THE NATIONAL LAW INSTITUTE UNIVERSITY

BHOPAL

“Goods” under the Sale of Goods Act, 1930

THIRD TRIMESTER

SUBMITTED BY: SUBMITTED TO:

Kartik Chamadia Ms. Neha Sharma

SECTION - ‘A’ Assistant professor

ROLL NO.-2015BALLB07 Law of Contracts

 ACKNOWLEDGEMENT

I take this opportunity to thanks everyone who helped out in completing my project directly or
indirectly. I show a special gratitude towards Ms. Neha Sharma, Assistant professor, Law of
Contracts, without whose guidance and support, I would have been unable to complete this
project. I would also like to thank NLIU’s library, which helped a lot in learning more about my
project’s topic.
 CONTENTS

Research framework..................................................................................................3
Introduction...............................................................................................................4
Difference between the english law and the indian law............................................5
Electricity as “goods”................................................................................................6
Lottery tickets as “goods”.........................................................................................8
Money as “goods”...................................................................................................10
Software programs as “goods”................................................................................10
Review of literature.................................................................................................17
Conclusion...............................................................................................................19
Bibliography............................................................................................................20
 RESEARCH FRAMEWORK

Statement of problem & Hypothesis

‘Goods’ have been defined under section 2(7) of the Sale of Goods Act, 1930, to include every
kind of movable property, including stocks, shares, crops, grass, severable objects, etc. It is
supplemented by the definitions of movable and immovable property under Section 3(36) and
Section 3(26) of the General Clauses Act, 1897. This paper lays down certain dilemmas that
have not been resolved despite the definitions and examines the case laws that may shed light on
the same. It also examines the difference between English and Indian law on this issue.
Primarily, it seeks to clarify whether certain commodities such as electricity, lottery tickets,
software programs, money. etc can be included within the definition of “goods”.

Aims & Objectives

1. To differentiate between the position of law in England and India.

2. To determine the position of the following with regard to the definition of the term
“goods” :

a. Electricity
b. Lottery tickets
c. Software

Method of research

Doctrinal method of research has been undertaken. The topic for the research study and the
nature of the topic is theoretical and descriptive. So the conduct, the research study & the type of
research suitable is descriptive research only. In the research and theoretical articles, effective
use of secondary analysis of published results has been made.
 Introduction

‘Goods’ is defined as per Section 2 (7) of the ‘Act’ as: “Every kind of movable 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.”

“Movable Property” is defined as per section 3(36) of the General Clauses Act
1897:“Movable property” is defined as “property of every description except immovable
property”. “Immovable Property” is defined as per section 3(26) of the same Act reads as:
“Immovable property shall include land, benefits to arise out of land, and things attached to the
earth, or permanently fastened to anything attached to the earth.” 

A conjoint reading of sections gives clear definition that anything that is attached to the land
maybe termed as “movable property”, provided that there is an element of severability
involved.1 The element of severability is important and this element can be established by
ascertaining the nature of the property, intention of the parties and the terms of the contract
between them.2 For instance, timber3 falls under the ambit of “goods” as per S.2 (7)4 because
timber trees are severed from the land for the purpose of sale and hence they become a
commercial commodity.5  In a case6 it was held that property as per the act means general
property over the goods and not merely a specific property. 7 The usage of the word ‘includes’
further expands the definition, as it includes in the definition not only goods of the prescribed
nature but it also imports those things that are specifically provided by the interpretation clause.8

1
Pollock & Mulla, The Sale of Goods Act, 33 (Satish J Shah ed., 8th ed., 2011).
2
Id.
3
Id. (defining timber as wood fit for building and repairing houses).
4
Sale of Goods Act, 1930
5
Kanakapalam Estate v. State of Kerala, (1989) 73 STC 336.
6
Tata Consultancy Services v. State of Andhra Pradesh (2005) 1 SCC 308
7
Id. (discussing the definition of ‘goods’ as prescribed under the Sale of Goods Act, “’goods’ would comprehend
tangible and intangible properties, materials, commodities and articles and also corporeal and incorporeal materials,
articles and commodities.”)
8
Scientific Engg. House (P) Ltd. v. CIT, (1986) 1 SCC 11.
 Difference between the English law and the Indian law

In English law as per S. 61(1) of the Sale of Goods Act 1979, “goods” include personal
chattels9 which can be further divided into “choses in possession” and “choses in action”. 10 As
per the English law only the former is included in the definition of “goods” whereas the latter
which include commodities like shares, debentures, bills of exchange, and other negotiable
instruments are excluded from the definition as they all are actionable claims. 11 On the other
hand in India, the definition as elucidated in S.2(7)12 is much wider in scope than the English
definition as it includes stocks and shares as within the scope of “goods”.

