Case: ACIT (International Taxation) v. Wexford Spectrum Investors Mauritius Limited
Cross-Objection: Wexford Spectrum Investors Mauritius Limited v. ACIT (International Taxation)
Tribunal: Income Tax Appellate Tribunal, Mumbai, “I” Bench
Appeal No.: ITA No. 1914/Mum/2026
Cross-Objection No.: C.O. No. 155/Mum/2026
Assessment Year: 2015–16
Coram: Smt. Beena Pillai, Judicial Member & Shri Arun Khodpia, Accountant Member
Date of Pronouncement: 10 August 2026
Website Post
The Income Tax Appellate Tribunal, Mumbai, in ACIT (International Taxation) v. Wexford Spectrum Investors Mauritius Limited, has reaffirmed an important principle concerning the interaction between the Income-tax Act, 1961 and the India-Mauritius Double Taxation Avoidance Agreement. The Tribunal held that brought-forward capital losses need not be compulsorily set off against capital gains which are not taxable in India because the assessee has validly chosen the beneficial provisions of the applicable DTAA.
Background of the Case
Wexford Spectrum Investors Mauritius Limited is a company incorporated in and tax resident of Mauritius. For Assessment Year 2015–16, it declared total income at NIL and claimed treaty protection in respect of capital gains under Article 13 of the India-Mauritius DTAA.
During the relevant financial year, the assessee earned net short-term capital gains of ₹7.40 crore and net long-term capital gains of ₹18.12 crore, aggregating to approximately ₹25.53 crore. The assessee claimed that these capital gains were not taxable in India under the treaty and therefore did not set off its brought-forward short-term capital losses against such gains. The original assessment under Section 143(3) accepted this position and allowed the losses to be carried forward.
Reassessment and AO’s Adjustment
The case was subsequently reopened under Section 148. In reassessment, the Assessing Officer proposed to adjust brought-forward short-term capital losses of approximately ₹18.73 crore against the current-year capital gains of approximately ₹25.53 crore.
The assessee maintained that since the entire capital gains were outside the Indian tax net under Article 13 of the India-Mauritius DTAA, there was no requirement to absorb earlier capital losses against such non-taxable gains. Nevertheless, the AO made the adjustment, though the assessed total income remained NIL.
CIT(A) Accepts Assessee’s Position
The CIT(A) accepted the assessee’s contention that each assessment year is an independent unit and that Section 90(2) permits an assessee to choose between the provisions of the Income-tax Act and the applicable DTAA, depending upon which is more beneficial.
The CIT(A) relied upon earlier decisions including DCIT v. Patni Computer Systems Ltd., Flagship Indian Investment Co. (Mauritius) Ltd. v. ADIT (IT), Goldman Sachs Investments (Mauritius) Ltd. and J.P. Morgan Indian Investment Co. Ltd..
The appellate authority concluded that where capital gains are not taxable in India because the assessee has opted for treaty protection, brought-forward capital losses are not required to be notionally set off against those treaty-exempt gains merely because Section 74 governs the carry forward of capital losses under domestic law.
Assessee Can Choose Act or DTAA Independently for Each Year
The ITAT endorsed the principle that every assessment year constitutes an independent unit for determining whether the provisions of the Income-tax Act or the applicable tax treaty are more beneficial to the assessee.
The Tribunal observed that there is no statutory prohibition preventing an assessee from relying upon domestic law in one year and claiming treaty protection in another year, depending upon the applicable facts and legal position.
Accordingly, treaty provisions cannot be compulsorily thrust upon an assessee in a year in which domestic law is more beneficial, and equally, where treaty provisions are chosen in a subsequent year, valid losses determined and carried forward under the Income-tax Act in earlier years do not automatically lose their character.
DTAA-Exempt Capital Gains Are Outside the Indian Tax Computation
A central principle emerging from the ruling is that where India has given up its taxing right over a particular category of income under an applicable DTAA, such income does not first have to be brought into the domestic computation merely for the purpose of absorbing brought-forward losses.
The decisions relied upon by the CIT(A), and accepted by the Tribunal, recognise that where capital gains are not taxable in India under Article 13 of the India-Mauritius DTAA, the question of setting off earlier capital losses against such non-taxable gains does not arise.
Therefore, capital losses that were validly determined and allowed to be carried forward in earlier assessment years remain available for carry forward to subsequent years, subject to the statutory conditions governing such losses.
Section 74 Cannot Be Applied in Isolation
The Revenue argued that the India-Mauritius DTAA contains no provision governing carry forward of losses and therefore Section 74 of the Income-tax Act must apply in its entirety. According to the Department, brought-forward short-term capital losses were first required to be adjusted against available short-term or long-term capital gains before being carried forward further.
The Tribunal did not accept this proposition. It found that the CIT(A)’s decision was supported by binding and persuasive judicial precedents and that the Revenue had neither demonstrated any factual distinction nor produced any contrary judicial authority warranting interference.
Accordingly, the ITAT found no infirmity in the CIT(A)’s order and dismissed the Revenue’s appeal on merits.
Cross-Objection on Reassessment Became Academic
The assessee had also filed a cross-objection challenging the validity of the reassessment proceedings.
Since the Revenue’s appeal was dismissed on merits and the assessee succeeded on the substantive issue concerning carry forward of losses, the Tribunal held that the reassessment challenge did not require separate adjudication and had become academic.
The cross-objection was therefore dismissed as infructuous.
Final Decision
The ITAT affirmed the order of the CIT(A) and dismissed all grounds raised by the Revenue. As a consequence, the assessee remained entitled to carry forward the brought-forward short-term capital losses without setting them off against capital gains which were not taxable in India under the India-Mauritius DTAA.
The Revenue’s appeal in ITA No. 1914/Mum/2026 was dismissed, while the assessee’s cross-objection in C.O. No. 155/Mum/2026 was dismissed as infructuous.
Why This Judgment Matters
The ruling is relevant for foreign investors, international tax professionals and multinational groups dealing with capital gains under India’s tax treaties. It reinforces the principle that treaty-exempt income does not necessarily have to absorb brought-forward domestic capital losses and confirms that the beneficial option under Section 90(2) may be exercised independently for each assessment year.
The decision is particularly relevant for Advocates, Chartered Accountants, international tax advisers, investment funds, foreign portfolio investors and corporate tax teams dealing with treaty relief, capital gains computation and carry forward of losses.