Streaming Video Content/Conversion - MacBook Pro (iTunes) to Apple TV [.MKV to .M4V]
MKV and MP4 are not video format, they are containers. An MKV can contain any type of video/audio stream.

Most of the time, MKV contains H264/AC3 DTS (video/audio; the most common format in blu-ray).

The official specification of MP4 do not allow the AC3 format for the audio channel, but the H264 format is possible for the video. Thus, you can convert losslessly an MKV to an MP4, for the video channel only. The audio channel will have to be re-encoded

I recommend using ffmpeg (a command-line tool) to achieve this goal.

Note: You can try and create an MP4 containing AC3, but I don't think it will work in iTunes or the Apple TV, even though players like MPlayerX or VLC will be able to play them.