Introduction
Permanent establishment has been a core conceptual foundation of international tax policy and law for many decades. The contours of the concept and its implications have been discussed, debated, and dissected across jurisdictions for a long time. The judicial review of the concept, however, continues to add life and breath to the contemporary appreciation of the concept of permanent establishment, notwithstanding its long incumbency in the international tax regime. In a recent decision in Hyatt International Southwest Asia Ltd. v. CIT1, the Supreme Court of India revisited the concept of “fixed place”. The decision comes at a critical juncture, given that the attempts for progressive expansion of international tax law (under the two-pillar umbrella) have reached a stalemate, and thus there is pressure to invoke the existing rules to address the contemporary economic developments. This article sketches the past and present of fixed place permanent establishment concept and seeks to extrapolate its likely ramifications in context of an allied development wherein foreign lawyers and law firms have been permitted to operate in India and carry out their economic activities therein.
Contextualising fixed place permanent establishment
The traditional framework of the international tax system addresses the respective taxation rights of tax treaty partner countries by distinguishing between “residence” and “source” countries, determined on the basis of the residential status of the taxpayer in accordance with the rules delineated in the bilateral tax treaty (i.e. Double Taxation Avoidance Agreement or DTAA) between the relevant countries. Regarding the importance of permanent establishment concept as a cornerstone in establishing and distributing taxation rights amongst these countries, it is iterated that “[t]he concept of permanent establishment constitutes the most important threshold for source State taxation and services to simplify and facilitate the taxation of cross-border activities and related business profits, as well as to maintain a practicable allocation of taxing rights between States”.2
Across the various species of permanent establishments (PE), such as agency PE, service PE, construction PE, etc., the “fixed place” test stands out as the most commonly employed criteria for the constitution of a PE. At its core, the fixed place test implies the existence of a “fixed place” of a non-resident entity in the source country from which the business of such entity is carried out in such country. On such a premise being satisfied, such a fixed place is considered as an extended arm of the non-resident’s business in the source country and is accordingly taxed in such country.
In an earlier, albeit landmark decision in Formula One World Championship Ltd. v. CIT3, the Supreme Court of India had an occasion to deep dive into the meaning of “fixed place” qua the formulation and existence of permanent establishment of a non-resident in India and expounded pivotal concepts to determine the existence of such fixed place. The relevant observations of the decision state:
30. … It is universally accepted that for ascertaining whether there is a fixed place or not, PE must have three characteristics: stability, productivity, and dependence. Further, a fixed place of business connotes existence of a physical location that is at the disposal of the enterprise through which the business is carried on.
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33. The principal test, in order to ascertain whether an establishment has a fixed place of business or not, is that such physically located premises must be “at the disposal” of the enterprise. For this purpose, it is not necessary that the premises are owned or even rented by the enterprise. It will be sufficient if the premises are put at the disposal of the enterprise. However, merely giving access to such a place to the enterprise for the purposes of the project would not suffice. The place would be treated as “at the disposal” of the enterprise when the enterprise has the right to use the said place and has control thereupon.
Thus, while entailing three tests for constitution of a fixed place as PE i.e., stability, productivity, and dependence, the Supreme Court has nonetheless evolved an overarching test of “disposal”, to determine if in a given fact the non-resident has a fixed place of business in India i.e., when there is a place which is “at the disposal” of such non-resident.
