The Jodhpur Bench of Income Tax Appellate Tribunal (ITAT) has held that the gain on sale of crypto currency (bitcoin) prior to AY 2022-23 is chargeable to tax as capital gain.
The bench of Dr. S. Seethalakshmi (Judicial Member) and Rathod Kamlesh Jayantbhai (Accountant Member) has observed that the assessee is not regularly dealing in purchase/ sale of shares/ crypto currency. His intention is to hold for long term capital gain which is more evident from the fact that he made investment in crypto currency during FY 2015-16 which was sold in FY 2020-21 and the gain on sale of crypto currency is invested for purchase of house. This proves that intention of the assessee in making investment in crypto currency is to hold it and to earn long term capital gain.
The appellant/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/-.
The case of the assessee was selected for complete scrutiny through “Computer Assisted Selective Scrutiny (CASS)”. The reason for Selection in Complete Scrutiny was “Capital Gains Deduction Claimed” by issuing notice. Subsequently, notice was issued on various dates along with a detailed questionnaire and the same was duly served upon the assessee through e-proceedings on e-filing portal. In response to the various notices issued from time to time the assessee has furnished various details as called for.
During the course of assessment proceedings, it is seen that the assessee has purchased Bitcoin (Crypto Currency) during F.Y 2015-16, amounting to Rs. 5,05,155/- and sold Bitcoin (Crypto Currency), during the FY 2020-21, amounting to Rs. 6,69,49,620.
Against that sale of Bitcoin the assessee claimed indexed cost of purchase of Bitcon for Rs. 5,75,953 on purchase of Bitcoin, taken set off of losses from shares Rs. 2,331 and claimed exemption u/s 54F of the Income Tax Act amounting to Rs. 4,95,68,910. The balance amount of Rs. 1,66,54,702 was considered as Long Term Capital Gain on the sale of Bitcoin and accordingly assessee paid taxes @ 20%.
The AO held that the claim of assessee for considering the Bitcoins as an asset under section 2(14) of the Income Tax Act and thereby claim of long term capital gains was not considered. A show cause notice 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 under section 54F was not considered as allowable.
The assessee in his reply to the show cause notice, contends that section 2(14) clearly states that capital asset is ANY KIND of property held by an assessee, unless specifically specified in exclusions in section 2(14). As per section 2(14) , it can be concluded that if any property is not explicitly mentioned in the exclusion list of section-2(14), it should be treated as capital asset by default considering it as a property of any kind.
The question therefore is whether a Bitcoin qualifies to be a ‘property’, such as to be a capital asset within the terms of section 2(14) of the Act. Since the Act does not define the term ‘property’, it must be construed in its plain natural meaning, subject to the context in which that expression occurs. While a capital asset is meant to be defined in a wide sense, it yet needs to be a property in the ordinary sense of the word, to then fall within the definition of a capital asset. In its ordinary sense, a property needs to have inherent benefits, which endows it with value.
The assessee’s primary contention that Bitcoin is a capital asset within the meaning of section 2(14) of the Act and that the gains arising there under be taxed as capital gains was rejected and the said gains was taxed as Income from other sources.
The assessee preferred an appeal before the CIT(A). A CIT(A) after considering the arguments and submission filed by the assessee disposed the appeal of the assessee by holding that section 115BBH inserted by Finance Act 2022 w.e.f. 01.04.2023 defines the structure for taxation of such kind of Crypto Currencies. The intention of the legislature through the section is to allow Capital Gains in the sale of Crypto Currencies albeit at a higher rate of 30% without giving the benefit of infrastructure cost while claiming the indexed cost of aquisition and disallowing setting off losses against any other income.
The tribunal held that the AO is incorrect in holding that to qualify as capital asset one should actually own something as property in as much as even if a person has a right or claim on a property it is also a capital asset u/s 2(14) of the Act. Further section 2(47) of the Act defines transfer in relation to a capital asset to include sale, exchange or relinquishment or extinguishment of any right.
Therefore, the tribunal held that the gain on sale of bitcoin which was acquired by the assessee during FY 2015-16 for Rs.5,05,155/- and sold in FY 2020-21 for Rs.6,69,49,620/- results into capital gain and not chargeable under the head income from other sources.
Case Details
Case Title: Raunaq Prakash Jain Versus ITO
Case No.: I.T.A. No. 01/Jodh/2024
Date: 28.11.2024
Counsel For Appellant: P. C. Parwal
Counsel For Respondent: Rajesh Ojha
