Supreme Court: The principle that arose for determination in the present case, was whether Hyatt International Southwest Asia Ltd. (‘Hyatt International’), a tax resident of the UAE, had a Permanent Establishment (‘PE’) in India under Article 5(1) of the Indo-UAE Double Taxation Avoidance Agreement (‘DTAA’), and whether its income derived under the Strategic Oversight Services Agreement (‘SOSA’) was taxable in India. The Division Bench of J.B. Pardiwala and R. Mahadevan*, JJ., stated that a detailed review of the SOSA executed between Hyatt International and Asian Hotels Limited, India (‘AHL’), demonstrated that the Hyatt International exercised pervasive and enforceable control over the hotel’s strategic, operational, and financial dimensions.
The Court stated that Hyatt International’s ability to enforce compliance, oversee operations, and derive profit-linked fees from the hotel’s earnings demonstrated a clear and continuous commercial nexus and control with the hotel’s core functions. Thus, the Court affirmed the findings of the Delhi High Court (‘High Court’), that Hyatt International had a fixed place PE in India within the meaning of Article 5(1) of the DTAA, and the income received under the SOSA was attributable to such PE, therefore taxable in India.
Background
Hyatt International, a company incorporated in Dubai, was a tax resident of UAE under Article 4 of the DTAA. On 4-9-2008, Hyatt International entered two SOSA with AHL, one for Delhi and another for Mumbai. Under the SOSA, Hyatt International agreed to provide strategic planning services and “know-how” to ensure that the hotel was developed and operated as an efficient and a high-quality international full-service hotel. Subsequently, AHL underwent reorganization, and its name was changed to Asian Hotels (North) Limited, which continued to own the hotel. On 18-7-2010, the SOSA was partially amended.
For the relevant assessment years, the Assessing Officer passed assessment orders taxing the hotel related services rendered by Hyatt International, on the ground that it had a Permanent Establishment (PE) in India in the form of a place of business under Article 5(1) of the DTAA. These findings were affirmed by the Income Tax Appellate Tribunal.
Subsequently, the appeals were filed before the High Court, wherein the High Court, at the time of final hearing of the appeals, framed four substantial questions of law, whereby three of them were answered and the fourth question was referred to a Larger Bench. Aggrieved by the finding of the High Court that the Hyatt International had a Permanent Establishment in the form of a place of business in India as contemplated under Article 5(1) of the DTAA, the present appeals were filed.
Analysis, Law, and Decision
The Court stated that under DTAAs, the taxing rights of the source State over the business profits of a foreign enterprise, were contingent upon the existence of a Permanent Establishment in the source country. One of the sine qua non for a fixed place PE is that the place through which the business is carried on must be ‘at the disposal’ of the enterprise, a principle referred to as the “disposal test”.
The Court stated that typically, trading operations require a continuously used fixed place, whereas service-oriented business might not. Some jurisdictions consider mere use of a place sufficient, while others require legal or operational control over the premises. The Court opined that determining whether a Fixed place PE exists must involve a fact-specific inquiry, including the enterprise’s right of disposal over the premises, the degree of control and supervision exercised, and the presence of ownership, management, or operational authority.
The Court stated that in the present case, a detailed review of the SOSA executed between Hyatt International and AHL demonstrated that the Hyatt International exercised pervasive and enforceable control over the hotel’s strategic, operational, and financial dimensions. Specifically, the agreement vested Hyatt International with powers, which indicated that Hyatt International was an active participant in core operational activities of the hotel. The powers include:
- Appoint and supervise the General Manager and other key personnel,
- Implement human resource and procurement policies,
- Control pricing, branding, and marketing strategies,
- Manage operational bank accounts,
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Assign personnel to the hotel without requiring the owner’s consent.
The Court stated that the contention that the absence of an exclusive or designated physical space within the hotel precludes the existence of a PE, was misconceived. The Court relied on Formula One World Championship Ltd v. CIT, (2017) 15 SCC 602, wherein it was held that exclusive possession was not essential, temporary or shared use of space was sufficient, provided business is carried on through that space.
The Court stated that in the present case, the 20-year duration of the SOSA, coupled with the Hyatt International’s continuous and functional presence, satisfied the tests of stability, productivity and dependence. From the nature of functions carried, it could not be said that they were performing merely “auxiliary” functions. Therefore, the hotel premises clearly satisfied the criteria required to be classified as a “fixed place of business” or PE.
The Court further stated that the legal form did not override economic substance in determining PE status. The extent of control, strategic decision-making, and influence exercised by Hyatt International clearly established that business was carried on through the hotel premises, satisfying the conditions under Article 5(1) of DTAA.
The Court observed that it was undisputed that executives and employees of Hyatt International made frequent and regular visits to India to oversee operations and implement the SOSA. The Court stated that once it was found that there was continuity in the business operations, the intermittent presence or return of a particular employee became immaterial and insignificant in determining the existence of a permanent establishment.
The Court stated that Hyatt International’s ability to enforce compliance, oversee operations, and derive profit-linked fees from the hotel’s earnings demonstrated a clear and continuous commercial nexus and control with the hotel’s core functions. This nexus satisfied the conditions necessary for the constitution of a Fixed Place Permanent Establishment under Article 5(1) of the India — UAE DTAA.
Thus, the Court affirmed the findings of the High Court, that Hyatt International had a fixed place PE in India within the meaning of Article 5(1) of the DTAA, and the income received under the SOSA was attributable to such PE, therefore taxable in India.
[Hyatt International Southwest Asia Ltd. v. CIT, 2025 SCC OnLine SC 1506, decided on 24-7-2025]
*Judgment authored by- Justice R. Mahadevan
Advocates who appeared in this case :
For the Appellant: Ujjwal A. Rana, Adv.; Himanshu Mehta, Adv; Gagrat And Co, AOR
For the Respondent: N Venkatraman, A.S.G.; Arijit Prasad, Sr. Adv.; Rupesh Kumar, Sr. Adv.; Raj Bahadur Yadav, AOR; Madhulika Upadhyay, Adv.; Shashank Bajpai, Adv.; V Chandrashekhara Bharathi, Adv.; Santosh Kumar, Adv.; Diwakar Sharma, Adv.