‘Goods’ is defined in English law as per Section 61 (1) of the ‘Sale of Goods Act, 1979’ as:

“Goods” includes all personal chattels other than things in action and money, and in Scotland
all corporeal movables except money; and in particular “goods” includes emblements,
industrial growing crops, and things attached to or forming part of the land which are agreed to
be severed before sale or under the contract of sale and includes an undivided share in goods.

The following discussion primarily focuses on the point that whether certain types of
commodities can be included within the definition of “goods” or not.

 Electricity as “goods”
 Lottery tickets as “goods”.
 Software Programs as “goods”
 Money as “goods”

Difference between the English and the Indian law will be made clear over the discussion when
the above mentioned articles are discussed in detail.

9
 See Benjamin’s Sale  of Goods, 64 (M. Bridge et al. eds., 8th ed. 2010) (elucidating that “goods” as per the
English definition covers all “those tangible, movable items that we call things in possession.”).
10
Benjamin’s Sale of Goods, 68 (M. Bridge et al. eds., 8th ed. 2010).
11
Id.
12
Sale of Goods Act, 1930.
 Electricity as “Goods”

Electricity does not come under the definition of “goods” as per English law. 13 There have been
judicial decisions in England where electricity has been referred to as ‘thing’ and an
‘article’14and also as ‘tangible personal property’15, but there has been no judicial decision which
includes electricity within the definition of ‘goods’ for the purpose of Sale of Goods
Act.16 Moreover, the legal possession of electrical energy is a challenging proposition as “it is
capable of being kept or stored only by changing the physical or chemical state of other property
which is itself the subject of possession.”17

In India however, the situation is quite different. In the Calcutta High Court case of Associated
Power Co. v. R.T. Roy 18 it was held that electricity comes under the ambit of ‘goods’ under the
article 366 (12) of the Constitution19as well as S. 2 (7) of the ‘Act’. This proposition was
affirmed in a Madras High Court case where the learned judge held that electricity was under the
definition of ‘goods’ since it is capable of delivery, and it does not matter whether it is a tangible
or intangible form of energy.20The Law Commission of India in its 8th report proposed that
electricity and water should be included in the definition of ‘goods’ under S. 2(7) of the
‘Act’.21 Meanwhile, the Supreme Court while discussing about the definition of ‘goods’ as
mentioned in the Madhya Pradesh Sales Tax Act (2 of 1959), found that the definition included
all kinds of movable property.22 The court further held that:
13
Pollock & Mulla, The Sale of Goods Act, 44 (Satish J Shah ed., 8th ed., 2011). (Discussing that S.61 (1) of
English Sale of Goods Act 1979 prescribes only personal chattels as “goods” whereas the definition under S.2 (7) of
the Indian Sale of Goods Act 1930 is much wider as it includes all ‘movable property’).
14
Bentley Bros. v. Metcalfe & Co., [1906] 2 K.B. 548, 552-553
15
Re Social Services tax Act, (1970) 74 W.W.R. 246
16
See Benjamin’s Sale  of Goods, 64 (M. Bridge et al. eds., 8th ed. 2010)
17
Id.
18
AIR 1970 Cal 75.
19
Constitution of India, art. 366 (12) (defining goods as, “goods includes all materials, commodities, and articles.”
Hence, going by this definition it can be argued that since electrical energy is capable of being brought and sold, it
will come under the ambit of a ‘commodity’ or an ‘article’).
20
Kumbakonam Electric Supply Corp Ltd. v. Joint Commercial Tax Officer, AIR 1964 Mad 477.
21
[21] Law Commission of India, Eighth Report on the Sale of Goods Act, 1930 (1958) (stating that, firstly under
S.39 of the Indian Electricity Act, ‘electricity’ can be subject matter of theft. Secondly, Art. 287 of the Constitution
prohibits the State Legislatures to impose a tax on the ‘consumption or sale of electricity’ which implies that
electricity can be sold just like any other commodity. ) [22]
22
Pollock & Mulla, The Sale of Goods Act, 44 (Satish J Shah ed., 8th ed., 2011). (discussing that S.61 (1) of English
Sale of Goods Act 1979 prescribes only personal chattels as “goods” whereas the definition under S.2 (7) of the
“The term “movable property” when considered with reference to “goods” as defined for the
purposes of sales tax cannot be taken in a narrow sense and merely because electric 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 movable property when it has all the attributes of such property……It can be
transmitted, transferred, delivered, stored, possessed etc., in the same way as any other movable
property.”23

