns, statements, and disclosures

7. Enhanced Disclosures for Listed Debt Securities

Specific emphasis has been placed on:

• Enhanced disclosure requirements in relation to listed debt securities
• Transparency in servicing, record maintenance, and investor-related information
• Alignment with SEBI’s investor protection and market integrity objectives

8. Rescission of Earlier Circulars

SEBI has clarified that:

• Previous circulars and instructions covered under the Master Circular stand rescinded
• However, actions taken, approvals granted, and compliances completed under the earlier circulars shall remain valid

This ensures continuity and legal certainty, while avoiding duplication and regulatory ambiguity.

9. Key Takeaway

The Master Circular:

• Serves as a single, comprehensive compliance reference for RTAs
• Simplifies regulatory navigation
• Enhances consistency, transparency, and ease of compliance
• Strengthens SEBI’s oversight framework for intermediaries

Click Here To Read The Full Circular

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Consultation Paper Dated 05.02.2026

The Securities and Exchange Board of India (SEBI) has issued a consultation paper proposing to reduce the Z-score threshold from 10 to 5 for the inclusion of historical scenarios in standardised stress testing for the commodity derivatives segment.

1. Existing Stress Testing Framework

Under the current framework:

• Historical price scenarios with extreme price movements are included in stress testing
• Such movements are identified using a Z-score threshold of 10, which captures highly extreme and infrequent market events

SEBI has observed that this threshold may result in overly conservative stress outcomes, particularly in the commodity derivatives market.

2. Proposed Change in Z-Score Threshold

Under the proposal:

• The Z-score threshold will be reduced from 10 to 5
• Price movements corresponding to a Z-score of 5 will be considered for stress testing
• Extreme price movements beyond the Z-score of 5 will be replaced by the capped movements at the Z-score 5 level in peak historical returns

This change is intended to strike a balance between prudence and realism in stress testing.

3. Rationale for the Proposal

The proposal is based on:

• Recommendations of the Risk Management Review Committee
• Representations received from market stakeholders highlighting the need for a more calibrated stress-testing approach

SEBI has acknowledged that while stress tests should remain robust, they should also reflect practical market behaviour and avoid undue strain on market participants.

4. Impact on Commodity Derivatives Segment

If implemented, the proposal is expected to:

• Moderate extreme stress test results
• Improve risk calibration without compromising systemic safety
• Enhance operational efficiency for exchanges and clearing corporations

5. Invitation for Public Comments

SEBI has invited public comments and suggestions on the consultation paper, considering its implications for exchanges, clearing corporations, and commodity derivatives market participants.

Stakeholders are encouraged to provide feedback to assist SEBI in finalising the proposed framework.

Click Here To Read The Full Update

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Press Release: 2025-2026/2053, Dated 06.02.2025

The Monetary Policy Committee (MPC) of the Reserve Bank of India, after assessing evolving macroeconomic and financial developments and the overall economic outlook, has decided to keep the policy repo rate unchanged.

1. Policy Rates Under the Liquidity Adjustment Facility (LAF)

As per the MPC’s decision, the key policy rates are as follows:

• Policy Repo Rate – 5.25%
• Standing Deposit Facility (SDF) Rate – 5.00%
• Marginal Standing Facility (MSF) Rate – 5.50%
• Bank Rate – 5.50%

These rates remain unchanged under the Liquidity Adjustment Facility (LAF) framework.

2. Monetary Policy Stance

The MPC has also decided to continue with a neutral monetary policy stance, while noting that economic growth remains resilient.
This stance allows the MPC flexibility to respond appropriately to evolving inflation and growth dynamics.

3. Publication of MPC Meeting Minutes

• The minutes of the MPC meeting will be published on 20 February 2026.
• The minutes will provide detailed insights into the deliberations and individual views of MPC members.

4. Next MPC Meeting

• Next MPC Meeting – 6-8 April 2026

The MPC will reassess macroeconomic conditions, inflation trends, and growth prospects at its next scheduled meeting.

Click Here To Read The Full Press Release

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1. Introduction

Entities operating in the consumer goods sector commonly incur promotional expenditure to enhance brand recognition, introduce products to the market, and expand their distribution network. One such activity involves the free distribution of gifts, such as decorative items bearing the entity’s logo, along with product catalogues to potential distributors. While these activities are intended to generate future economic benefits, determining the appropriate accounting treatment requires a careful assessment of whether such transactions fall within the scope of Ind AS 115 or are governed by other Indian Accounting Standards (Ind AS).

2. Meaning of Customer Under Ind AS 115

Para 6 of Ind AS 115 states that

“A customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.”

3. Scope of Ind AS 115 – Contracts With Customers

Ind AS 115 applies to contracts with customers that create enforceable rights and obligations and involve the transfer of goods or services in exchange for consideration. The existence of a contract is a prerequisite for the application of the standard. A contract may be written, oral, or implied by customary business practices, provided it is legally enforceable.

Further, the standard applies only when an entity transfers goods or services that are outputs of its ordinary activities to a customer for consideration. Transactions that do not involve such an exchange, or where no contractual arrangement exists, fall outside the scope of Ind AS 115.

4. Performance Obligations Under Ind AS 115

A performance obligation arises when an entity promises to transfer a distinct good or service to a customer as part of a contract. Performance obligations are identified only within the context of a contract with a customer and are satisfied when control of the promised good or service is transferred.

Transfers of goods that occur independently of any contractual promise, and which are not contingent upon the satisfaction of performance obligations, are not within the recognition and measurement framework of Ind AS 115.

Click Here To Read The Full Story

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