By Varun Sriram, Partner, JSA Advocates & Solicitors
India, like many parts of the world, does not have a comprehensive legislative framework governing cryptocurrency. Legislative and regulatory aspects regarding cryptocurrencies have been evolving around the globe in recent years.
In India, for instance, the RBI issued a circular in 2018 directing all regulated entities not to deal with or provide services to businesses and individuals trading in virtual currencies, inter alia, to protect the financial system. However, the circular was challenged before the Supreme Court of India, which struck down the ban in terms of the circular as being excessive and disproportionate.
Since then, there have been numerous cryptocurrency exchange platforms, intermediaries and digital wallets at play in India. There are millions of Indians who own and use cryptocurrency.
But what is cryptocurrency? Is it a piece of property like other properties? There is no specific law in India that treats cryptocurrency as property. This lacuna has considerable significance.
As regards taxation laws, a formal framework for Virtual Digital Assets (VDAs) like cryptocurrencies and NFTs was introduced through the Finance Act, 2022. Section 2(47A) of the Income-tax Act, 1961, broadly defines VDAs to include any information or code or number or token (not being Indian currency or foreign currency) generated through cryptographic means or otherwise, a non-fungible token or any other token of a similar nature and any other digital asset, as the Central Government may specify. Any transfer of VDAs is susceptible to tax implications.
There are various other commercial and personal laws and principles in India that apply vis-à-vis properties in terms of their legal and beneficial status, ownership interests, custody, transfers, transmission, inheritance, attachment, liquidation, etc. How these laws and principles will apply to 'cryptocurrencies' continue to evolve through legislative measures and judicial rulings.
The Madras High Court, in the case of Ms Rhutikumari vs Zanmai Labs, examined several critical components and analysed the status of cryptocurrency as a property.
The Court went on to categorically hold that there can be no doubt that 'cryptocurrency' is a property. The Court stated that it is not tangible property nor is it currency; however, it is a property which is capable of being enjoyed and possessed (in a beneficial form). It also clarified that it is capable of being held in trust. The Court also observed that in the Indian law regime, cryptocurrency is treated as a virtual digital asset, and it is not treated as a speculative transaction.
The Madras High Court came to this conclusion based on examination of a plethora of judicial precedents on what constitutes 'property', in most of such cases the widest ambit was provided. Judicial precedents in United Kingdom, Singapore and New Zealand also supported this view.
Given that this is a High Court ruling it assumes significant value. The observations by the Madras High Court in this regard will go a long way in its application as part of various commercial and personal law interpretations via-a-vis crypto currency. However, for the time being, crypto currency remains in some sense a cryptic property considering there is no specific legislative coverage.
(Disclaimer: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
