Mauritius tax residency certificate accepted for treaty benefit; section 234B interest disallowed for non-resident interest income.

A Mauritian tax residency certificate, read with the applicable CBDT circular, was treated as sufficient evidence of residence and beneficial ownership for treaty purposes, so the interest income qualified for exemption under Article 11(3)(c) of the India-Mauritius tax treaty. The Tribunal also held that once the income was not taxable in India and tax was deductible at source, interest under section 234B could not be levied on the non-resident payee. The treaty benefit and the consequential challenge to interest liability were therefore accepted, while the Revenue's cross-objection failed.

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Issues: (i) Whether the assessee was the beneficial owner of the interest income so as to qualify for exemption under Article 11(3)(c) of the India-Mauritius tax treaty; (ii) Whether interest under section 234B could be levied on the non-resident assessee.

Issue (i): Whether the assessee was the beneficial owner of the interest income so as to qualify for exemption under Article 11(3)(c) of the India-Mauritius tax treaty.

Analysis: The assessee was a Mauritius tax resident and held a Tax Residency Certificate issued by the Mauritian authorities. The CBDT circular clarified that such a certificate constitutes sufficient evidence not only of residence but also of beneficial ownership for applying the India-Mauritius tax treaty. The Tribunal applied that circular to the interest income in question and followed its earlier coordinate-bench decision in the assessee's own case, holding that the treaty benefit could not be denied merely on the reasoning adopted by the lower authorities.

Conclusion: The assessee was held to be the beneficial owner of the interest income, and the income was not taxable in India under Article 11(3)(c).

Issue (ii): Whether interest under section 234B could be levied on the non-resident assessee.

Analysis: Once the income itself was held not taxable in India and was subject to withholding framework, the levy of interest for failure to pay advance tax did not survive. The Tribunal followed the jurisdictional principle that where the payer is obliged to deduct tax at source, no interest under section 234B can be imposed on the payee for such income.

Conclusion: Interest under section 234B was not leviable on the assessee.

Final Conclusion: The assessee succeeded on the substantive treaty issue and the consequential interest issue, while the Revenue's cross-objection failed.

Ratio Decidendi: A Mauritian tax residency certificate, read with the applicable CBDT circular, is sufficient evidence of beneficial ownership for treaty purposes in the absence of contrary material, and where tax is deductible at source on the payer, interest under section 234B cannot be levied on the non-resident payee for the same income.

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