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TMI Blog2024 (12) TMI 1161X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 w.e.f 01.04.2022 u/s 2(47A) of the Act and made taxable u/s 56(2)(x) as income from other sources and thereby taxing gain of Rs. 6,62,96,741/- as income from other sources as against long term capital gain of Rs. 6,62,23,612/- worked out by the assessee and offered for tax. 2. The Ld. CIT(A), NFAC has erred on facts and in law in denying the claim of deduction u/s 54F of Rs. 4,95,68,910/- on the long term capital gain declared on sale of crypto currency by taxing such gain under the head income from other sources. 3. The assessee craves to amend, alter and modify any of the grounds of appeal." 3. Succinctly, the fact as culled out from the records is that the assessee is an individual and salaried person. For the year under consideration apart from the salary income, trading / investment in shares and other income, the assessee also offered the income earned on account of sale of Bitcoin (crypto currency). The assessee filed the return of income on 30.12.2021 declaring total income at Rs. 1,74,39,670/-. 3.1 Subsequent to that the case of the assessee was selected for complete scrutiny through "Computer Assisted Selective Scrutiny (CASS)". The reason for Selection in Comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, proposing to tax the net gains of Rs. 6,62,96,741/- on sale of Bitcoins as 'Income from other sources' and accordingly his claim for exemption u/s 54F of the Act was not considered as allowable. In response the assessee contended that; "I would like to clearly and categorically say that I completely disagree with your variation. As in my point of view, I am right in assuming Bitcoin as a 'capital asset and all the other sections including section 54F which are applicable for any capital asset should also be applicable for Bitcoins and gains from sale thereof. I would also like to highlight that as an honest citizen of this country, I have properly and thoroughly declared my gains and income and accordingly filed my taxes and returns promptly, in completeness, with due diligence and as per the applicable laws. Lastly I would like to request you for personal hearing for pral submission to present my case through video conferencing." 3.4 The assessee in his reply to the aforesaid show cause notice, contends that section 2(14) point (a) clearly states that capital asset is ANY KIND of property held by an assessee, unless specifically specified in exclusions in section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u own nothing, except your right to sell your share of nothing to another willing buyer. A crypto, unlike any other property has no independent value or inherent utility and its value is entirely determined by what others will pay or a given day. (d) A crypto currency is not a currency either. It is not a legal tender. It is merely disruptive and uses technology by either block chain technology, when you buy the crypto token. The Bitcoin, therefore, does not own an investment in a real asset class or property, such as to quality to be an asset, within the meaning of section 2(14) of the Act. (e) It is for this reason, that the Finance Act 2022, recognised that there is no specific provision in the Act to tax the profits/gains of the transactions in Virtual Digital Assets (VDAs), and thus provided to tax such income by introducing i) a new sub section (47A) in section 2 to define a virtual digital asset, ii) a new section 116BBH to provide for the rate of taxation of gains arising from VDAs and the method of computation of such taxable gains iii) amended the explanation to section 56(2)(x), new section 1948 for TDS on transactions Involving VDAs. to include VDAs and iv) Introduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of both the purchase and the sale of Crypto Currency (Bitcoins) does not describe Crypto Currency (Bitcoins) as a Capital Asset either implicitly or explicitly thereof. The "Virtual Digital Assets" which contains reference to Crypto Currencies has only been defined as per section 2(47A) of the Act with effect from 01.04.2022. In such cases of incomes falling under residuary status, the same have to be taxed as per section 56 of the Act. Hence, the action of Ld. AO in denying the benefit of section 54F as per Long Term Capital Gains is seems to be logical. The appellant has annexed the assessment orders in the cases of Ashok Kumar Asawa and Prakash Chand Jain (Father of the appellant) wherein the income has been taxed as Long Term Capital Gain by the Ld. AO treating Crypto Currency as Capital Asset u/s 2(14) of the Act. Since, these are assessment orders which were adjudicated by different Ld. AO and not a matter of appeal before me, I have no comments to offer on the same. Further, there can be different views on interpretation of provisions of Act, this is how the law develops, the views on a legal subject can not be restrict to a water tight compartment. The can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A), NFAC observed that section 2(14) as it stood at the time of purchase & sale of crypto currency (bitcoins) does not described it as a capital asset either implicitly or explicitly. The VDA is defined u/s 2(47A) only w.e.f. 01.04.2022 and therefore, the income falling under residuary status