Weekly Round-up on Tax and Corporate Laws | 16th to 21st February 2026

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from Feb 16^th  to Feb 21^st 2026, namely:

1. Discount Under Jewellery Scheme Redeemable Only Through Purchase, Not Interest; Section 194A Not Applicable: ITAT
2. RBI Releases Draft Directions on Foreign Exchange Dealings of Authorised Persons
3. Compensatory Allowances Must Be Included in Overtime Wages Under Section 59 of Factories Act: SC
4. Refund of IGST on Ocean Freight to Be Transferred to Consumer Welfare Fund Due to Unjust Enrichment: SC
5. ITC Can’t Be Denied for Late Returns if Filed Within Sec. 16(5) Extended Cut-Off Date: HC
6. Revenue Recognition of Forfeited Booking Advances in Real Estate Transactions Under Ind AS 115
7. ICAI Issues Update on UDIN: New Reporting Requirements, Validation Measures and Tax Audit Limits

1. Discount Under Jewellery Scheme Redeemable Only Through Purchase, Not Interest; Section 194A Not Applicable: ITAT

The assessee, a franchise agent of a jewellery company, was running the Golden Harvest Scheme (GHS). Under the scheme, customers paid 11 monthly instalments toward a future jewellery purchase. At the end of the period, when the jewellery was purchased, the company paid the twelfth-month instalment as a discount.

The Assessing Officer (AO) held that amounts collected under GHS were akin to fixed deposits, and the discount given in the twelfth month was, in substance, interest payable by the assessee to customers. Thus, such interest attracted TDS under section 194A and computed interest treating the assessee as assessee in default under section 201(1). On appeal, the CIT(A) upheld the action taken by the AO. The aggrieved assessee filed the instant appeal before the Tribunal.

The Tribunal held that the Golden Harvest Scheme was an invitation to customers to invest a specified amount in monthly instalments, which could be redeemed only by purchasing jewellery after the conclusion of the eleven months. At the time of redemption, the company would offer a discount on the value of jewellery equivalent to one month’s instalment paid by the assessee. Based on the facts and the understanding of the scheme, it appears that the said benefit was an incentive offered to the customer in the course of trading.

Since the amounts paid by customers cannot be redeemed in cash at the end of the deposit period and can be utilised only towards the purchase of jewellery, the scheme cannot be regarded as a fixed deposit scheme but only as an advance towards the purchase of jewellery. Consequently, the discount offered by the company cannot be regarded as payment of interest as per provisions of section 2(28A) but only as an incentive or sales promotion activity extended to encourage customers to purchase jewellery by making payments on an instalment basis instead of a lump sum payment and in this manner creating a larger market for its products to be sold.

Therefore, no case was made out for considering the discount to be interest upon which TDS was deductible under section 194A.

Read the Ruling

2. RBI Releases Draft Directions on Foreign Exchange Dealings of Authorised Persons

The Reserve Bank of India vide Press Release No. 2025-2026/2130, dated 17.02.2026, has reviewed and refined the regulatory framework governing foreign exchange dealings of Authorised Persons, as contained in Part A (Section III) and Part C of the ‘Master Direction – Risk Management and Inter-Bank Dealings’. The revised draft framework aims to provide greater operational flexibility to Authorised Dealers while strengthening governance and rationalising reporting requirements.

For the purpose of these directions, Authorised Persons shall mean Authorised Dealer Category-I banks and Standalone Primary Dealers authorised as Authorised Dealer Category-III under Section 10(1) of FEMA, 1999.

2.1 Permitted Products and Transactions

Authorised Dealers may undertake foreign exchange transactions with other Authorised Dealers and with their overseas branches, overseas entities, IFSC Banking Units (IBUs) and Offshore Banking Units (OBUs) in Special Economic Zones for hedging exposures, balance sheet management, market-making and proprietary positions.

They may undertake Non-deliverable Derivative Contracts (NDDCs) involving INR with other Authorised Dealers and eligible overseas entities, either directly or on a back-to-back basis through overseas branches, IBUs, wholly owned subsidiaries or joint ventures, subject to prescribed conditions. Such contracts may be cash-settled in INR or any foreign currency.

Authorised Dealers may undertake foreign exchange and foreign currency interest rate derivative contracts on electronic trading platforms authorised by the Reserve Bank. Transactions may also be undertaken on electronic trading platforms (ETPs) outside India, subject to incorporation in a Financial Action Task Force (FATF) member jurisdiction and regulation by a Committee on Payments and Market Infrastructures (CPMI) or the International Organisation of Securities Commissions (IOSCO) member regulator. In respect of INR transactions on offshore ETPs, dealings shall be only with non-residents and transaction information shall be disseminated on the operator’s website.

