3 days ago
ITAT Treats Earlier Bitcoin Gains as Capital Gains, Allows Deduction
Raunaq Prakash Jain bought Bitcoin for about Rs 5 lakh in 2015-16.
He sold it in 2020-21 for nearly Rs 6.7 crore.
He said the profit was a long-term investment gain and claimed a tax deduction after buying a house.
The tax department disagreed and wanted to tax the gain under a different category.
A tax tribunal said Bitcoin could count as property under the rules that applied to this sale.
It treated the profit as a long-term capital gain and allowed the house-related deduction.
The tribunal also said the special rules for virtual digital assets introduced later could not be applied to this earlier sale.
The ruling concerns this case and does not mean every crypto gain gets the same tax treatment.
Raunaq Prakash Jain invested Rs 5,05,155 in Bitcoin in FY 2015-16 and sold it for Rs 6,69,49,620 in FY 2020-21.
The tax officer treated the net gain of Rs 6,62,96,741 as income from other sources and denied the Section 54F claim.
The Jodhpur Bench of the ITAT ruled that Bitcoin rights could qualify as property and a capital asset under the law then applicable.
The tribunal held the gain was taxable as long-term capital gain and directed that a Section 54F deduction of Rs 4,95,68,910 be allowed.
The ITAT said the VDA tax provisions introduced in 2022 applied prospectively and did not govern this earlier transaction.
- Who
- Taxpayer Raunaq Prakash Jain and the Income Tax Department; the appeal was decided by the Jodhpur Bench of the Income Tax Appellate Tribunal.
- What
- The ITAT classified Jain's Bitcoin sale gain as long-term capital gain and directed that his Section 54F deduction be allowed.
- Where
- The appeal was heard by the Jodhpur Bench of the Income Tax Appellate Tribunal in India.
- When
- The Bitcoin was bought in FY 2015-16 and sold in FY 2020-21; the ITAT ruling followed the resulting tax dispute.
- Why
- The tribunal found that Bitcoin-related rights could fall within the broad definition of property and that the 2022 VDA regime did not apply retrospectively.
Taxpayer and Tribunal
Tax Department
Whether Bitcoin was a capital asset
Taxpayer and Tribunal
Jain argued that Bitcoin was property of any kind under the broad Section 2 definition, and the ITAT agreed that rights attached to Bitcoin could constitute a capital asset.
Tax Department
The tax officer argued that Bitcoin was not specifically defined as an asset under the law applicable to the transaction and did not qualify as a capital asset.
How the gain should be taxed
Taxpayer and Tribunal
Jain treated the sale profit as long-term capital gain; the ITAT held that the later VDA regime could not be applied retrospectively to his earlier transaction.
Tax Department
The tax officer treated the net gain as income from other sources, arguing that the sale was not a transfer of a capital asset.
Section 54F deduction
Taxpayer and Tribunal
Jain claimed a deduction after investing in a residential property; the ITAT directed that the claimed Rs 4,95,68,910 deduction be allowed.
Tax Department
The tax officer denied the deduction because it had classified the Bitcoin gain as income from other sources rather than eligible long-term capital gain.
Key facts
- Investment
- Rs 5,05,155, invested during FY 2015-16
- Sale proceeds
- Rs 6,69,49,620 in FY 2020-21
- Gain assessed by tax officer
- Rs 6,62,96,741, treated as income from other sources
- Section 54F deduction claimed
- Rs 4,95,68,910
- Holding period
- More than three years; the tribunal noted it exceeded 36 months
- Later VDA framework
- The tribunal noted that the relevant framework applied from April 1, 2022, with Section 115BBH applying from assessment year 2023-24
Quotes
Income Tax Appellate Tribunal, Jodhpur Bench
The tribunal that heard Jain’s tax appeal
“Thus all rights are property and thereby the right of the assessee in Bitcon though a virtual assets is a capital asset.”
financialexpress.com
Sources
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