Furthermore, given that most bilateral tax treaties link fixed place PE to a “place of business”, the aforesaid decision4 extensively examines leading treatises on the concept of PE and takes note of the Commentary to its Model Double Tax Convention issued by the OECD5, to explain its generally understood meaning inter alia in the following terms:
40. The term “place of business” is explained as covering any premises, facilities, or installations used for carrying on the business of the enterprise, whether or not they are used exclusively for that purpose. It is clarified that a place of business may also exist where no premises are available or required for carrying on the business of the enterprise, and it simply has a certain amount of space at its disposal. Further, it is immaterial whether the premises, facilities, or installations are owned or rented by or are otherwise at the disposal of the enterprise. A certain amount of space at the disposal of the enterprise, which is used for business activities, is sufficient to constitute a place of business. No formal legal right to use that place is required. Thus, where an enterprise illegally occupies a certain location where it carries on its business, that would also constitute a PE. Some of the examples where premises are treated at the disposal of the enterprise and therefore, constitute PE are: a place of business may thus be constituted by a pitch in a marketplace, or by a certain permanently used area in a customs depot (e.g., for the storage of dutiable goods). Again, the place of business may be situated in the business facilities of another enterprise. This may be the case, for instance, where the foreign enterprise has at its constant disposal certain premises or a part thereof owned by the other enterprise. At the same time, it is also clarified that the mere presence of an enterprise at a particular location does not necessarily mean that the location is at the disposal of that enterprise.
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42. It also states that the words “through which” must be given a wide meaning so as to apply to any situation where business activities are carried on at a particular location that is at the disposal of the enterprise for that purpose. For this reason, an enterprise engaged in paving a road will be considered to be carrying on its business “through” the location where this activity takes place.
Thus, according to the Supreme Court, there are certain vital parameters which need to be validated before a fixed place PE is considered to exist; there is no need for the non-resident to hold a formal legal right over a place but if indeed a place is available exclusively at the disposal of the non-resident from where business is carried out by the non-resident then such a place would be considered as fixed place of business of the non-resident.
Qua the temporal characteristics i.e., time for which the place is at the disposal of the non-resident entity, it is interesting to note that in this case6, the Supreme Court concluded that Formula One World Championship, the organising agency of Formula One race in India, had a fixed place of business in India i.e., the racing circuit in India, which was held to be exclusively at its disposal, even though the racing circuit was at its disposal only for three days in a year.
Dispute before the Supreme Court in Hyatt International case
In the case at hand, the issue arose out of the “Strategic Oversight Services Agreement” (SOSA) executed between Hyatt International (HI) — a UAE tax resident — and an Indian entity owing hotels in India. As recorded in the decision7, in terms of the agreement, HI “agreed to provide strategic planning services and ‘know-how’ to ensure that the hotel was developed and operated as an efficient and high-quality international full-service hotel”.
HI adopted a position that it was not required to pay tax in India because “its income was not taxable under the (domestic law) as there was no specific article under the DTAA for taxing fees for technical services …, it did not have any fixed place of business, office or branch in India, and that the presence of its employees in India during the relevant previous year did not exceed the nine-month threshold under Article 5(2)8 of the DTAA”. In brief, HI claimed that it was not taxable as it did not have a PE in India. Its tax position, however, was not accepted; the adjudication order concluded that HI’s income was taxable in India as it had a PE, which order was upheld by the Appellate Tribunal and subsequently also by the High Court. All these forums relied upon the decision in the Formula One case9 to conclude against HI.
In an appeal before the Supreme Court, HI canvassed that while “SOSA explicitly stipulates that (HI) shall render its services from Dubai and is not obligated to send or station any employee in India… (SOSA) permits at the (HI’s) sole discretion, occasional and temporary visits by its employees to India;” furthermore, the “limited and occasional presence of its employees in India, did not exceed the threshold of nine months under Article 5(2)(i) of the DTAA, thereby excluding the existence of a PE”. Refuting the conclusions of the lower forums, it was argued by HI that Formula One case10 does not apply because “there was no designated space or office at the hotel premises … that was either specifically reserved for or placed at the disposal of the appellant”; HI “exercised no control or dominion over any part of the premises. Mere involvement in policy decisions or enforcement of brand standards does not amount to a fixed place of business PE. Ownership and operational control of the hotel remained entirely with the Indian entity, as reaffirmed by” the SOSA.
