Cryptocurrencies are capital assets and any profits made on their sale prior to the amendments to sections 2(14) and 2(47A) by the Finance Act 2022 should be considered capital gains and taxed accordingly

(1) Plain natural definition of ‘property’ as is given in the Act property ofany kind held by an assessee, whether or not connected with his business or profession; which a person actually owns something of value. Though crypto currency / virtual digital asset is also not a currency but it is not an asset within the meaning of section 2(14) of the Act. The amendment made in the Finance Act, 2022 has defined Virtual Digital Asset (VDA) u/s 2(47A) of the Act wherein the name given is of virtual digital assets. Thus, considering the plain vanilla meaning before the amendment as is to be understood at the time of purchase & sale of crypto currency (bitcoins) which is a right of the assessee attached to the investment made. If we consider the definition of capital asset as given in section 2(14) of the Act which say that “Property of any kind held by an assessee, whether or not connected with his business or profession.” Explanation 1 to this sections reads that “property” includes and shall be deemed to have always included any right in or in relation to an Indian company, including right of management or control or any other right whatsoever. Thus all rights are property and thereby the right of the assessee in Bitcon though a virtual assets is a capital asset.

(2) Therefore, 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/s2(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 therein. Therefore in the present case the gain on sale of bitcoin which was acquired by the assessee during FY2015-16 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.