Case Law Details
CIT (IT) – 2 Vs HSBC Bank (Mauritius) Ltd. (Bombay High Court)
In a significant judgment, the Bombay High Court has ruled in favor of HSBC Bank Mauritius Ltd., holding that as a bona fide banking business in Mauritius, it is exempt from tax in India. This decision pertains to the Assessment Year 2011-12 and stems from an appeal under Section 260A of the Income Tax Act, 1961 against an order by the Income Tax Appellate Tribunal (ITAT). The case, CIT (IT) – 2 Vs HSBC Bank (Mauritius) Ltd., has far-reaching implications for foreign institutional investors and the interpretation of Double Taxation Avoidance Agreements (DTAAs).
Detailed Analysis
The core issue revolves around the exemption claimed by HSBC Mauritius on its interest income from securities in India under the Indo-Mauritius DTAA. The Assessing Officer (AO) initially rejected this claim, not recognizing the bank’s interest income from securities as exempt under the DTAA, while accepting the exemption for interest from External Commercial Borrowings (ECB) acknowledging the bank’s bona fide banking activities in Mauritius.
The Dispute Resolution Panel (DRP) upheld the AO’s decision, leading to an appeal to the ITAT, which eventually ruled in favor of HSBC Mauritius. The ITAT’s ruling, based on Clause (c) of Article 11(3) of the DTAA, recognized that interest income earned by a bank conducting bona fide banking activities in Mauritius is exempt from tax in India. The Bombay High Court, in dismissing the appeal by the tax authorities, affirmed this position, clarifying that the requirement for a banking license from the Reserve Bank of India (RBI) is not applicable for the exemption under the DTAA.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
Author Bio
