Treaty benefit may apply stream-wise, allowing capital gains exemption while long-term capital loss remains carry-forward eligible.

Section 90(2) permits an assessee to apply the more beneficial treaty or domestic provision on a stream-wise basis, so the India-Mauritius DTAA could exempt short-term capital gains while the Income-tax Act continued to govern carry-forward of long-term capital loss. The treaty allocates taxing rights on capital gains but does not govern computation or set-off, and sections 70 and 74 keep short-term and long-term capital results separate for tax purposes. On that basis, the long-term capital loss remained eligible for carry forward under the Act, and the contrary view was rejected.

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Issues: Whether the assessee was entitled to claim exemption under the India-Mauritius DTAA in respect of short-term capital gains and carry forward long-term capital loss under the Income-tax Act, 1961.

Analysis: The applicable treaty provision allocates taxing rights on capital gains but does not govern the computation or quantification of such gains and losses. Under section 90(2) of the Income-tax Act, 1961, the assessee may rely on the more beneficial provision, and the statutory scheme recognises long-term and short-term capital assets as distinct for computation and set-off purposes. The provisions governing capital gains and losses, including sections 70 and 74, treat short-term and long-term capital results separately, and the identity of each stream is not lost merely because both fall under the common head of capital gains. The selective application of the treaty to exempt short-term capital gains while applying the Act to carry forward long-term capital loss was therefore permissible.

Conclusion: The assessee's claim to carry forward the long-term capital loss was allowed and the contrary view was rejected.

Final Conclusion: The appeal succeeded because the treaty benefit and domestic law relief could be applied to different capital-gain streams, and the long-term capital loss remained eligible for carry forward under the Act.

Ratio Decidendi: Section 90(2) permits an assessee to apply the more beneficial treaty or domestic provision on a stream-wise basis, and long-term capital loss may be carried forward under the Act even where short-term capital gains from a separate stream are exempt under the treaty.

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