TDS on Purchase of Goods was introduced w.e.f. 1st July 2021 via Finance Act 2021. This section required that TDS has to be deducted U/S 194Q where the buyer is responsible for paying any sum to the seller for the purchase of any goods where value is exceeding Rs 50 Lakh in any previous year.

TDS shall be deducted, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier.

The Rate of TDS is 0.1 percent of such sum exceeding fifty lakh rupees as income tax.

This Article Discusses if Provisions of Section 194Q are applicable on Payment of Electricity Bill?

To See if Electricity will fall in Ambit of Goods, let us understand what is the Definition of Goods. Now Since “goods” is not defined in the Income Tax Act, we need to refer to the definition of the same in Some other Acts.

Section 2(7) of The Sale of Goods Act, 1930

“goods” means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;

Clause (d) of Section 2 of The Central Sales Tax Act, 1956

“goods” includes all materials, articles, commodities, and all other kinds of movable property, but does not include newspapers, actionable claims, stocks, shares and securities.

Section 2(47) of The Central Goods & Service Tax Act 2017

“goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;

Whether Electricity is a Good?

This Question has been answered by Supreme Court in CASE NO.: Appeal (civil) 3112 of 1990 in matter of STATE OF A.P. v/s NATIONAL THERMAL POWER CORPN. LTD. & ORS

It is settled with the pronouncement of this Court in Commissioner of Sales Tax, Madhya Pradesh, Indore Vs. Madhya Pradesh Electricity Board, Jabalpur- 1969 (2) SCR 939 that electricity is goods. The definition of goods as given in Article 366 (12) of the Constitution was considered by this Court and it was held that the definition in terms is very wide according to which “goods” means all kinds of moveable property. The term “moveable property” when considered with reference to “goods” as defined for the purpose of sales-tax cannot be taken in a narrow sense and merely because electrical energy is not tangible or cannot be moved or
touched like, for instance, a piece of wood or a book it cannot cease to be moveable property when it has all the attributes of such property. It is capable of abstraction, consumption and use which if done dishonestly is punishable under Section 39 of the Indian Electricity Act, 1910. If there can be sale and purchase of electrical energy like any other moveable object, this Court held that there was no difficulty in holding that electric energy was intended to be covered by the definition of “goods”. However, A.N. Grover, J. speaking for three- Judge Bench of this Court went on to observe that electric energy “can be transmitted, transferred, delivered, stored, possessed etc. in the same way as any other moveable property”. In this observation we agree with Grover, J. on all other characteristics of electric energy except that it can be ’stored’ and to the extent that electric energy can be ’stored’, the observation must be held to be erroneous or by oversight. The science and technology till this day have not been able to evolve any methodology by which electric energy can be preserved or stored.

Another significant characteristic of electric energy is that its generation or production coincides almost instantaneously with its consumption. To quote from Aiyar’s Law Lexicon (Second Edition, 2000) ’Electricity in physics is “the name given to the cause of a series of phenomena exhibited by various substances, and also to the phenomena themselves.” Its true nature is not understood. Imperial Dict. (quoted in Spensley v. Lancashire Ins. Co., 54 Wis. 433, 442, 11 NW 894, where the court, quoting from the same authority, said, “We are totally ignorant of the nature of this cause whether it be a material agent or merely a property of matter. But as some hypothesis is necessary for explaining the phenomena observed, it has been assumed to be a highly subtle, imponderable fluid, identical with lightning, which pervades the pores of all bodies, and is capable of motion from one body to another.’ This characteristic quality of electric energy was judicially noticed in Indian Aluminium Co.etc.etc. Vs. State of Kerala & Ors. (1996) 7 SCC 637. Vide para 25 this Court has noted, “Continuity of supply and consumption starts from the moment the electrical energy passes through the meters and sale simultaneously takes place as soon as meter reading is recorded. All the three steps or phases (i.e. sale, supply and consumption) take place without any hiatus. It is true that from the place of generating electricity, the electricity is supplied to the sub-station installed at the units of the consumers through electrical higher-tension transformers and from there electricity is supplied to the meter. But the moment electricity is supplied through the meter, consumption and sale simultaneously take place.” “as soon as the electrical energy is supplied to the consumers and is transmitted through the meter, consumption takes place simultaneously with the supply. There is no hiatus in its operation. Simultaneously sale also takes place.” These properties of electricity as goods are of immense relevance as we would state hereafter.

Although this judgement came in matter of sales Tax, but it can be presumed that Electricity is good.

Please note that TDS Provisions are not applicable on Certain Entities Whose Income is Exempt Under Income Tax Act. [Refer Circular 18/2017 of Income Tax]

“it has been decided that in case of below mentioned funds or authorities or Boards or bodies, by whatever name called, referred to in section 10 of the Income-tax Act, whose income is unconditionally exempt under that section and who are also statutorily not required to file return of income as per section 139 of the Income-tax Act, there would be no requirement for tax deduction at source, since their income is anyway exempt under the Income-tax Act —

(i) “local authority”, as referred to in the Explanation to clause (20);

(ii) Regimental Fund or Non-public Fund established by the armed forces of the Union referred to in clause (23AA);

(iii) Fund, by whatever name called, set up by the Life Insurance Corporation of India on or after 1st August, 1996, or by any other insurer referred to in clause (23AAB);

(iv) Authority (whether known as the Khadi and Village Industries Board or by any other name) referred to in clause (23BB);

(v) Body or authority referred to in clause (23BBA);

(vi) SAARC Fund for Regional Projects set up by Colombo Declaration referred to in clause (23BBQ);

(vii) Insurance Regulatory and Development Authority referred to in clause (23BBE);

(viii) Central Electricity Regulatory Commission referred to in clause (23BBG);

(ix) Prasar Bharati referred to in clause (23BBH);

(x) Prime Minister’s National Relief Fund referred to in sub-clause (i), Prime Minister’s Fund (Promotion of Folk Art) referred to in sub-clause (ii), Prime Minister’s Aid to Students Fund referred to in sub-clause (iii), National Foundation for Communal Harmony referred to in sub-clause (iiia), Swachh Bharat Kosh referred to in sub-clause (iiiaa), Clean Ganga Fund referred to in sub-clause (iiiaaa) of clause (23C);

(xi) Provident fund to which the Provident Funds Act, 1925 (19 of 1925) referred to in sub-clause (i), recognized provident fund referred to in sub-clause (ii), approved superannuation funds referred to in sub-clause (iii), approved gratuity fund referred to in sub-clause (iv) and funds referred to in sub-clause (v) of clause (25);

(xii) Employees’ State Insurance Fund referred to in clause (25A);

(xiii) Agricultural Produce Marketing Committee referred to in clause (26AAB);

(xiv) Corporation, body, institution or association established for promoting interests of members of Scheduled Castes or Scheduled Tribes or backward classes referred to in clause (26B);

(xv) Corporation established for promoting interests of members of a minority community referred to in clause (26BB);

(xvi) Corporation established for welfare and economic upliftment of ex-servicemen referred to in clause (26BBB);

(xvii) New Pension System Trust referred to in clause (44).”

If the Entity is above mentioned Organization

Further please note that as per Circular Number 13/2021 provisions of section 194Q are not applicable on Transaction in Electricity.

In order to remove such difficulties, it is provided that the provisions of section 194Q of the Act shall not be applicable in relation to,—

(i) transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service Centre;

(ii) transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC; and

A transaction in electricity can be undertaken either by way of direct purchase from the company engaged in generation of electricity or through power exchanges. So as per the Clarification, TDS provision will not be applicable when Direct purchase of electricity is made from company engaged in generation of electricity or through power exchanges.