It was further contended by HI that its role under SOSA “was limited to strategic guidance, brand compliance, and long-term planning”; “day-to-day operations of the hotel were carried out by Indian entities, and HI “had no involvement in such daily management”. On a factual front, HI exhibited that even though six of its employees visited India and stayed at the hotel premises during the relevant years, their visits “were brief and routine in nature and the same executives visited other Hyatt hotels across India, including those in Goa, Bengaluru, Kochi and Chennai. These oversight visits were intended to ensure brand uniformity and quality compliance. The short duration spread across multiple locations, and lack of exclusive use or control over any space do not satisfy the legal requirement of a fixed place of business PE”. Seeking to contextualise the decision in Formula One case11, HI submitted that ”the High Court incorrectly inferred that the absence of an express prohibition in the SOSA on decision-making by (HI’s) employees during their stay at the hotel implies a right of disposal. In law, a fixed place of business PE cannot be presumed from the mere absence of a restriction; there must be an affirmative grant of a right to use a specific physical location to carry on the enterprise’s own business”.
The submissions of HI were intensely resisted by the Revenue which claimed that HI’s “role extended beyond high-level policy formulation and into the domain of actual implementation”; it “was involved in the appointment and training of staff, monitoring daily operations, exercising financial oversight, and influencing procurement and operational decisions — all of which demonstrate managerial and functional control, particularly through the General Manager, who reported to” HI.
Substantiating its claim, the Revenue relied upon documentary evidence “which include records of names, roles and durations of stay” of HI’s employees posted at the Indian hotel, some of whom “remained in India for up to nine months and were involved in substantive hotel operations, clearly indicating operational presence in line with the terms of the SOSA” to contend that HI “had full and effective control over the hotel premises and that the premises were indeed at its disposal for conducting its business”.
The Revenue further pleaded that HI satisfied the tests for fixed place PE laid down in Formula One case12 because HI “has entered into a long-term agreement (20 years) under which it enjoys broad and continued control over the hotel’s key functions, including staffing, operations, strategic policy, and financial oversight. This arrangement reflects the three core characteristics of a PE: stability (20-year term), productivity (fee linked to business outcomes), and dependence (reliance on hotel infrastructure and staff to carry out its business)”.
Supreme Court decision in Hyatt International case and its implications
Affirming the judgment of the High Court13 and applying the Formula One14 test, the Supreme Court in its decision was unequivocal that HI did have a PE in India, which was taxable under the domestic law. Considering the breadth of the decision of the Supreme Court and its implications, it is expedient to appreciate it under distinct segments.
(A) Enlisting factual variables that influence the evaluation of PE’s existence and their implications
In concluding that HI did have a PE in India, the Supreme Court traversed through a varied mix of evidentiary material presented to it. The relevant underpinnings arising from the decision indicate the variables which can be considered as factual indicators towards determining if indeed a fixed place PE exists in a given set of circumstances. Some of these variables which can be culled out from the decision are as follows:15
(i) Qua accessibility, the decision highlights that under SOSA, “if the hotel owner desires to obtain financial assistance for the construction or refinancing of the hotel — or if the hotel is to be used as collateral for any borrowing unrelated to the hotel business — the owner is required to obtain a non-disturbance and attornment agreement from the lender, which must be acceptable to the assessee”. According to the Supreme Court, this provision indicated that HI “can perform its obligation under the SOSA and realise its fees without interference”.
(ii) Qua durability, the decision emphasises that “SOSA is to remain in force for a term of twenty years from the effective date, with a possibility of extension by ten years through mutual agreement”, indicating substantial permanence.
