Karnataka HC Admits Writ To Examine TDS and TCS on Cryptocurrency Transactions; Grants Interim Stay: Report

Moneylife Digital Team 21 March 2022

Economy & Nation

While admitting a writ petition to examine tax deducted at source (TDS) and tax collected at source (TCS) proceedings involving transactions in cryptocurrency, the Karnataka High Court has granted an interim stay on the proceeding by the tax department, says a report from Taxsutra.com.

In this petition filed before the bench of justice S Sunil Dutt Yadav, the tax department, while dealing with the petitioner's objection on the assumption of jurisdiction, concluded that cryptocurrencies are 'goods' and, hence, subjected to tax, the report says quoting sources.

The petitioner company executes sale or purchase orders for cryptocurrency on a third-party platform for its customers. It does not operate as a cryptocurrency exchange where transactions actually take place.

However, the tax department alleged that the company is a facilitator for Section 194-O and buyer-seller for Sections 194Q and 206C(1H).

Section 194-O mandates the e-commerce operators to deduct a specified amount of tax from the sums payable to e-commerce participants to sell goods or provide services facilitated through its digital or electronic platform.

As per Section 206C(1H), the seller has to collect a specified amount as tax from the buyer of goods in relation to the consideration for the sale of goods exceeding Rs50 lakh. Further, as per Section 194Q, the buyer must deduct a specified amount of tax from the consideration payable to the seller for the purchase of goods exceeding Rs50 lakh.

Citing a judgement by the Supreme Court, where the apex court had rejected the argument that cryptocurrencies are just goods or commodities, the company contends that the tax department's conclusion contradicts the SC ruling.

The company also contends initiation of TDS proceedings is devoid of jurisdiction because the time limit for filing its income tax return (ITR) had not expired when the tax department passed an order deeming the petitioner company as an assessee-in-default.

Further, the company contends that "the proceedings are initiated in haste and are a colourable exercise of power that has resulted in undue harassment of the assessee since the regulatory law on cryptocurrency is yet to be made," the report says.

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