Bitcoin Was Capital Asset Before 01.04.2022; LTCG on Sale of Bitcoin Eligible for Sec. 54F Exemption | ITAT

Case Details: Raunaq Prakash Jain vs. Income-tax Officer - [2024] 169 taxmann.com 298 (Jodhpur - Trib.)[28-11-2024]

Judiciary and Counsel Details

• Dr S. Seethalakshmi, Judicial Member & Rathod Kamlesh Jayantbhai, Accountant Member
• P.C. Parwal, FCA for the Appellant.
• Rajesh Ojha, CIT for the Respondent.

Facts of the Case

The assessee was an individual and salaried person. The assessee purchased Bitcoin (cryptocurrency) during the financial year 2015-16 and sold it during the financial year 2020-21. He invested sale consideration in the purchase of the property. The assessee filed return declaring long-term capital gain on the sale of Bitcoin and also claimed exemption under section 54F. The Assessing Officer held that the cryptocurrency was not a capital asset under section 2(14) and made it taxable under section 56 as income from other sources.

On appeal, the CIT(A) had held that Crypto Currency (Bitcoins) was not an asset as per section 2(14). Hence, the transfer as per section 2(47) as Long-Term Capital Gain was not applicable in the case of the assessee, and accordingly, he also confirmed the denial of deduction under section 54F to the assessee.

Aggrieved by the order, an appeal was filed to the Jodhpur Tribunal.

ITAT Held

The Tribunal held that the plain natural definition of ‘property’ as given in the Act is property of any kind held by an assessee, whether or not connected with his business or profession, in which a person owns something of value. Though cryptocurrency/virtual digital asset is also not a currency, it is not an asset within the meaning of section 2(14). The amendment made in the Finance Act 2022 has defined virtual digital assets (VDA) under section 2(47A), wherein the name given is virtual digital assets.

Thus, considering the plan vanilla meaning before the amendment as is to be understood at the time of purchase & sale of cryptocurrency (bitcoins), which is a right of the assessee attached to the investment made.

If the definition of the capital asset, as outlined in section 2(14), which states that ‘property of any kind held by an assessee, whether or not connected with his business or profession,’ is interpreted in the manner suggested by Explanation 1 to these sections, it becomes evident that ‘property’ encompasses and shall always include any right in or related to an Indian company, including the right of management, control, or any other right whatsoever.

Consequently, all rights are considered property, and therefore, the assessee’s right in Bitcoin, despite being a virtual asset, qualifies as a capital asset under section 2(14). Consequently, the Assessing Officer’s assertion that one must actually own something as property to qualify as a capital asset is incorrect. Even if an individual possesses a right or claim on a property, it is still considered a capital asset under section 2(14).

Further, section 2(47) defines transfer in relation to a capital asset to include the sale, exchange or relinquishment or extinguishment of any right therein. Therefore, in the instant case, the gain on the sale of bitcoin, which the assessee acquired, results in capital gain and is not chargeable under the head income from other sources.

Accordingly, gain on the sale of cryptocurrency was to be taxed under the head capital gain and not under the head income from other sources before the lawmaker made the specific provision in the Act. Since the income on the sale of cryptocurrency is chargeable to tax under the head long-term capital gain, the AO was directed to allow the claim of deduction under section 54F to the assessee.

List of Cases Reviewed

• CIT v. Vegetable Products Ltd. 88 ITR 192
• Chief Commissioner of CGST v. M/s Safari Retreats Pvt. Ltd. Civil Appeal No. 2948 of 2023 order dated 3-10-2024 (Para 8) followed.