(iii) Qua entitlement of HI, the decision underscores multiple facts vis-à-vis the Indian hotel owners viz: (a) the hotel was to be operated in accordance with standards comparable to those prevailing in international hotels operated by HI and its subsidiaries; (b) HI “is responsible for providing strategic plans, policies, procedures and guidelines to ensure adherence to the ‘Hyatt Operating Standards’”; (c) upon HI there “is also an obligation to use reasonable efforts to avoid conflicts between Hyatt branded hotels and the subject hotel”; (d) in terms of SOSA, HI “is vested with complete control and discretion in formulating and establishing the strategic plan for all aspects of hotel operations, including branding, marketing, product development and daily operations”; (e) SOSA empowers HI “to assign employees (either its own or its affiliates) to India without needing prior approval from the hotel owner or management”. Furthermore, under SOSA, HI is; (f) “responsible for formulating policies relating to human resources, procurement, guest admittance, use of premises, pricing, sales & marketing and reservations”; (g) HI is authorised to “formulate policies governing the hotel’s operating bank accounts”; and also (h) HI is authorised to “identify, recruit and assist in appointing non-local hotel employees — including the General Manager, key personnel, and members of the Executive Committee — on behalf of the hotel owner”. In addition, HI is “further required to align the hotel’s human resource policies with Hyatt Operating Standards. It may also temporarily assign its own employees to serve as full-time executive staff at the hotel”.
It is also relevant to note that — qua remuneration earned by HI — the Supreme Court emphasised that it was not earning a “fixed fee” and instead it’s entitlement was “calculated as a percentage of room revenue and other revenues and income — whether directly or indirectly derived from the hotel’s operations — as well as cumulative gross operating profit”. According to the Supreme Court, this “remuneration structure clearly reflects an active commercial involvement, linking (HI’s) income to the financial and operational performance of the hotel”. Therefore, the Supreme Court tied the manner of computing consideration for services as an indicator to assess the benefits available to the non-resident entity and the nature of its business interests in India.
On these facts, the Supreme Court concluded that “it is evident that (HI’s) role was not confined to mere policy formulation. On the contrary, the SOSA conferred upon (HI) a continuing and enforceable right to implement its policies and ensure compliance in all operational aspects of the hotel. The degree of control and supervision exercised by (HI) clearly transcends a mere advisory capacity and aligns with the criteria for a fixed place permanent establishment (PE) under Article 5(1) of the India — UAE DTAA”.
The aforesaid aspects reveal the implicit conclusion of the Supreme Court that there is a vital distinction between advisory and executionary functions; the latter being constructed as a business activity of a non-resident entity in India, which can result into the constitution of its PE (particularly fixed place PE) in India.
More critically, the decision reveals that active business interest in a third-party’s business in India can be construed as an independent business of a non-resident entity in India, so much so that it can result in a PE of the non-resident entity in India.
(B) Extrapolating the “disposal test”
The Supreme Court in this decision has endorsed and exalted the application of the “disposal test” which was expounded as the pivotal determinant in the Formula One case16 to examine the existence of a fixed place PE in India. On this aspect, the decision reaffirms that disposal test requires that the non-resident entity “must have a right to use the premises in such a way that enables it to carry on its business activities” but, simultaneously, has also qualified its application by declaring that the disposal test “is to be applied contextually, taking into account the commercial and operational realities of the arrangement” of the non-resident entity and its business operations in India.17
While ruling out from the coverage of fixed place PE those establishments in India of non-residents entities which “performed only preparatory and auxiliary activities, and there was no right of disposal or control over a fixed placed through which core business was carried on”,18 qua the fixed PE determination, the decision of the Supreme Court in Hyatt International case19 sets out the following legal standard:
15. … There is no straitjacket formula applicable to all cases. Typically, trading operations require a continuously used fixed place, whereas service-oriented businesses may not. Some jurisdictions consider mere use of a place sufficient, while others require legal or operational control over the premises. In our view, 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.
According to the Supreme Court, this is a globally accepted position as well, given that even the OECD “does not rigidly define this test but provides illustrative examples”.