Permitted exchange traded currency derivative contracts may be undertaken on recognised stock exchanges in India and regulated exchanges in IFSC. Transactions not involving INR may also be undertaken on overseas exchanges located in FATF member jurisdictions and regulated by a CPMI or IOSCO member regulator.

2.2 Hedging of Gold Prices

A designated bank under the Gold Monetisation Scheme, 2015 and a bank permitted to enter into forward gold contracts with constituents in India may hedge gold price risk, including positions arising out of inter-bank gold deals, using exchange-traded and OTC hedging products in overseas markets. Where option products are used, there shall be no net receipt of premium, either direct or implied.

2.3 Foreign Currency Accounts and Investments in Overseas Markets

An Authorised Dealer may, subject to a Board-approved policy, utilise surplus funds in its foreign currency accounts for:

• overnight placements;
• reverse repo transactions up to one year against overseas debt instruments issued by a foreign state;
• investment in overseas money market instruments or debt instruments issued by a foreign state with original or residual maturity up to one year;
• lending in INR and foreign currency in terms of applicable FEMA regulations and directions; and
• investment of un-deployed FCNR (B) funds in long-term overseas debt instruments issued by a foreign state, subject to residual maturity not exceeding that of the underlying deposits.

2.4 Overseas Foreign Currency Borrowing

An Authorised Dealer Category-I bank may borrow in foreign currency from its Head Office, overseas branches, overseas banks, International/Multilateral Financial Institutions or any other entity permitted by the Reserve Bank. Borrowings from such International/Multilateral Financial Institutions shall be limited to those in which the Government of India is a shareholding member or which have multi-government shareholding.

Overseas foreign currency borrowings shall not exceed 100 per cent of Tier I capital or USD 10 million (or equivalent), whichever is higher, unless prior approval of the Reserve Bank is obtained. Specified borrowings, including export credit financing, capital raising, eligible interest-free head office funds, short-term nostro overdrafts and other exclusions, shall remain outside this limit.

Standalone Primary Dealers authorised as AD Category-III may borrow in foreign currency from permitted entities and avail overdrafts in nostro accounts within the limits prescribed under the applicable RBI Directions.

2.4 Governance, Risk Management and Reporting

Authorised Dealers shall frame a Board-approved policy for foreign exchange dealings, including the Net Overnight Open Position (NOOP) limit. The NOOP limit shall not exceed 25 per cent of total capital (Tier I and Tier II) and shall be communicated to the Reserve Bank. The Reserve Bank may prescribe a specific limit for net open position involving INR.

Net open positions shall be computed in accordance with instructions issued by the Department of Regulation. Procedures for calculation of other risk limits shall be documented and applied consistently.

Market timings for customer and inter-bank foreign exchange transactions shall be as specified by the Reserve Bank. Transactions beyond onshore market hours may be undertaken with eligible counterparties. Market timings for exchange traded currency derivatives shall be as prescribed by SEBI in consultation with the Reserve Bank.

Read the Press Release

3. Compensatory Allowances Must Be Included in Overtime Wages Under Section 59 of Factories Act: SC

The Supreme Court, in the matter of Union of India vs. Heavy Vehicles Factory Employees’ Union [2026] 182 taxmann.com 563 (SC), ruled that compensatory allowances must be taken into account while computing overtime wages under section 59 of the Factories Act.

3.1 Brief Facts of the Case

In the instant case, the Union of India filed an appeal before the Supreme Court against the judgment of the Division Bench of the High Court, which had set aside the order of the Central Administrative Tribunal.

The respondents were employees of government factories engaged in the production of defence equipment under the Ministry of Defence. The dispute arose when, pursuant to various Office Memorandums issued by the Ministries of Labour, Finance and Defence, particularly the Office Memorandum dated 26.06.2009, compensatory allowances such as House Rent Allowance, Transport Allowance, Clothing and Washing Allowance and Small Family Allowance were excluded from the computation of the “ordinary rate of wages” for calculating overtime under Section 59(2) of the Factories Act, 1948.

The employees contended that such exclusion through executive instructions was contrary to the statutory mandate of Section 59(2), which includes basic wages plus such allowances as the worker is entitled to, except bonus and overtime wages.

