Delhi High Court upheld the decision of the Delhi bench of the Tribunal
The Delhi High Court issued a decision on the taxability of guarantee charges received by a foreign company from its Indian subsidiaries. These charges are paid to the foreign company for providing a guarantee to foreign banks for a loan facility extended to its Indian subsidiaries.
The court upheld the decision of the Delhi bench of the Tribunal, stating that the guarantee charges are not considered “interest” as the foreign company receiving the charges is not a party to the loan agreement. It also determined that the charges arose in India, as the obligation to pay the charges was incurred in India and the services were utilized in India.
However, the court did not address whether the guarantee charges could be considered business income for the purposes of the tax treaty.
The case is: Johnson Matthey Public Limited Company v. CIT
Read a June 2024 report prepared by the KPMG member firm in India