The world is undergoing unprecedented changes, with old technologies swiftly giving way to new ones within weeks or months. Technology is advancing at an astonishing pace, reshaping the way we function as a society. The unmatched flexibility and scalability of the internet define this era, marking the age of the Digital Revolution. In today’s digital landscape, concepts like crypto, NFTs, and AI have become integral to the internet’s fabric.
Legal Nature of Crypto Assets
Crypto assets are considered intangible assets existing in digital form, capable of ownership and transfer among various parties. Serving as a medium of exchange, their usage is neither expressly nor impliedly prohibited in India. Given the surge in demand, they have become a significant source of investment.
The legal aspect of the transfer of crypto assets finds resonance in the Supreme Court case of Vikas Sales Corporation and Others v. Commissioner of Commercial Taxes and Others (1996) 102 STC 106. The case centered around whether the transfer of an Import License, specifically the R.E.P. License/Exim scrip, constitutes a sale of goods for Sales Tax purposes. The Supreme Court ruled that REP licenses possess intrinsic value, allowing their transfer from one individual to another, creating a chain of transactions. The original licensee or the subsequent purchasers are not constrained to import the goods specified in the license. These licenses are freely transferable, possessing inherent commercial value and treated as merchandise or goods within the commercial world. A REP license is distinct from a chose-in-action or an actionable claim and is not akin to a title deed; rather, it stands as a property with its own inherent value, making it freely tradable in the market. The precedent set in this case is applicable to crypto assets due to their similar nature to R.E.P. License/Exim scrip. Both possess inherent value and are freely tradable, making the existing legal framework pertinent to understanding the legal nature of crypto assets.
Intangible assets are transferable properties that can be owned and transferred but lack a physical form, making them unable to be seen or touched. Therefore, cryptocurrencies, NFTs, and tokens fall under the category of intangible property.
According to Pollock & Mulla on the Transfer of Property Act, 1882, the term “property” within the act is used in the broadest sense, encompassing anything that can be transferred. The definition extends to include real and personal property, interests in the property, debts, things in action, and any other rights or interests, unless a contrary intention is explicitly stated. This comprehensive definition covers both tangible and intangible properties.
In the case of Bans Gopal Sheo Narain v. P.K. Banerji AIR 1949 All 433, the Hon’ble Allahabad High Court deliberated on the definition of “property.” The court expressed the opinion that “property” incorporates all rights related to things, whether tangible or intangible. Hence, we can conclude that Crypto Assets is Intangible property which can be easily transferable to other person. It is very important to lay emphasis on legal nature of crypto assets as it provides –
Clarity in Legal Framework:
Explain how defining the legal nature of blockchain provides clarity in the legal framework. A clear understanding helps regulators, businesses, and users navigate the legal landscape surrounding blockchain technology.
Smart Contracts and Automation:
Discuss the role of smart contracts in blockchain and how they automate and self-execute contractual agreements. Address the legal implications of smart contracts and how defining their nature can ensure enforceability and compliance with existing laws.
Digital Assets and Ownership:
Helps to explore the concept of digital assets within blockchain, such as cryptocurrencies and NFTs. Defining their legal nature is crucial in determining ownership rights, taxation, and regulatory compliance.
Cross-Border Transactions:
Highlight the global nature of blockchain technology and its impact on cross-border transactions. A clear legal framework ensures consistency and facilitates international cooperation in regulating blockchain-related activities.
Fraud Prevention and Security:
Well-defined legal framework contributes to fraud prevention and enhances security in blockchain transactions. Legal clarity encourages the development of secure and transparent blockchain networks.
Investor Confidence:
It helps to understand how blockchain fosters investor confidence. Investors are more likely to participate in blockchain-related ventures when the legal environment is well-defined and protective of their rights.
Innovation and Development:
Defined legal nature encourages innovation and development in the blockchain space. Entrepreneurs and businesses are more likely to invest in blockchain projects when legal uncertainties are minimized.
Conclusion
Given the dynamic nature of this technology, it enables the creation of more advanced financial tools, posing greater challenges when applied in practical scenarios. The government faces the task of finding a middle ground, recognizing that blockchain is a technology crucial for the future. Blocking its progress could hinder the country’s technological growth. To address this, the government needs to provide clearer and more detailed guidance through additional clarifications and notifications. Without such guidance, there is a risk of confusion and difficulties for taxpayers.
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