Multiple Original Applications were filed before the Central Administrative Tribunal challenging the exclusion of these allowances. The Tribunal dismissed the applications. Aggrieved, the employees approached the High Court, which set aside the Tribunal’s order and held that the allowances must be included. The Union of India then filed appeals before the Supreme Court.

3.2 Supreme Court Observations

The Supreme Court noted that the interpretation of Section 59(2), which forms part of Chapter VI of the Factories Act, 1948, titled ‘Working Hours of Adults’, arose for consideration. Sections 64 and 65 deal with the power to make exempting rules and orders, respectively and such powers are vested in the State Government.

As far as Chapter VI is concerned, no power is vested with different Ministries of the Government of India to issue any clarification with reference to Section 59(2) of the Act, especially regarding what is to be included or excluded for the purpose of calculating the ‘ordinary rate of wages’ to determine the wages payable for overtime to an employee.

Further, Section 112 of the Act provides the general power to make rules. It empowers the State Government to make rules providing for any matter, which under the provisions of the Act, is to be or may be considered expedient in order to give effect to the purposes of the Act. Section 113 of the Act empowers the Central Government to give directions to the State Governments for carrying out the execution of the provisions of the Act.

However, the aforesaid sections again do not empower the Central Government to issue any clarification or direction with reference to any provisions of the Act. None of the sections empowers the Central Government to even frame rules. The entire rule-making power is vested with the State Governments. All that the Central Government can do is issue directions to the State Governments.

3.3 Supreme Court Ruling

The Supreme Court held that different Ministries of the Government of India cannot assign different meanings to a provision of an Act of Parliament when its meaning is clearly evident from the plain reading of Section 59 (2) of the Act.

Further, the Supreme Court held that the sudden exclusion of these allowances via Office Memorandum lacked legal authority and was contrary to the literal mandate of Section 59 of the Act. Therefore, no case was made out for interference with the impugned judgment of the High Court. Accordingly, the appeal was dismissed.

Read the Ruling

4. Refund of IGST on Ocean Freight to Be Transferred to Consumer Welfare Fund Due to Unjust Enrichment: SC

The Hon’ble Supreme Court held that a refund of IGST paid on ocean freight could not be granted to the assessee where the tax burden had been passed on to consumers, and the amount was required to be credited to the Consumer Welfare Fund.

4.1 Facts

The petitioner engaged in electricity generation and distribution, imported natural gas on a CIF (Cost, Insurance, and Freight) basis, and paid IGST and Service Tax on ocean freight under the reverse charge mechanism. It filed refund applications for the taxes paid, which were denied by the authorities, citing lack of jurisdiction and the principle of unjust enrichment, on the ground that the tax burden had been passed on to consumers and was not entitled to refund, with a proposal to transfer the amount to the Consumer Welfare Fund. The High Court held that it was entitled to refund of IGST and Service Tax paid on ocean freight as the levy was declared unconstitutional. The matter was accordingly placed before the Hon’ble Supreme Court.

4.2 Held

The Hon’ble Supreme Court held that the High Court was not justified in directing a procedure for refund to consumers directly, which was not contemplated under Section 54 read with Section 57 of the CGST Act. The Court observed that upon receipt of a refund application, the officer is required to satisfy himself that the amount claimed is actually refundable, and if so, it must be credited to the Consumer Welfare Fund. In the instant case, it was an admitted fact that the petitioner had passed on the tax burden to consumers; therefore, the exception did not apply. Consequently, the High Court’s order was set aside, and the petitioner was directed to transfer the amount to the authorities concerned for credit to the Consumer Welfare Fund within three months. The appeal was allowed in favour of the revenue.

Read the Ruling

5. ITC Can’t Be Denied for Late Returns if Filed Within Sec. 16(5) Extended Cut-Off Date: HC

The High Court held that ITC cannot be denied merely because returns were filed belatedly, where such returns were filed within the extended cut-off date prescribed under Section 16(5) of the CGST Act.

5.1 Facts

The petitioner challenged the rejection of its input tax credit (ITC) claims. It had submitted all relevant returns. The ITC claims were rejected on the ground that the returns were filed beyond the statutory time limit prescribed under Section 16(4) of the CGST Act. It was contended that Section 16(5), introduced with effect from 16-08-2024, provided that where returns were filed on or before 30-11-2021, ITC could be claimed. The matter was accordingly placed before the High Court.

