Re: typical desi problem !! solutions ?
I can appreciate it’s a tricky situation for you 
I would not recommend telling her directly exactly for the reason you menioned: she’ll probably get offended. Let your mum talk to the couple regarding moving upstairs. She seems like she does want to move so I guess it’s something she’ll have to persuade her husband about.
As for what you should do, I’d advise just remaining civil and friendly towards her. I can appreciate you feel like your mum’s being treated unjustly but when you talk to your babhi try not to let your frustrations show (It’ll be difficult I know). Just let her be. I’d still advise maintaining a loving and kind manner towards her as I mentioned in my first post. Inshallah things will work out.