The AO's position is that dealing in crypto was illegal in the years under assessment. Is there Supreme Court authority the other way?
Yes, on the regulatory question. The Supreme Court set aside the RBI's April 2018 circular that had barred regulated entities from providing services to persons dealing in virtual currencies, holding the measure disproportionate, and recorded that RBI itself had not banned virtual currencies. The judgment also records that courts in different jurisdictions have placed virtual currencies in categories ranging from property to commodity. It decides nothing about the Income-tax Act.
Decided by the Supreme Court (Supreme Court of India, R. F. Nariman, Aniruddha Bose and V. Ramasubramanian, JJ.) on 2020-03-04, reported as [2020] 2 S.C.R. 297; 2020 SCC OnLine SC 275; Writ Petition (Civil) No. 528 of 2018. It bears on section Constitution Art. 19(1)(g), section Constitution Art.32, section RBI Act s.35A of the Income Tax Act 1961, in Crypto & Virtual Digital Assets and How Tax Law Is Read matters.
It removes an argument rather than winning one. Where an assessment or a penalty proceeding is coloured by the suggestion that the trading itself was unlawful — usually in pre-regime years or in s.69A additions on exchange credits — this is the authority that the activity was never prohibited and that the banking channel restriction was struck down. It also gives you the Court's own acknowledgement that virtual currencies are treated as property or commodity in different statutory contexts, which sits behind the capital asset argument for years before s.2(47A).
Binding on every court and authority in India.
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By a circular of April 2018 the Reserve Bank of India directed entities regulated by it to stop providing services to any individual or business dealing in or settling virtual currencies, and to exit existing relationships. An industry association and traders challenged the circular under Article 32, contending that it destroyed a lawful trade and was disproportionate. RBI's position throughout was that it had not banned virtual currencies but had ring-fenced regulated entities from them. Several government committees had reported and two draft bills taking opposite positions had been produced, but no legislation had been enacted.
The circular was set aside. The Court held the measure disproportionate, noting that RBI had consistently maintained it had not banned virtual currencies and that the Government had not taken a legislative position despite successive committee proposals.
The Court accepted that RBI has wide powers, including under s.35A of the Reserve Bank of India Act, and that its opinion on systemic risk is entitled to deference. The petition therefore failed on the challenge to competence. It succeeded on proportionality: the measure disabled a trade that was not prohibited by any law, was directed at entities regulated by RBI rather than at the trade itself, and no empirical material was placed to show that the regulated entities had suffered damage from dealing with virtual currency exchanges. The Court also surveyed how other jurisdictions classify virtual currencies, recording that the classification depends on the text of the statute and the context, and ranges from property to commodity to payment instrument. That survey is descriptive; the Court did not classify virtual currencies for Indian tax purposes.
When the consistent stand of RBI is that they have not banned VCs and when the Government of India is unable to take a call despite several committees coming up with several proposals including two draft bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate.
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Handle my notice → Ask a CA on WhatsAppYes, on the regulatory question. The Supreme Court set aside the RBI's April 2018 circular that had barred regulated entities from providing services to persons dealing in virtual currencies, holding the measure disproportionate, and recorded that RBI itself had not banned virtual currencies. The judgment also records that courts in different jurisdictions have placed virtual currencies in categories ranging from property to commodity. It decides nothing about the Income-tax Act. This was decided by the Supreme Court (Supreme Court of India, R. F. Nariman, Aniruddha Bose and V. Ramasubramanian, JJ.) and bears on section Constitution Art. 19(1)(g), section Constitution Art.32, section RBI Act s.35A of the Income Tax Act 1961. It is reported as [2020] 2 S.C.R. 297; 2020 SCC OnLine SC 275; Writ Petition (Civil) No. 528 of 2018. It removes an argument rather than winning one. Where an assessment or a penalty proceeding is coloured by the suggestion that the trading itself was unlawful — usually in pre-regime years or in s.69A additions on exchange credits — this is the authority that the activity was never prohibited and that the banking channel restriction was struck down. It also gives you the Court's own acknowledgement that virtual currencies are treated as property or commodity in different statutory contexts, which sits behind the capital asset argument for years before s.2(47A). If it applies to you, the first step is this: Cite it only for what it decides — that the RBI circular was set aside and that dealing in virtual currencies was not prohibited — and not as authority on the head of income.