However, Pollock & Mulla, in their commentaries, have expressed their concerns over the
applicability of the ‘Act’ for electricity because, there is no contractual obligation on part of the
public authority to supply ‘electricity’, rather it is a statutory obligation on part of the authority
providing these ‘goods’.24 The supply of such commodities would not amount to a ‘sale’ for the
purposes of the ‘Act’.25 As a result, any breach or failure on part of the public body to supply
electricity would be dependent upon the terms of the statute governing the public body.26

Thus, on one hand it can be said that ‘electricity’ comes under the definition of ‘goods’ however
the applicability of the ‘Act’ in case of sale of electricity is a dubious proposition.

Lottery tickets as “Goods”

Indian Sale of Goods Act 1930 is much wider as it includes all ‘movable property’).
23
Commissioner of Sales Tax, Madhya Pradesh v. Madhya Pradesh Electricity Board, AIR 1970 SC 732.
24
Supra Note 13
25
Id.
26
Id.
As per Black’s Law Dictionary, ‘lottery’ is defined as ‘a chance for a prize for a price’. 27 For the
purposes of the ‘Act’ lottery tickets are clearly a movable property, however it has been a matter
of debate that whether they are an actionable claim as defined under S.3 of Transfer of Property
Act, 1882.28

In the Supreme Court case of H. Anraj v. Government of T.N29 it was held that a lottery ticket
primarily involved two rights: (1) the right to participate in the draw and (2) the right to win the
prize, depending on chance. In that case it was held that the former right was a “transfer of a
beneficial interest in movable goods” and hence was a sale within the meaning of Art 366 (29-A)
(d) of the Constitution whereas the latter right was a chose in action and thus not “goods” for the
purpose of levy of sales tax.30

However, the ruling of this decision was challenged in a later Supreme Court verdict of Sunrise
Associates v. Government of NCT of Delhi. 31 It was held that sale of a lottery ticket amount to a
sale of an actionable claim. The conclusion of the Court was based on the reasoning that there
was no difference between right to win and right to participate in a lottery draw, as no purchaser
pays the consideration for a right to participate in the draw, instead he pays it for the right to
win.32

Thus, the classification by H. Anraj case (supra) of the right to participate as right in
praesenti and the right to win as a right in futuro, was incorrect as both these rights are in
futuro.33 As a result the earlier judgment was overruled to that extent and “lottery tickets” were
excluded from the definition of “goods”.
27
Black’s Law Dictionary 947 (6th ed. 1991) (stating the essential elements of a lottery as “consideration, prize and
chance”).
28
The Transfer of Property Act, 1882, § 3 (defining actionable claim, “’actionable claim’ means a claim to any debt,
other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property,
or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant,
which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent,
accruing, conditional or contingent.”).
29
(1986) 1 SCC 414.
30
Id. (quoting Sabyasachi Mukherjee, J, “the right to participate in the draw under a lottery ticket remains a valuable
right till the draw takes place and it is for this reason that licensed agents or wholesalers or dealers of such tickets
are enabled to effect sales thereof till the draw actually takes place and therefore lottery tickets, not as physical
articles but as slips of paper or memoranda evidencing the right to participate in the draw can be regarded as dealer’s
merchandise and therefore goods which are capable of being bought or sold in the market.”).
31
(2006) 5 SCC 603.
32
Id.
33
Pollock & Mulla, The Sale of Goods Act, 38 (Satish J Shah ed., 8th Ed., 2011).
 Money as “Goods”

