On 4th October 2024, the Hon’ble Supreme Court of India dismissed a Special Leave Petition (‘SLP’) filed by Johnson Matthey Public Limited Company, a UK company, challenging the decision of Hon’ble High Court of Delhi passed on 28th May 2024.
Delhi High Court had dismissed the Assessee’s appeal and had held that the guarantee charges received by it from the Indian subsidiaries for guaranteed repayment of debts owed to third parties by the said subsidiaries accrued in India and hence, taxable in India as per Article 23(3) of India-UK DTAA (DTAA). It was stated that as Assessee had not extended any credit or lent capital to its Indian subsidiaries, the guarantee charges would not qualify as ‘interest’ under Article 12(5) of the DTAA.
The Supreme Court’s dismissal of the SLP validates the argument that the guarantee fee does not have characteristics of interest. However, whether tax treatment for guarantee fees can be as per article 7 of India-UK DTAA, i.e. business profit, still remains to be concluded and open for any alternative approach.
