TaxTMI 
TaxTMI 
2024 (12) TMI 1161
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....t, 1961 in as much as the same is defined by FA, 2022 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 As....
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.... not considered. Accordingly, a show cause notice dated 15.12.2022 was issued to the assessee, 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 ass....
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....y have value, and independent of what the market says, they have inherent value at any moments That is not so with a crypto currency/VDA, where when you buy a crypto you 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 m....
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....the impugned addition thereof under the head 'Income From Other Sources'. The facts of the case and the submission of the appellant have been considered. 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 (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 app....
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....s defined Virtual Digital Asset (VDA) u/s 2(47A) of the Act and the rate of taxation on gain from VDA is provided by section 115BBH of the Act. Accordingly AO computed gain on sale of bitcoin at Rs. 6,62,96,741/- and taxed the same under the head income from other sources. 4. The Ld. CIT(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 ....
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....may, by notification in the Official Gazette, specify; (b) the expressions "currency", "foreign currency" and "Indian currency" shall have the same meanings as respectively assigned to them in clauses (h), (m) and (q) of section 2 of the Foreign Exchange Management Act, 1999.] Thus as per section 2(47A) also, crypto currency is specifically considered as an asset. Further 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(....
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....rwise also, Hon'ble Supreme Court in case of CIT Vs. Vegetable Products Ltd. 88 ITR 192 has held that where two reasonable constructions of a taxing provision are possible, then the construction which favours the assessee must be adopted. Further Hon'ble Supreme Court in 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. 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 su....
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....al in nature. 7. The ld DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). The ld. DR vehemently submitted that the assessee dealt with the dark web illegal transaction which was not recognised transaction and there cannot be capital gain in the hands of the assessee. Even the RBI has cautioned the public not to deal with such type of transactions. The transaction undertaken by the assessee 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 s....
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....laimed the gains on sale as being long term capital gains. The assessee contended that the Bitcoins, [Crypto Currency) (Virtual Digital Assets) is an asset as per section 2(14) of the Act, which has been transferred as per provision of section 2(47) of the Act and accordingly he has offered the gain arising out of the sale of that asset as long term capital gains. The ld. AO went on to observe that as per the amendment made in the Act effective from financial year 2020-21, the Bitcoin is nowhere defined 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 assessme....
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.... ld. AO further went on to observe that 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. With that reasoning and focusing the amendment made vide Finance Act 2022, wherein revenue releasing the fact 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 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 th....
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....2(14) (14) "capital asset" means- (a) property of any kind held by an assessee, whether or not connected with his business or profession; (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); (c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth 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-....
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....vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation 1.-For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA. Explanation 2.-For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, 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....
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....tal assets Virtual digital assets have gained tremendous popularity in recent times and the volumes of trading in such digital assets has increased substantially. Further, a market is emerging where payment for the transfer of a virtual digital asset can be made through another such asset. Accordingly, a new scheme to provide for taxation of such virtual digital assets has been proposed in the Bill. 2. The proposed section 115BBH seeks to provide that where the total income of an assessee includes any income from transfer of any virtual digital asset, the income-tax payable shall be the aggregate of the amount of income-tax calculated on income of transfer of any virtual digital asset at the rate of 30% and the amount of income-tax with which the assessee would 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 Furth....
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....gital/Crypto Currency transactions cannot be termed as currency transactions or securities trading or commodity trading and the same would be treated as Capital Asset. Section 2(14) of I.T. Act 1961 defines capital asset as property of any kind held by an assessee, whether or not connected with his business or profession." As we note that the revenue has in two cases cited herein above has taken a view that the income so earned is taxable under the head capital gain. The same cannot be considered as income from other source merely on the reasons that the assessee by taking that capital gain income also claimed deduction which is otherwise permissible. Thus, even otherwise also when there are two views are possible the view which is favorable to the assessee be considered as held by the Hon'ble Supreme Court in case of CIT Vs. Vegetable 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 provisi....