Treaty exemption for Mauritius resident banks covers Indian interest income without an Indian banking licence or local operations.

Interest income arising in India was treated as exempt under Article 11(3)(c) of the India-Mauritius DTAA where the recipient was a Mauritius resident bank carrying on bona fide banking business. The exemption did not depend on the bank holding a Reserve Bank of India banking licence or on having banking activity in India. On the stated facts, the bank's treaty residence and bona fide banking status were sufficient, and the Indian-source interest fell within the treaty exclusion from tax.

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Issues: Whether interest income earned in India by a Mauritius resident bank carrying on bona fide banking business in Mauritius was exempt under Article 11(3)(c) of the India-Mauritius Double Taxation Avoidance Agreement despite the absence of a banking licence from the Reserve Bank of India and the absence of banking activity in India.

Analysis: The exemption under Article 11(3)(c) applied where the recipient was a bank carrying on bona fide banking business and was a resident of Mauritius. The provision did not require the bank to carry on banking business in India or to hold a banking licence from the Reserve Bank of India. The assessee's status as a bona fide banking business resident in Mauritius was accepted, and the interest arising in India was therefore covered by the treaty exemption.

Conclusion: The interest income was exempt from tax in India under Article 11(3)(c), and the Revenue's challenge failed.

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