On facts of HI, according to the Supreme Court, these tests are satisfied, chiefly because of the following aspects:
16. … a detailed review of the SOSA executed between (HI) and (Indian hotel owners) demonstrates that the appellant exercised pervasive and enforceable control over the hotel’s strategic, operational, and financial dimensions. Specifically, the agreement vested (HI) with powers to:
(i) appoint and supervise the General Manager and other key personnel;
(ii) implement human resource and procurement policies;
(iii) control pricing, branding, and marketing strategies;
(iv) manage operational bank accounts; and
(v) assign personnel to the hotel without requiring the owner’s consent.20
These rights go well beyond mere consultancy and indicate that (HI) was an active participant in the core operational activities of the hotel.
Thus, the decision of the Supreme Court in this case extrapolates and explains the manner of applying the Formula One case21 “disposal test” to determine the existence of fixed place PE in the Indian domestic law and DTAA context.
(C) Implications qua latitude to refer OECD Model
At a different level, the decision is also instructive in a sense that it inter alia reviews and contradistinguishes the OECD Model Double Taxation Convention with the tax treaty provision in question, as also the domestic law definition of “permanent establishment”22 in order to appreciate the scope of the concept.23 Certain aspects which emerge from this section of the decision are: (i) reference to OECD Model, and its comparison with relevant Indian DTAA, is a permission interpretative tool to explore the contours of the DTAA; (ii) even though the Indian DTAA may pre-date it, nonetheless comparison with the incumbent OECD Model may be permitted;24 and (iii) the OECD Model can be considered as providing guidance on the tax treaty architecture, given that the decision concludes that the underlying thrust in the OECD Model qua PE is that there is “an inclusive yet exhaustive definitions of PE, with the precise scope depending upon the terms of the bilateral DTAA”.
It is interesting to note that the decision makes reference to OECD Model because earlier a three-Judge Bench of the Supreme Court, albeit acknowledging Indian DTAAs generally “have, as their starting point, either the OECD Model Tax Convention on Income and Capital25 and/or the United Nations Model Double Taxation Convention between Developed and Developing Countries26”, yet disassociated with referring to OECD Model and its Commentary as the basis to interpret the DTAAs.27 To converge both the decisions, the legal position which perhaps ebbs therefrom is that the OECD Model may be a pivotal point of comparison to contradistinguish the salient features of the Indian DTAA in question, though the former not being in any manner determinative (or having any bearing on the interpretation) of the latter’s contents.
Impact on imminent arrival of foreign law firms in India
The decision comes close to the heels of the Bar Council of India (BCI) opening up the Indian legal sector to foreign lawyers and law firms (collectively referred to as “foreign law firms”) to carry out their professional activities in India.28 The BCI Regulations stipulate the modalities and conditions within which the foreign law firms can carry out their professional activities in India. Inter alia, Regulation 929 permits foreign law firms to “open a law office or offices in India for carrying on law practice in India”. A question which arises, therefore, is whether, in view of this decision of the Supreme Court30, a foreign law firm has a fixed place in India which constitutes a PE so as to render it liable to tax in India. At the outset, it is necessary to clarify that in view of the decisions of the Supreme Court opining that no legal right over the place of business is necessary for a fixed place of business, this question would arise whether or not the foreign law firm chooses to open a law office or, conversely, continues to operate virtually from its offshore location.
The criticality of the aspect — i.e., whether the foreign law firm has a fixed place PE in India — is that if indeed such a PE exists, then the foreign law firm shall be taxed in India. Thus, it becomes very crucial for a foreign law firm to examine the length and breadth of its operations and particularly decide upon its place of operations in India. Both, the decision in Formula One case31 and Hyatt International case32, reveal that the availability of a place at the disposal of the non-resident entity is the quintessential pivot to determine the fixed place PE, hence, non-establishment of an office of its own by the foreign law firm does not have a natural sequitur that the foreign law firm does not have a fixed place PE in India; reliance upon Indian lawyers or temporary place of operations, or any other modality of operation permitted under the BCI Regulations, can nonetheless result into the foreign law firm constituting a fixed place PE in India. At the cost of repetition, it must be unequivocally reconsidered that in Hyatt International case33 the non-resident entity furthering the business interests of Indian entity through the latter’s premises was considered sufficient to constitute a fixed place PE of the former in India, which is in addition to the declaration in Formula One case34 that even an illegal occupation of a place in India by a non-resident can result into its fixed place PE in India.
