Taxation Of Virtual Digital Assets Doesn't Subject Crypto Exchanges To Public Law Scrutiny: Delhi High Court

The Delhi High Court has recently held that the taxation of Virtual Digital Assets (VDAs) under the Finance Act, 2022 does not make cryptocurrency exchanges "State" under Article 12 of the Constitution or, by itself, subject them to public law scrutiny.

A division bench of Chief Justice Devendra Kumar Upadhyaya and Justice Tejas Karia thus dismissed an appeal filed by users of cryptocurrency exchange platform BitBNS, seeking CBI or SIT probe into the alleged withdrawal restrictions.

For context, the appellants had contended that since VDAs have been statutorily recognised under the Finance Act, 2022 and are subject to taxation, tax deduction at source (TDS), and anti-money laundering obligations, cryptocurrency exchanges operate within a regulated financial framework and should therefore be subject to public law scrutiny.

They argued that the regulatory inaction despite statutory recognition of the sector violates the constitutional guarantees under Articles 14 and 21 of the Constitution.

Rejecting the contention, the Court held that the statutory taxation regime governing VDAs does not alter the private character of cryptocurrency exchanges.

"Respondent Nos. 11 to 13 are private entities, neither created, financed, nor controlled by the State or instrumentalities of the State. Further, the taxation of VDAs under the Finance Act does not render such entities 'State' within the meaning of Article 12 of the Constitution, nor does it, by itself, subject them to public law scrutiny," the bench observed.

The Court further held that the mere fact that numerous investors were allegedly affected could not convert a private commercial dispute into one involving enforceable public law rights.

As such, the Court found no exceptional circumstances warranting a CBI or SIT investigation, the bench dismissed the appeal.

For Appellants: Advocate Dinesh Jotwani, Advocate Syed Adil Muneer (AOR) and Advocate Sharanya Tripathi.

For Respondents: Central Government Standing Counsel Amit Tiwari, along with Advocates Ayushi Srivastava, Arpan Narwal and Kushagra Malik for the Union of India; Advocates Abhinav Sharma, Dipan Sethi and Snehashish Bhattacharya for Respondent No. 3; Special Public Prosecutor Premtosh K. Mishra, along with Advocate Anubhav Upadhyay for Respondent No. 9 (CBI); and Advocates Rohan Kothari and Shivani Pegatraju for Respondent Nos. 11 to 13.

Click here to read order