By a circular of April 2018 the Reserve Bank of India directed entities regulated by it to stop providing services to any individual or business dealing in or settling virtual currencies, and to exit existing relationships. An industry association and traders challenged the circular under Article 32, contending that it destroyed a lawful trade and was disproportionate. RBI's position throughout was that it had not banned virtual currencies but had ring-fenced regulated entities from them. Several government committees had reported and two draft bills taking opposite positions had been produced, but no legislation had been enacted. The matter was decided on 2020-03-04 by the Supreme Court (Supreme Court of India, R. F. Nariman, Aniruddha Bose and V. Ramasubramanian, JJ.). On those facts the Supreme Court held as follows. The circular was set aside. The Court held the measure disproportionate, noting that RBI had consistently maintained it had not banned virtual currencies and that the Government had not taken a legislative position despite successive committee proposals.
The Court accepted that RBI has wide powers, including under s.35A of the Reserve Bank of India Act, and that its opinion on systemic risk is entitled to deference. The petition therefore failed on the challenge to competence. It succeeded on proportionality: the measure disabled a trade that was not prohibited by any law, was directed at entities regulated by RBI rather than at the trade itself, and no empirical material was placed to show that the regulated entities had suffered damage from dealing with virtual currency exchanges. The Court also surveyed how other jurisdictions classify virtual currencies, recording that the classification depends on the text of the statute and the context, and ranges from property to commodity to payment instrument. That survey is descriptive; the Court did not classify virtual currencies for Indian tax purposes. In the words reproduced by the source cited on this page: "When the consistent stand of RBI is that they have not banned VCs and when the Government of India is unable to take a call despite several committees coming up with several proposals including two draft bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate."
It was decided by the Supreme Court on 2020-03-04 and is reported as [2020] 2 S.C.R. 297; 2020 SCC OnLine SC 275; Writ Petition (Civil) No. 528 of 2018. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section Constitution Art. 19(1)(g), section Constitution Art.32, section RBI Act s.35A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The circular was set aside. The Court held the measure disproportionate, noting that RBI had consistently maintained it had not banned virtual currencies and that the Government had not taken a legislative position despite successive committee proposals. It arises in Crypto & Virtual Digital Assets and How Tax Law Is Read matters, on section Constitution Art. 19(1)(g), section Constitution Art.32, section RBI Act s.35A of the Income Tax Act 1961, and was decided by Supreme Court of India, R. F. Nariman, Aniruddha Bose and V. Ramasubramanian, JJ.. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Pair it with the Tribunal and High Court material on crypto as property when the officer's premise is that no asset existed. Where the officer relies on the 2018 circular or on statements that crypto is not legal tender, separate the two: not legal tender is not the same as not lawful to hold or trade.
Still good law. The Supreme Court Reports text was read for this entry and no review, recall or overruling was found; commentary written after 2020 continues to treat the circular as set aside. The subsequent statutory developments — s.2(47A), s.115BBH and s.194S — regulate taxation and do not restore the circular. This was a targeted check and not a full citator run. That finding was checked against a published source, which is linked on this page, on 2026-08-20. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Not a tax decision. It arose under Article 32 against an RBI circular and turned on proportionality and the RBI's powers, so it cannot be pushed into a proposition about chargeability, head of income or cost of acquisition. The judgment predates the virtual digital asset regime entirely, and the regime's arrival does not disturb it because the two deal with different questions. It does not decide whether a virtual currency is a capital asset, what head a gain falls under, or how a gain is computed. It says nothing about the department's information gathering, and nothing about the position after the 2022 amendments. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The circular was set aside. The Court held the measure disproportionate, noting that RBI had consistently maintained it had not banned virtual currencies and that the Government had not taken a legislative position despite successive committee proposals.
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