5.2 Held

The High Court held that even if there were lapses by the petitioner in filing returns, the claim for ITC could not be denied solely for that reason. The Court observed that Section 16(5) begins with the words “Notwithstanding anything contained in Sub-Section (4),” and therefore, the cut-off date prescribed in Section 16(4) was not relevant where the return was filed within the extended period under Section 16(5). It was further noted that the dates of filing of returns, as discernible from the impugned order, confirmed compliance within the statutory extension. Accordingly, the petitioner was entitled to claim the ITC.

Read the Ruling

6. Revenue Recognition of Forfeited Booking Advances in Real Estate Transactions under Ind AS 115

In the real estate sector, developers commonly enter into agreements for sale of properties under flexible payment schemes where a small percentage of the total consideration is collected upfront and the balance is payable upon completion. A recurring accounting issue arises when a customer cancels the booking and the advance amount becomes non-refundable, specifically, whether such forfeited amount should be recognised as revenue and, if so, at what stage under Ind AS 115, Revenue from Contracts with Customers.

Consider a situation where a developer enters into an agreement in 2024 for sale of a residential flat priced at Rs. 1,00,00,000 under a 10:90 payment scheme. The customer pays Rs. 10,00,000 at the time of booking, while the balance Rs. 90,00,000 is payable upon delivery of the completed flat. Under applicable local regulations, the customer has the legal right to withdraw from the transaction at any time before delivery. In such an event, the developer is entitled to forfeit the booking amount. During the construction period, property prices decline significantly and the customer decides to cancel the booking in 2026. The developer cannot legally enforce completion of the sale and retains Rs. 10,00,000 in accordance with the agreement and regulatory framework.

At the time of receipt of the booking amount in 2024, the developer has not transferred control of the flat and continues to have a performance obligation to deliver the property. In accordance with Ind AS 115, when consideration is received before the transfer of goods or services, the amount should be presented as a contract liability. The advance represents an obligation to either transfer the promised asset or refund the consideration if the contract is cancelled. Since control of the flat has not passed and the customer retains a unilateral right to withdraw, revenue recognition at the time of receipt is not appropriate. The booking amount should therefore be recognised as a contract liability.

When the customer formally cancels the booking in 2026, the contractual relationship changes substantively. The developer is released from its obligation to transfer the flat and obtains an unconditional right to retain the booking amount. Ind AS 115 provides that where a contract is terminated and the consideration received is non-refundable, revenue may be recognised when the entity has no remaining obligation to transfer goods or services. At the point of cancellation, these conditions are satisfied because the performance obligation ceases to exist and the amount becomes non-refundable. Accordingly, the contract liability should be derecognised and the forfeited amount recognised as revenue.

The key determinant is not merely the receipt of cash but the status of the performance obligation. Until the contract is terminated, the developer remains obligated to transfer the property and therefore cannot recognise revenue. Revenue arises only when the entity is discharged from its obligation and obtains an unconditional right to retain the consideration. In such cases, the forfeited booking advance is recognised as revenue at the date of cancellation, not at the time of initial receipt.

Read the Story

7. ICAI Issues Update on UDIN: New Reporting Requirements, Validation Measures and Tax Audit Limits

The Institute of Chartered Accountants of India (ICAI), pursuant to decisions taken at its 442nd Council Meeting held on 26–27 May 2025, has introduced significant updates to the UDIN framework to strengthen compliance, enhance system-based validation, and align UDIN generation with prescribed tax audit limits.

Under the revised framework, members generating UDIN under the ‘GST & Tax Audit’ and ‘Audit & Assurance Functions’ categories are now required to furnish details of the preceding year’s audit while generating UDIN. ICAI has clarified that such information will remain confidential and will not be made publicly accessible.

Further, the PAN of the assessee has been made a mandatory field for generating UDIN under the ‘GST & Tax Audit’ category. Going forward, UDIN validation on the CBDT e-Filing Portal will be based on five parameters: Membership Registration Number (MRN), UDIN, Assessment Year/Financial Year, Form Number, and PAN of the assessee. The PAN details furnished will remain confidential and will not be available to third-party verifiers.

In addition, ICAI has approved the implementation of a ceiling on the maximum number of UDINs that may be generated in line with the prescribed limit of 60 tax audits. This restriction will apply to specified Forms under Section 44AB and will become operational from 1 April 2026. Field-level validation has already been implemented on the UDIN Portal and will continue across all relevant sub-categories covered under Section 44AB at the time of UDIN generation.

Read the Update