has to be taxed u/s 56 of the Act. Further the assessment order in case of Ashok Kumar Asawa and Prakash Chandra Jain where gain from crypto currency was taxed under the head capital gain, since these assessment orders were passed by a different AO and not a matter of appeal, he refrained from offering any comment. Accordingly the order passed by AO is upheld. Submission:- 1. The only issue in the present case is whether crypto currency (bitcoin) is a capital asset or not. The capital asset is defined u/s 2(14) of the Act to mean "Property of any kind held by an assessee, whether or not connected with his business or profession." Explanation 1 to this sections reads as under:- For the removal of doubts, it is hereby clarified that "property" includes and shall be deemed to have always included any right in or in relation to an Indian company, including right of management or control or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her section 115BBH(3) which deals with taxation of income from VDA provides that "For the purposes of this section, the ward "transfer" as defined in clause (47) of section 2, shall apply to any virtual digital asset (VDA), whether capital assets or not". Thus it is clear that even the legislature has clarified that virtual digital asset may be a capital asset. 3. As per section 45(1), any profit or gain arising from the transfer of capital assets shall be chargeable to tax as Capital Gains. Since crypto currency is specifically incorporated in the statute as an asset, it means that even before 01.04.2022 it was an asset and therefore gain on sale of crypto currency has to be taxed under the head capital gain and not under the head income from other sources. 4. The Ld. CIT(A) has referred to section 56 of Income tax Act which provides that "Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E (i.e. Salaries, Income From house property, Profit and gains of business or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision are possible, the court ordinarily would interpret the provision in favour of a taxpayer and against the revenue. Therefore also, the gain on sale of crypto currency (bitcoin) prior to AY 2022-23 is chargeable to tax as capital gain. Ground No.2 The Ld. CIT(A), NFAC has erred on facts and in law in denying the claim of deduction u/s 54F of Rs. 4,95,68,910/- on the long term capital gain declared on sale of crypto currency by taxing such gain under the head income from other sources. Facts & Submission:- 1. Since AO treated the gain on sale of crypto currency as chargeable to tax under the head income from other sources, he did not allowed deduction u/s 54F of the Act. 2. As submitted above, the gain on sale of crypto currency is chargeable to tax under the head long term capital gain since assessee has hold crypto currency for more than 36 months, therefore, AO be directed to allow claim of deduction u/s 54F of the Act." 6. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee is salaried employee. Assessee after completing the B. E. in Computer science worked in Mind tree 2004-2009 and thereafter whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee does not fall in the legal definition given under the Act for capital assets. Even the law has recognised such type of transaction as other income and to be taxed as other income. 8. We have heard the rival contentions and perused the material placed on record. In this appeal the assessee has effectively taken two grounds which are interrelated and deal with the chargeability of gain on sale of bitcoin which was acquired by the assessee during financial year 2015-16 for Rs. 5,05,155/- and sold in FY 2020-21 for Rs. 6,69,49,620/-. The mute question that is to be decided as to whether the proceeds received on sale of Bitcoin is chargeable to tax as capital gain or income from other source. The brief facts related to the dispute is that the assessee is a Bachelor of Engineering, had worked with IT company Mind Tree Ltd. as well as Infosys Ltd. While in service in 2015-16 he invested a sum of Rs. 5,05,155/- out of his regular income. So the source of investment is not in dispute. The regular source of income of assessee is income from salary, Income from other source and income from capital gain on sale of shares/ mutual funds. During the year under consideration assessee offer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined as an asset u/s 2(14) and accordingly transfer of capital asset u/s 2(47) of the Act is not applicable in the assessee's case and accordingly the claim of assessee for considering the Bitcoins as an asset u/s 2(14) of the Act and thereby claim of long term capital gains was not considered. Based on these contention the assessee was asked to show cause on 15.12.2022 as to why the tax on the net gains of Rs. 6,62,96,741/- on sale of Bitcoins be taxed as 'Income from other sources' and accordingly his claim for exemption u/s 54F of the Act was also not to be considered as allowable. In response the assessee filed a detailed reply not agreeing with the variation proposed in the assessment proceeding and relied on the claim and head of income filed in the return of income, based on the detailed replied filed. The assessee in his reply to the aforesaid show cause notice, contended that as per provision of section 2(14) the assessee owns capital asset and there is