Money is specifically excluded from the definition of “goods” under S.2 (7) of the ‘Act’, because
it is the medium of exchange used at the time of sale of goods. 34 Hence, money is not regarded as
a “chattel but as something ‘sui generis’”.35 However, a coin which was intended to be sold as an
item of curiosity will be said to be a “good”, as it was passed on as a commodity and not as a
currency.36

Software programs as “Goods”

34
Pollock & Mulla, The Sale of Goods Act, 40 (Satish J Shah ed., 8th ed., 2011).
35
Id.
36
Moss v. Hancock, [1899] 2 Q.B. 111.
In the case of TCS v. State of Andhra Pradesh 37 the Supreme Court held that a software program
on a CD or a floppy drive would be a “good” for the purposes of levy of sales tax. 38 A software
program is a collection of instructions or commands that are given to a computer to perform a
given task.39 The main area of debate is that “Do software programs – being intellectual creations
of human mind – be treated as “goods” for the purposes of the ‘Act’ or not?”

One of the landmark cases in this regard was the case of St Albans City and District Council v.
International Computers Ltd40 where Sir Iain Glidewell observed that a hardware device has no
use of its own unless it is supplemented with a software and it was only because of necessity that
software was contained in a physical medium like a disk or a floppy furthermore, in case the disk
is sold and there is a defect with the program, then there would be a prima facie liability against
the disk manufacturer as well. Thus, he held that the tangible disk and the software program both
will be included within the definition of “goods”.

In the TCS case (supra) a special mention was given to ‘canned software’41where it was held by
the learned judge that once a software is uploaded on a medium like a CD or a floppy drive, it
ceases to be a work of intellectual creation. This is primarily because each of these mediums
becomes a marketable commodity in itself.42 “Marketability” of a commodity was the
determining factor whether it is a “good” or not. It has also been held that “operational software”
which was uploaded on a hard-disk does not lose its character as a tangible good.43

37
(2005) 1 SCC 308
38
Id. (quoting S.B. Sinha, J, “definition of ‘goods’, as under the Sale of Goods Act 1930, is of a wide import and it
includes both tangible as well as intangible properties. It would become goods provided it has the attributes thereof
having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred,
delivered, stored and possessed. If a software whether customized or non-customized satisfies these attributes, the
same would be goods.”).
39
Pollock & Mulla, The Sale of Goods Act, 43 (Satish J Shah ed., 8th ed., 2011).
40
[1995] FSR 686.
41
Supra note 31. (“Canned “software” means that is not specifically created for a particular consumer. The sale or
lease of, or granting a license to use, canned software is not automatic data processing and computer services, but is
the sale of tangible personal property. When a vendor, in a single transaction, sells canned software that has been
modified or customized for that particular consumer, the transaction will be considered the sale of tangible personal
property if the charge for the modification constitutes no more than half of the price of the sale.”)
42
See Advent Systems Ltd. v. Unisys Corpn, 925 F. 2d 670. (drawing an analogy to a “compact disc recording of an
orchestral rendition. The music is produced by the artistry of musicians and in itself is not a “good,” but when
transferred to a laser-readable disc becomes a readily merchantable commodity. Similarly, when a professor delivers
a lecture, it is not a good, but, when transcribed as a book, it becomes a good.”)
43
Commnr. of Central Excise, Pondicherry v. ACER India Ltd., 2004 (8) SCALE 169.
It has also been a matter of debate as to inclusion of computer software within the definition of
“goods” as defined in section 244 of the Uniform Commercial Code, 1952. It is argued that since
“custom designed” computer software is a product of a labor intensive process and it must be
considered as a service rather than a good. However, sale of most of the software programs
resemble sales of any other consumer product available for consumption, and it is usually sold
through separate pre-existing packages.45 On the other hand contracts for providing data
processing services have been held to be contracts for services rather than contracts for
“goods”.46

With the help of the above discussion it is clear that despite of being an intangible commodity,
“computer software” can be included in the definition of “goods” for the purposes of the ‘Act’.

