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ICDS IV : Revenue Recognition

Income Tax - Income computation and disclosure standards - 05 - This Income Computation and Disclosure Standard is based on Accounting Standard 9-Revenue Recognition. 1. Scope:- This standard covers activities of a person from sale of goods, rendering of services or income pertaining to interest, royalty, or dividends. This ICDS does not deal with the aspects of revenue recognition which are dealt with by other ICDS. Primarily, the ICDS deals with the point of time when the revenue should be rec .....

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e is the amount of commission and not the gross inflow of cash, receivables or other consideration. 3. Sale of goods:- There are two cumulative criteria for recognising revenue from sale of goods: The seller has transferred the property in the goods to the buyer for a price or significant risks and rewards associated with the ownership of the goods have been transferred to the buyer and the seller has not retained effective control over the goods transferred. Control contemplated here is control .....

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n of the revenue, recognition of revenue is postponed. 4. Rendering of service:- Revenue from service transactions shall be recognised by the percentage completion method. Under this method, revenue from service transactions is matched with the service transaction costs incurred in reaching the stage of completion, resulting in the determination of revenue, expenses and profit which can be attributed to the proportion of work completed. However, when services are provided by an indeterminate num .....

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involves both, sale of goods and provision of service. In such a case, one will have to examine what is the predominant aspect of the transaction, whether consideration to be received for the transaction can be split into that for sale of goods and for provision of service, etc. Merely, because a transaction is liable to service tax it will not ipso facto mean that it is a service transaction as contemplated under this ICDS. For example, a real estate developer developing a property on his own .....

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cable rate. Rate of interest is generally agreed between the parties. It may vary and such variation may, in some cases, be contingent upon certain events. Only the income which has accrued or arisen in the previous year relevant to the assessment year as contemplated u/s 5 shall be taxed. In the case of CIT v Vasisth Chay Vyapar Ltd.[ 2010 (11) TMI 88 - Delhi High Court ] it is held that where recovery of inter corporate deposits (ICD) itself had become doubtful due to precarious financial posi .....

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al basis, then such other basis shall be adopted for recognising the royalties. Note: Where royalty is taxed under the provisions of any DTA, provisions of such DTA will prevail over the provisions of the Act and consequently, provisions of the ICDS will not apply. Dividends:- Dividends are recognised in accordance with the provisions of the Act. It has been defined inclusively by section 2(22) of the Act. It includes certain distributions and payments. Although, dividends in respect of which di .....

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