not exclusion of the property held by the assessee in that section. The assessee also contended that as per section 2(14) point (a), it can be concluded that if any property is not explicitly mentioned in the exclusion list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no specific provision in the Act to tax the profits/gains of the transactions in Virtual Digital Assets (VDAs), and thus provided to tax such income by introducing i) a new sub section (47A) in section 2 to define a virtual digital asset and a new section 115BBH to provide for the rate of taxation of gains arising from VDAs, new section 194S for TDS on transactions Involving VDAs and the method of computation of such taxable gains simultaneously amending the the explanation to section 56(2)(x) and thereby taken a view that the income should be taxed as other income and not as capital gain and consequently the claim of deduction u/s. 54F was also denied to the assessee. When the matter carried before the ld. CIT(A) who has held that Crypto Currency (Bitcoins) was not an asset as per section 2(14) of the Act, hence, the transfer as per section 2(47) as Long Term Capital Gain was not applicable in the case of the appellant and accordingly he also confirmed the deduction denied u/s. 54F to the assessee. As regards the contention of the assessee that Section 2(14) of the Act which defines "Capital Asset" as it stood at the time of both the purchase and the sale of Crypto Currency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisos thereof, but does not include- (i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession ; (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes- (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or (f) any work of art. Explanation.-For the purposes of this sub-clause, "jewellery" includes- (a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; (iii) agricultural land in India, not being land situate- xxx xxx xxx xxx (iv) 6½ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India; Plain natural definition of 'property' as is given in the Act property of any kind held by an assessee, whether or not connected with his business or profession; which a person actually owns something of value. Though crypto currency / virtual digital asset is also not a currency but it is not an asset within the meaning of section 2(14) of the Act. The amendment made in the Finance Act, 2022 has defined Virtual Digital Asset (VDA) u/s 2(47A) of the Act wherein the name given is of virtual digital assets. Thus, considering the plan vanilla meaning before the amendment as is to be understood at the time of purchase & sale of crypto currency (bitcoins) which is a right of the assessee attached to the investment made. If we consider the definition of capital asset as given in section 2(14) of the Act which say that "Property of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have been chargeable had the total income of the assessee been reduced by the aggregate of the income from transfer of virtual digital asset. 2.1 However, no deduction in respect of any expenditure (other than cost of acquisition) or allowance or set off of any loss shall be allowed to the assessee under any provision of the Act while computing income from transfer of such asset. 2.2 Further, no set off of any loss arising from transfer of virtual digital asset shall be allowed against any income computed under any other provision of the Act and such loss shall not be allowed to be carried forward to subsequent assessment years. 2.3 This amendment will take effect from 1 st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. Even otherwise, if we further peruse provision of section 45(1) which says, any profit or gain arising from the transfer of capital assets shall be chargeable to tax as Capital Gains. Since crypto currency is specifically incorporated in the statute as an asset, it means that even before 01.04.2022 it was an asset and therefore gain on sale of crypto currency has to be taxed under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Products Ltd. 88 ITR 192. The similar finding is given by the apex court in the case of Chief Commissioner of CGST Vs. M/s Safari Retreats Pvt. Ltd. Civil Appeal No.2948 of 2023 order dt. 03.10.2024 at page 32, para 25(d) has held that if two interpretations of a statutory provision are possible, the court ordinarily would interpret the provision in favour of a taxpayer and against the revenue. Therefore also, the gain on sale of crypto currency (bitcoin) prior to AY 2022-23 is chargeable to tax as capital gain. Based on the discussion so recorded ground no. 1 raised by the assessee is allowed. Ground no. 2 raised by the assessee raised by the assessee is against the denial of claim of deduction u/s 54F of Rs. 4,95,68,910/- on the long term capital gain declared on sale of crypto currency by taxing such gain under the head income from other sources. As we have in ground no. 1 held that the income on sale of crypto currency is chargeable to tax under the head long term capital gain since assessee has hold crypto currency for more than 36 months, therefore, AO is directed to allow claim of deduction u/s 54F of the Act to the assessee. Based on this observation ground no. 2 raised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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