ITAT holds that where an assessee chooses treaty exemption on capital gains in a later year, it does not affect the right to carry forward capital losses computed under domestic law in earlier years.
Meetu Kumari | Oct 27, 2025 |
ITAT Allows Carry Forward of Capital Losses Despite Exemption of Gains under India-Singapore DTAA
The assessee, a Singapore-based firm registered with SEBI as Foreign Portfolio Investor, returned for AY 2016–17 reporting income of Rs. 13,160/- and for AY 2021-22 reporting Rs. 905,85,15,780/-. During FY relevant to AY 2016-17, the assessee earned Short-Term Capital Gains of Rs. 8,88,94,64,645/- and Long-Term Capital Gains of Rs. 13,18,92,948/- and claimed both as exempt under Article 13 of the India-Singapore DTAA. It had also incurred Long-Term Capital Loss of Rs. 3,76,20,674/- and Short-Term Capital Loss brought forward from AY 2014-15 amounting to Rs. 37,55,67,388/-.
The AO held that if gains are exempt under the treaty, losses too must be treated as exempt, and therefore denied the carry-forward of the brought-forward Short-Term Capital Loss by setting it off against the exempt gains. The CIT(A) affirmed this view. The assessee contended that the eligibility to carry forward those losses had already been determined in AY 2014-15 when they were computed under the Act, and that such eligibility could not be negated merely because a treaty benefit was availed in a subsequent year.
Issue Raised: Whether capital losses computed and carried forward under the Income-tax Act can be denied in a later year on the ground that capital gains of that year are exempt under Article 13 of the India-Singapore DTAA.
ITAT’s Decision: The Tribunal observed that when the assessee opted to be governed by the Act in AY 2014-15, the right to carry forward losses was determined in that year and could not be withdrawn later merely because treaty benefits were claimed. It noted that the coordinate benches in similar matters had consistently held that under section 90(2) the assessee is entitled to adopt whichever provision, Act or DTAA is more beneficial in a given year.
Once gains are exempt under the treaty, there is no question of setting off earlier losses against such exempt gains. Therefore, the Tribunal held that the Assessing Officer and the CIT(A) erred in denying the carry forward of the brought-forward Short-Term Capital Loss of Rs. 37,55,67,388/- for AY 2016-17. It ruled that the denial for AY 2021-22 also could not be sustained. Both appeals were therefore allowed.
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