Long-term capital loss carry-forward depends on separate income streams; dividend income cannot be adjusted against such loss.

Treaty protection for grandfathered long-term capital gains under the India-Mauritius DTAA did not affect the separate statutory treatment of long-term capital loss arising from shares acquired after 1 April 2017. The transactions were treated as distinct streams of income, so the loss remained eligible for carry forward under section 74 of the Income-tax Act in accordance with the domestic set-off scheme. Dividend income assessable under the head income from other sources could not be adjusted against that long-term capital loss, because such loss is set off only against long-term capital gains. The domestic law and treaty position were applied separately to the different income streams.

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Issues: Whether long-term capital loss arising from shares acquired after 1 April 2017 could be carried forward under section 74 of the Income-tax Act, 1961, and whether dividend income assessable under the head income from other sources could be adjusted against such loss, where long-term capital gains from grandfathered shares had been treated as exempt under the India-Mauritius DTAA.

Analysis: The assessee's exempt long-term capital gains related to shares acquired before 1 April 2017, which were covered by the grandfathering protection under Article 13(4) of the India-Mauritius DTAA. The loss for which carry forward was claimed arose from a separate set of shares acquired after 1 April 2017, and the resulting net long-term capital loss was computed under section 74 of the Income-tax Act, 1961. The relevant transactions were held to be distinct sources of income, and the treaty benefit available for one stream could not defeat the statutory carry forward entitlement for another distinct stream. The dividend income declared under the head income from other sources was also not liable to be adjusted against long-term capital loss, because such loss can be set off only against long-term capital gains.

Conclusion: The assessee was entitled to carry forward the long-term capital loss under section 74, and the adjustment of dividend income against that loss was impermissible.

Ratio Decidendi: For the purposes of section 90(2), treaty benefits and domestic-law treatment apply to distinct streams of income separately, and long-term capital loss can be carried forward under section 74 only in accordance with the statutory scheme of set-off against long-term capital gains.

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