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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 ..... 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. Gain on sale of crypto currency (bitcoin) prior to AY 2022-23 is chargeable to tax as capital gain. Ground no. 1 raised by the assessee is allowed. Deduction u/s 54F - 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 by the assessee is allowed. - Dr. S. Seethalakshmi, Judicial Member And Shri Rathod Kamlesh Jayantbhai, Accountant Member For the Appellant : Sh. P. C. Parwal, FCA For the Respondent : Sh. Rajesh Ojha, CIT ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM By way of the present appeal, the assessee challenges the order of the Nati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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%. 3.3. The ld. AO based on these information asked the assessee to explain as to how he is eligible for long term capital gains, as well as for exemption u/s 54F of the Act, in accordance with the provisions of the Act from the sale of Bitcoin (Crypto Currency) (Virtual Digital Assets) vide notice dated 04.11.2022 issued u/s 142(1) of the Act which was replied by the assessee on 08.11.22. The ld. AO considered the submission of the assessee, but was not found to be acceptable for the following reasons: (a) The assessee states that he holds Bitcoins for more than 3 years and thus claimed the gains on sale as being long term capital gains. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conference were similar to those furnished vide his letter dated 19.12.2022. Finally the ld. AO noted written and oral submissions have been carefully considered, but were not found to be acceptable for reasons discussed hereunder: (a) The assessee's primary contention is that section 2(14) point (a) clearly states that a 'capital asset is any kind of property held by an assessee unless specifically specified in exclusions in section 2(14), point (i) through (vi). (b) 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 (ref. to JK Trust v. CIT/EPT, 23 ITR 150, Bom). 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. (c) It is trite knowledge, that with property or a real asset class, yo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from other sources 6,62,96,741/- Accordingly, the assessee s claim for exemption u/s 54F of the Act was also rejected. 4. Aggrieved from the above finding of the Assessing Officer, the assessee preferred an appeal before the ld. CIT(A). Ld. CIT(A) after considering the arguments and submission filed by the assessee disposed the appeal of the assessee by holding as under:- 4. Decision:- Ground No.1:- The only ground of appeal is an addition of Rs. Rs. 6,62,96,741/- by the Ld. AO by not treating the sale of Crypto Currency of Rs. 6,69,49,620/- as long term capital asset and taxed as 'Income From Other Sources.' As per the facts of the case, during the course of assessment proceedings, the Ld. AO observed that assessee had purchased Crypto Currency (Bitcoins) during F.Y.2015-16 amounting to Rs. 5,05,155/- and sold the same during the F.Y.2020-21 at a consideration of Rs. 6,69,49,620/- after claiming indexed cost of Rs. 5,75,953/- on the purchase of Bitcoin, having also taken the set off of losses from shares of Rs. 2,331/-. The appellant further claimed an exemption u/s 54F of the Act amounting to Rs. 4,95,68,910/-, thereby offering Rs. 1,66,54,702/- as Long Term Capital Gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the assessee did not find any favour, from the appeal so filed before the ld. CIT(A)/NFAC, the assessee has preferred the present appeal before this Tribunal on the ground as reproduced hereinabove. The ld. AR of the assessee in support of the various grounds so raised has filed the written submission which reads as follows: 1. The assessee did his Bachelor of Engineering from Bangalore in computer information science in the year 2004. He worked with IT company Mind Tree Ltd. as software developer from 2004 to 2009. Thereafter he did his MBA in 2012 and joined Infosys Ltd. as senior software consultant and IT project manager till 2024. Presently he has lost his job at Infosys and unemployed. 2. The regular source of income of assessee is income from salary and from capital gain on sale of shares/ mutual funds. During the year under consideration assessee earned long term capital gain on sale of bitcoin at Rs. 6,63,73,667/- and after claiming deduction u/s 54F of Rs. 4,95,68,910/-, filed the return on 30.12.2021 declaring total income of Rs. 1,74,39,670/-. 3. The AO at Para 3.8 of the order observed that Act has not defined the term property and therefore it must be construed in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6,69,49,620/- results into capital gain and not chargeable under the head income from other sources. 2. It may be noted that by FA, 2022 w.e.f. 01.04.2022, following sections were introduced in the FA to deal with the taxation of Virtual Digital Asset. Section 2(47A)- Virtual Digital Asset means:- (a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically; (b) a non-fungible token or any other token of similar nature, by whatever name called; (c) any other digital asset, as the Central Government may, by notification in the Official Gazette specify: Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oves that intention of the assessee in making investment in crypto currency is to hold it and to earn long term capital gain. 6. It is further submitted that even the AO in case of Sh. Ashok Kumar Asawa for AY 2018-19 and in case of Sh. Prakash Chand Jain for AY 2018-19 has taxed the gain on sale of crypto currency under the head capital gain. The relevant extracts of these assessment orders is as under:- In case of Sh. Ashok Kumar Asawa Para 4.6- Conclusion Drawn. Keeping in view of the said facts of the case, it is concluded that assessee has earned STCG in trading of Crypto Currency at Rs. 2,42,892/-, over and above the STCG shown in his ITR and the same has been further admitted vide his reply submitted on 16.03.2023, is being added to his taxable income for the assessment year 2018-19 and charged tax accordingly. In case of Prakash Chand Jain In view of the above, the Virtual/Digital/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 busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he gain which he has offered cannot be considered as other income and thereby denial of benefit of capital assets is not in accordance with law. To drive home to this contention ld. AR of the assessee invited out attention to the definition clause 2(47) 2(47A) and provision of section 14, 56 and provision of section 115BBH and submitted that even the law recognise it as assets but subsequently intended to charge as other income which are prospective in nature. Therefore, the treatment given by the assessee be accepted as capital assets in the hands of the assessee. The ld. AR of the assessee also invited attention to the assessment order of Ahokkumar Asawa (AFHPA7809P) wherein similar issue was decided by the national faceless assessment unit as capital assets vide para 4.6 of that order placed on record and submitted that when two views are possible view favourable to the assessee be taken as held by the apex court in the case of Vegetable Products Ltd. The ld. AR also relied on the finding of apex court in the case of Safari Retreats P. Ltd.(Supra). If the contention of the assessee for capital assets is accepted then issue of deduction u/s. 54F is consequential in nature. 7. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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%. As the reasons for selection of the case was deduction claimed by the assessee the ld. AO called from the assessee to explain as to how he is eligible for long term capital gains, as well as for exemption u/s 54F of the Act, in accordance with the provisions of the Act from the sale of Bitcoin (Crypto Currency) (Virtual Digital Assets) vide notice dated 04.11.2022 issued u/s 142(1) of the Act. The assessee contended that their claim is in accordance with the provision of law and filed a detailed reply. The ld. AO considered the submission of the assessee, but was not found to be acceptable because the assessee states that he holds Bitcoins for more than 3 years and thus claimed the gains on sale as bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its ordinary sense, a property needs to have inherent benefits, which endows it with value. The ld. AO also noted that to qualify the property or a real asset class, the assessee needs to demonstrate that it is a Stocks or an equity Interest in a company and a share in its future earnings, bonds to give a promise from a company to pay a certain amount plus interest, an assets having building / structure or a piece of land or that of gold or a precious metal or commodities having utility and value such as oil, gas, metals etc. All the character of the assets was missing in the assets that the assessee contended. The ld. AO also contended that these assets are worth on a given day, but they are real things/property that anyway have value, and independent of what the market says, they have inherent value at any moments and that is not so with a crypto currency/VDA, where when anyone can buy a crypto or 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. The ld. AO further went on to observe th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicated by different Ld. AO and not a matter of appeal before him, he has not considered the plea of the assessee. The ld. CIT(A) further went on observing that since the section 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 and thereby the appeal of the assessee was dismissed. Before us as we note that the assessee effectively taken to ground one that the income be taxed as capital gain and not as other income and if the income be considered as capital gain consequential deduction claimed u/s. 54F be considered. Before we proceed to decide the first issue we would like refer to the connected provisions of law as applicable to the year under dispute. First we refer the provision of section 2(14) and 2 (47) of the Act which reads as under : Section 2(14) ( 14 ) capital asset means (a) property of any kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities shall have the meaning assigned to it in clause ( h ) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); Section 2(47) ( 47 ) transfer , in relation to a capital asset, includes, ( i ) the sale, exchange or relinquishment of the asset ; or ( ii ) the extinguishment of any rights therein ; or ( iii ) the compulsory acquisition thereof under any law ; or ( iv ) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or ( iva ) the maturity or redemption of a zero coupon bond; or ( v ) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or ( 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relinquishment or extinguishment of any right therein. Therefore in the present case 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. We note that Finance Act, 2022 w.e.f. 01.04.2022, the section 2(47A) has been inserted thereby the Virtual Digital Asset meaning was assigned and that including the underlying assets Bitcoins. Thus even the law maker has to clarify that virtual digital asset may be a capital asset and that assets to be treated as income to be taxed as special rate. The relevant amendment in the law is prospective as is evident from the memorandum explaining the budgetary provision which reads as under: Scheme for taxation of virtual digital 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee filed the copy of the assessment order of Shri Ashok Kumar Asawa for AY 2018-19 and in case of Sh. Prakash Chand Jain for AY 2018-19 wherein the similar income was taxed as capital gain. The relevant extracts of these assessment orders reads as under:- In case of Sh. Ashok Kumar Asawa Para 4.6- Conclusion Drawn. Keeping in view of the said facts of the case, it is concluded that assessee has earned STCG in trading of Crypto Currency at Rs. 2,42,892/-, over and above the STCG shown in his ITR and the same has been further admitted vide his reply submitted on 16.03.2023, is being added to his taxable income for the assessment year 2018-19 and charged tax accordingly. case of Prakash Chand Jain In view of the above, the Virtual/Digital/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 he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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