Tangibility:

Under some legal regimes, the criterion of tangibility is crucial for determining whether the
object in question is goods. Tangibility is usually defined as having a physical form or being
capable of being perceived by the senses.

This notion has played a significant role in the current debate and it has even been stated that
tangibility is the "stumbling block" to the classification of software as goods.

44
U.C.C. Law §.2-103 (k) : “”Goods” means all things that are movable at the time of identification to a contract for
sale. The term includes future goods, specially manufactured goods, the unborn young of animals, growing crops,
and other identified things attached to realty as described in Section 2-107. The term does not include information,
the money in which the price is to be paid, investment securities under Article 8, the subject matter of foreign
exchange transactions, or choses in action.”
45
Bonna Lynn Horovitz, Computer Software as a Good under the Uniform Commercial Code: Taking a Bite Out of
the Intangibility Myth [notes], 69 B. U. L. Rev. 129, 153 (1985), http://heinonline.org/HOL/Page?
handle=hein.journals/bulr65&div=9&collection=journals&set_as_cursor=11&men_tab=srchresults&terms=definitio
n%20of%20goods|software&type=matchall (last visited Feb. 19, 2014) (stating that majority of sales of software
programs are “off the shelf” transactions which are analogous to any other commercially consumed “good”. The
mere fact that it was designed because of the intellectual abilities of an individual does not change the basic
characteristic of the commodity as a “good”.)
46
Id. (arguing that data processing transactions are based on the skill and ability of the person handling these
programs rather than the computer software itself. Thus, these contracts cannot be regarded as sale of “goods”).
Furthermore, in St Albans DC v International Computers, Sir lain Glidewell distinguished
between software per se and software contained on a computer disc. In his opinion, instances of
the former would not be "'goods' within the statutory definition", whereas a: "computer disc onto
which a program designed and intended to instruct or enable a computer to achieve particular
functions has been encoded" would be. A clear implication of this decision is that, to be treated
as goods, software must be contained on a tangible medium. It is probably because of the
requirement that property must pass under a sale. Most legal systems define a sales contract as an
agreement for the transfer of property in goods for money, usually called the price, and such a
transfer generally requires a transfer of possession. In the case of pure intangibles, however, it is
often argued in both common and civil law systems that either alienation or a possession of an
intangible is impossible or that intangibles are not capable of being owned because they cannot
physically be possessed. It would seem, therefore, that some form of tangibility requirement is
indeed necessary.

This does not alter the fact that software is a tangible product, as the Supreme Court of Louisiana
recognized when it agreed that: "in defining tangible, 'seen' is not limited to the unaided eye,
'weighed' is not limited to the butcher or bathroom scale, and 'measured' is not limited to a
yardstick". Hall J. then asserted: "The software itself, i.e. the physical copy, is not merely a right
or an idea to be comprehended by the understanding. The purchaser of computer software neither
desires nor receives mere knowledge, but rather receives a certain arrangement of matter that
will make his or her computer perform a desired *166 function. This arrangement of matter,
physically recorded on some tangible medium, constitutes a corporeal body."

Movability:

Something that is not movable cannot be transferred without losing its capacity to be exclusively
possessed. Unless it can be so possessed, its aspiring owner cannot exclude others from it.

Bridge illustrates the point by comparing a diamond ring with information: the transferor of
information "retains the information that was transmitted which denies one of the features of a
property right, namely its exclusivity", whereas "a diamond ring cannot support two wearers at
the same time". Thus, the movability of a product would seem to be a good indicator of its ability
to be classed as goods for sales purposes.

Software is movable. Choses in action are not. A chose in action, such as a copyright, cannot be
moved. If the holder of that copyright has it infringed, he or she has not had that right removed
and transferred to the infringer. On the contrary, the right crystallizes and enables him or her to
take legal action. It is entirely possible to remove, however, a piece of software from one piece
of hardware to another. Of course, such a thing can be copied and distributed, (and often is), but
the same can be said of almost any conventional chattel. The essential distinction between those
things that are movable and those that are not is the possibility of deleting them from their
source.

