Decoding Taxability Of Guarantee Charges In India

The Delhi High Court in the judgment rendered recently in the case of Johnson Matthey Public Ltd Company vs CIT, International Taxation [2024] 162 taxmann.com 865 (Delhi) has held that guarantee charges received by a non-resident company from Indian subsidiaries for acting as guarantor to various banks to extend credit facilities to said Indian subsidiaries would be taxable in India as ‘Other Income'. The High Court has categorically held that such guarantee charges cannot be said to partake the character of ‘interest' either under section 2(28A) of the Income-tax Act, 1961 (“the Act”) or under Article 12 of the India-UK Double Taxation Avoidance Agreement (“DTAA”). It has further held that such guarantee charges ‘accrue' or ‘arise' in India and thus, the same are taxable in India. The judgment conclusively settles long-standing controversy regarding the character and taxability of ‘guarantee charges' in India, while dwelling upon the all-important aspect of such