Whether provisions of Section 194Q will be applicable on transfer of unlisted shares

As you know that provisions of Section 194Q are become applicable from 1st July,2021. This Section provides that a purchaser of goods/services shall deduct TDS @0.1% from amount paid or to be paid or credited in sellers’ account if his total purchases during year exceeds Rs. 50.00 Lakhs and his turnover in immediate previous year exceeds Rs. 10.00 crores.

We know that definition of goods under Central Goods and Service Tax Act,2017 does not include shares or securities. Income Tax Act,1961 does also not define goods. Thus there is no taxable event arise on the transfer of shares or securities.

But Sale of Goods Act, 1930 define goods to include stocks and shares within its genre. But Central Goods and Service Tax Act,2017 excludes securities from its ambit.

Courts have laid that expressions defined in one statute do not afford a guide to construction of same expressions in another statute, unless both statutes are pari material legislations; i.e., both statutes deal with similar matters. 

CGSTA and Income Tax Act, 1961 being taxing statutes, could be arguably considered as pari material legislations.

Adopting the definition under CGSTA, one could aver that shares should be in the nature of marketable securities. As a corollary, only listed shares are sought to be excluded from the definition of goods. The above argument may not hold in light of Supreme Court ruling in the cases of Sahara and Bhagawati Developers that anything saleable or freely transferable without any statutory prohibits, is marketable. 

From above we find that both listed and unlisted shares will be excluded from the definition of goods. The Income Tax Act,2017 is also treated at some places goods and securities differently.

Applying definition under Sale of Goods Act, 1930 read with recently issued CBDT Circular No 13 of 2021 and Circular No 17 of 2020 may, however, lead to a differing view. The Circulars observed that in trading exchanges, there is no one-to-one contract between buyers and sellers and clarified that TDS/ TCS provisions would not apply to transactions in securities traded through recognized stock exchanges (RSE).

From above clarification we find that securities transacted at Recognized Stock Exchange is not treated as goods and hence TDS provisions will not be applicable.

More clarification on this will be needed from CBDT.