Some of the main challenges that have been raised with respect to provisions relating to the
contractual conformity of goods seem to be (or at least are not incapable of being) adequately
addressed by the SGA and the CISG. The calls for a specialized instrument dealing specifically
with the peculiarities of software transactions, however, cannot be ignored. Indeed, one of our
conclusions is that, although the SGA and the CISG are not incapable of governing software
transactions, a specialized set of rules may indeed be something to be seriously considered,
particularly if such rules were to exist at the international level.

Case study: St Albans City and District Council v. ICL

Material facts: A contract to provide software (COMCIS) for the implementation of
the Community Charge of International Computers Ltd limited its liability to £100,000. The
software was meant to create a register of tax payers. Because of errors in the software, the loss
to the council was £1,313,846. The council claimed breach of contract, and that the liability
limitation was unreasonable under the Unfair Contract Terms Act 1977. International Computers
Ltd claimed that the liability limitation should remain.

Judgment: Scott Baker J awarded the full sum because the city council was operating on
International Computers Ltd’s written standard terms of business and so UCTA 1977 section 3
applied. Sections 6 or 7 also applied and under section 11 the clause was unreasonable. Under
section 11(4) Scott Baker J highlighted that International Computers Ltd had ample resources
and had £50m worldwide product liability insurance. Looking at Schedule 2, he said that the
council was in a weaker bargaining position because they had financial restraints and were not in
the commercial field. They had no opportunities of other contracts without the term. The council
knew of the term and made representations about it. He noted that Schedule 2 should be taken
into account just as with ss. 6-7. He summed up by saying that the loss of this size is better to fall
on the company and not the local population through increased taxes or reduced services. The
Court of Appeal upheld Scott Baker J’s reasoning, but concluded the damages were in fact
£484,000 less.

Critical Analysis: In Beta Computers (Europe) Ltd v Adobe Systems Ltd [1996] S.L.T. 604;
Lord Penrose criticized the view that the medium in which the software was delivered was of any
relevance as to whether it might be regarded as goods for the purposes of S.61 SOGA. The law
applicable to a particular transaction would depend on whether software has been delivered on a
disc or downloaded online, even though the purpose of such transactions will often be the same.
This result would be unfair to the parties of these transactions, and in particular consumers who
would not expect that their chosen medium of delivery would have such significant
consequences to their rights.

Case study: TCS v. State of Andhra Pradesh

JUDGMENT: Software may be intellectual property but such personal intellectual property
contained in a medium is bought and sold. It is an article of value. It is sold in various forms like
floppies, disks etc. Each one of the mediums in which the intellectual property is contained is a
marketable commodity. They may be a medium through which the intellectual property is
transferred but for the purpose of determining the question as regard livability of the tax under a
fiscal statute, it may not make a difference. A program containing instructions in computer
language is subject matter of a license. It has its value to the buyer. It is useful to the person who
intends to use the hardware, viz., the computer in an effective manner so as to enable him to
obtain the desired results. These mediums containing the intellectual property are not only easily
available in the market for a price but are circulated as a commodity in the market. Only because
an instruction manual designed to instruct use and installation of the supplier program is supplied
with the software, the same would not necessarily mean that it would cease to be a 'goods'. Such
instructions contained in the manual are supplied with several other goods including electronic
ones. What is essential for an article to become goods is its marketability. It is not in dispute that
when a program is created it is necessary to encode it, upload the same and thereafter unloaded.
Indian law does not make any distinction between tangible property and intangible property. A
'goods' may be a tangible property or an intangible one. It would become goods provided it has
the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c)
capable of transmitted, transferred, delivered, stored and possessed. If a software whether
customized or non-customized satisfies these attributes, the same would be goods. If a canned
software otherwise is 'goods', the Court cannot say it is not because it is an intellectual property.

CRITICAL ANALYSIS: While the objectives of customs, VAT or tax laws are different, a
conflicting treatment for the same transaction from multiple authorities is creating uncertainly for
business.  Given the differing views from HCs, software taxability issue is now likely to be
settled before the Apex Court, wherein SC may consider applicability of its own ruling under
Andhra sales tax law in TCS, to determine nature of software payments under IT Act.

