In a major relief for foreign investors, the Income Tax Appellate Tribunal (ITAT), Mumbai, has ruled that long-term capital losses can be carried forward even when capital gains from grandfathered investments are exempt under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).

The bench of Sandeep Singh Karhail (Judicial Member) and Vikram Singh Yadav (Accountant Member) has observed that  in respect of the transaction of sale of shares acquired after 01.04.2017, though it was taxable in India, even as per Article 13(3A) of India-Mauritius DTAA, the assessee incurred net long-term capital loss in any case. Such being the facts, by applicability of the provisions of the Act, particularly section 74 as noted in the following paragraph, we are of the considered view that the assessee is entitled to claim carry forward of the long-term capital loss to subsequent years.

The case arose after the tax authorities denied carry forward of a Rs. 17.96 crore long-term capital loss claimed for Assessment Year 2022-23. While the exemption on gains from shares purchased before April 1, 2017 was accepted under DTAA, the carry forward of losses from shares purchased after that date was rejected. The authorities also adjusted dividend income against the reported loss, which the assessee challenged.

The tribunal held that each capital gains/loss transaction constitutes a distinct source of income. Hence, treaty benefits and Income Tax Act provisions can apply differently to separate transactions.

The ITAT noted that taxpayers are entitled to claim exemption on grandfathered gains under the DTAA while simultaneously carrying forward losses under Section 74 of the Income Tax Act.

The tribunal stated that the dividend income cannot be offset against long-term capital losses.

The ITAT directed tax authorities to allow the carry forward of Rs. 17.96 crore long-term capital loss to future years, emphasizing that international tax treaties and domestic law benefits can be applied selectively to different streams of income.

Case Details

Case Title: Atyant Capital India Fund  Versus Asst. Director Of Income Tax, International Tax

Case No.: ITA No.573/MUM/2024

Date: 28/08/2025 

Counsel For Appellant: Sunil M Lala, A.N. Shah

Counsel For Respondent: Satya Pal Kumar

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