Tax Talk: Do shares come under the ambit of ‘goods’?

Whereas the Sale of Items Act, 1932(SOGA) defines ‘items’ to incorporate shares and shares inside its style, an identical definition in Central Items and Providers Tax Act 2017 (CGSTA) excludes securities from its ambit.

By Sandeep Jhunjhunwala

Imposition of legal responsibility to deduct tax on buy of products with impact from July 1, 2021 has witnessed companies going again to the drafting board to underpin their obligations by discerning the interaction between applicability of tax deduction (TDS) provisions on buy of products, inserted by Union Price range 2021 and tax assortment (TCS) provisions on sale of products inserted earlier vide Finance Act 2020.

One of many questions which have landed tax deductors in a quandary is whether or not these provisions must be examined for transactions in shares and securities. This is because of absence of definition of the time period ‘items’ in Earnings Tax Act. Whereas the Sale of Items Act, 1932(SOGA) defines ‘items’ to incorporate shares and shares inside its style, an identical definition in Central Items and Providers Tax Act 2017 (CGSTA) excludes securities from its ambit.

Courts have laid that expressions outlined in a single statute don’t afford a information to development of identical expressions in one other statute, until each statutes are pari materials legislations; i.e., each statutes take care of comparable issues. CGSTA and ITA being taxing statutes, might be arguably thought of as pari materials legislations.

Adopting the definition underneath CGSTA, one might aver that shares must be within the nature of marketable securities. As a corollary, solely listed shares are sought to be excluded from the definition of products. The above argument could not maintain in mild of Supreme Court docket ruling within the instances of Sahara and Bhagawati Builders that something saleable or freely transferable with none statutory prohibits, is marketable. Subsequently, each listed and unlisted shares would get excluded from the realm of products. ITA itself in sure sections treats items and securities in another way and subsequently, in absence of a particular definition in ITA, items might be construed to exclude securities, whether or not listed or unlisted.

Clarification wanted
Making use of definition underneath SOGA learn with not too long ago issued CBDT Round No 13 of 2021 and Round No 17 of 2020 could, nevertheless, result in a differing view. The Circulars noticed that in buying and selling exchanges, there is no such thing as a one-to-one contract between patrons and sellers and clarified that TDS/ TCS provisions wouldn’t apply to transactions in securities traded via recognised inventory exchanges (RSE). The circulars could also be indicative of a assemble that ‘items’ contains shares with a particular exclusion for securities traded on RSE. This interpretation is echoed by the rationale of issuing the clarification.

Given the dissonance in views, these provisions have develop into an space of research by transaction specialists whereas figuring out TDS implications on transactions in unlisted shares, which can necessitate a particular clarification from the authorities.

The author is accomplice, Nangia Andersen LLP. With inputs from Amita Jivrajani