Review of literature
 1. SOFTWARE AS GOODS47

PROBLEM: The lack of clarity surrounding the legal approach to software is both conceptually
arbitrary and commercially inconvenient. Currently, parties to transactions concerned primarily
with the transfer of software are denied predictability in terms of the legal response to any
problem they may encounter, whereas such predictability is taken for granted by those
contracting for conventional products. There is no convincing reason why software should be
excluded from the statutory protection afforded to other items subject to sales, and it becomes
increasingly apparent that the law's failure properly to tackle this issue is unsatisfactory and
needs to be addressed: "Liability under a sale of goods is associated primarily with compensating
a purchaser in respect of unfulfilled expectations...”

CONCLUSION: Although the SGA(1979) and the CISG are not incapable of governing
software transactions, a specialized set of rules may indeed be something to be seriously
considered, particularly if such rules were to exist at the international level. One reason for this is
that electronic commercial practices, as well as the software market are, by and large, truly
global or transnational in nature, and it is often argued that a uniform, stable and secure
international legal environment is necessary to support electronic commercial practices, of which
the software sector is said to be a "cornerstone".

2. TCS RULING & SOFTWARE TAXABILITY; HCS TAKE

DIFFERING VIEWS
47
SarahGreen & DjakhongirSaidov; J.B.L.2007,MAR,161-181, viewed @http://uk.westlaw
.com/print/printstream.aspx?sv=Split&prft= HTMLE&mt= Westlaw
PROBLEM: The Supreme Court in TCS v. State of Andhra Pradesh, (271 ITR 401) held that
software, which is incorporated on a media, would be goods and therefore, liable to sales tax.
Karnataka HC and Delhi HC seem to have taken a contrary view on the applicability of TCS
judgment, while determining taxability of computer software under Income Tax Act.

CONCLUSION: Karnataka HC in Samsung [The Commissioner  of  Income Tax, International
Taxation and The Income Tax Officer TDS-I vs.  Samsung  Electronics Co. Ltd., India Software
Operations (24.09.2009 - KARHC)] held that TCS decision was in the context of Andhra
Pradesh Sales Tax and could not be relied upon to determine whether payment for software
amounts to ‘royalty’ under the Income-tax Act or DTAA.  Delhi HC on the other hand in
Ericsson [Motorola Inc., vs. Deputy C.I.T] referred to TCS judgment and observed that “A
fortiorari when the assessee supplies the software which is incorporated on a CD, it has
supplied tangible property and the payment made by the cellular operator for acquiring such
property cannot be regarded as a payment by way of royalty.”
 
While the objectives of customs, VAT or income tax laws are different, a conflicting treatment
for the same transaction from multiple authorities is creating uncertainly for business.  Given the
differing views from HCs, software taxability issue is now likely to be settled before the
Supreme Court, wherein SC may consider applicability of its own ruling under Andhra sales tax
law in TCS, to determine nature of software payments under IT Act.

Conclusion
Through the course of this project I have tried to identify some of the major controversies
surrounding certain commodities and their inclusion in the definition of “goods” as per S.2 (7) of
the ‘Act’. The discussion helped to prove that “electricity” (even being an intangible good)
comes under the ambit of goods, while on the same hand lottery tickets (being movable goods
per se) are excluded because they are “actionable claims”. This helps us to show that being a
movable property in itself is not a conclusive proof of being a “good”. Also, the debate on
software programs elucidated the importance on “marketability” aspect of “goods”.

Hence, it evident that due to rapid developments in science and technology, the definition of
goods cannot be compartmentalized into straight jacket distinctions and the scope of this section
will expand over time.

Bibliography
Websites:

1. http://wwwmanupatra.com
2. http://www.indiakanoon.com
3. http:// www.shoosmiths.co.uk
4. www.google.co.in
5. www.walkermorris.co.uk

Cases:

1. St Albans City and District Council v. ICL

2. Tata Consultancy Services v. State of Andhra Pradesh

3. The Commissioner of Income Tax, International Taxation and The Income
Tax Officer TDS-I vs. Samsung Electronics Co. Ltd., India Software Operations
4. Motorola Inc., vs. Deputy C.I.T

Reports:
1. Law Commission Report [VIII]