Top Stories Tax Leviable on Gain out of Crypto Currency Sale as Capital Gains: ITAT [Read Order] The ITAT bench  held that the gain on sale of bitcoin which was acquired by the assessee during FY 2015-16 and sold in FY 2020-21 amounts to capital gains By Yogitha S. Yogesh – On December 18, 2024 1:36 pm – 3 mins read In an important ruling, the Jodhpur Bench of Income Tax Appellate Tribunal ( ITAT ) has held that the gain on sale of cryptocurrency ( bitcoin ) prior to  the Assessment year ( AY ) 2022-23 is chargeable to tax as capital gains. Raunaq Prakash, the appellant/assessee is an individual and salaried person. 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. Notices were 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. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here It was found that during FY 2015 – 16, the assessee has purchased Bitcoin ( Crypto Currency ) amounting to Rs. 5,05,155/- and sold Bitcoin ( Crypto Currency ), during the FY 2020-21, amounting to Rs. 6,69,49,620. 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 under section  54F of the Income Tax Act, 1961. 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 Assessing Officer ( AO ) didn’t considered 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. A show cause notice was issued to the assessee, proposing to tax the net gains on sale of Bitcoins as ‘Income from other sources’ and refused to allow the  claim for exemption under section 54F. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here The assessee in his reply to the show cause notice, stated 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 before the ITAT 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. The CIT(A) on appeal by assessee,  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 acquisition and disallowing setting off losses against any other income. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here The two member bench of Dr. S. Seethalakshmi ( Judicial Member ) and Rathod Kamlesh Jayantbhai ( Accountant Member )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 under section 2(14) of the Act.

The tribunal observed that the assessee is not regularly dealing in purchase/ sale of shares/ crypto currency. It was evident that the assessee intended to hold for long term capital gain as 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. The ITAT bench  held that the gain on sale of bitcoin which was acquired by the assessee during FY 2015-16 and sold in FY 2020-21 amounts to capital gain and not chargeable under the head income from other sources.