Determining the exposure on account of the existence of fixed place PE in India is essential for a foreign law firm for a variety of reasons. Some of the key reasons are listed below:
(a) Under the Indian domestic tax laws, a non-resident entity is taxed in India only to the extent of India-sourced income.35 A non-resident’s PE in India constitutes its source of income in India, qua the “business connection” test laid out in the domestic law.36
(b) Conventionally non-resident’s Indian PE income is usually taxed at a higher tax rate than corresponding income of an Indian entity.
(c) What constitutes the income of non-resident’s Indian PE (i.e. share of non-resident’s global income attributable to its Indian PE) is a complex question riddled with extensive subjectivity.37
(d) It is not always a rule that only the income directly attributable to a non-resident’s India PE is alone taxable in India; the “force of attraction” principle38 is often relied upon by the tax administration to bring within the purview of taxation in India income indirectly connected to the PE.39 To that end, the expression “directly or indirectly” attributable, employed in the domestic law40 and also the DTAA41, is relied upon to expand the scope of a non-resident’s taxable income in India.
Therefore, it is clear that the existence of a PE in India attracts severe tax consequences for a non-resident doing business in India.
In fact, the issue of PE taxability is only a sub-set of a wide variety of tax issues that must be considered by foreign law firms in the wake of Indian domestic tax law. To exemplify, the rule determining tax residence of a foreign partnership (which is generally the model adopted by law firms) is overwhelming; a partnership is considered to be tax resident of India “in every case except where during that year the control and management of its affairs is situated wholly outside India”.42
Thus, it is essential for the foreign law firms to undertake due diligence and proper legal advice on the manner of its prospective operations before setting shop in India.
Conclusion
The incumbent rules governing international tax have been in vogue for long, so as to be sufficiently established. However, with a changing business paradigm and the economic fundamentals, a revisit is necessary in order to appreciate the evolving conceptual notions. Furthermore, owing to the stalemate amongst the key stakeholders on the future of two pillar reforms, which sought to address the growing inadequacies of the traditional boundaries of international taxation, there is acute pressure to reappreciate the existing tax treaty networks in order to crystallise the taxing entitlement of the source State. In such a background, the revisit by the tax authorities seeking to expand of the traditionally restricted scope of permanent establishment, which has received judicial vindication, is a clarion call for the international businesses to relook and confirm the tax synergies in their corporate structures. In particular, with the advent of foreign law firms seeking to do business in India, there is a heightened rationale to finesse the revised understanding of the rules governing the existence and taxability of permanent establishments in India.
*Advocate, Supreme Court of India; LLM, London School of Economics; BBA, LLB (Hons.) (Double Gold Medalist), National Law University, Jodhpur. Author can be reached at mailtotarunjain@gmail.com.
2. Roy Rohatgi, On International Taxation: Volume 1: Principles (IBFD, 2018) p. 134.
4. Hyatt International case, 2025 SCC OnLine SC 1506.
5. Philip Baker, Double Taxation Conventions: A manual on OECD Model Tax Convention on Income and on Capital (Issue 26, 2002)
6. Formula One case, (2017) 15 SCC 602.
7. Hyatt International case, 2025 SCC OnLine SC 1506.
8. DTAA — India and UAE, 1992, Art. 5(2).
13. Hyatt International-Southwest Asia Ltd. v. CIT, (2024) 464 ITR 508.
14. Formula One World Championship Ltd. v. CIT, (2017) 15 SCC 602
15. Hyatt International case, 2025 SCC OnLine SC 1506, paras 12-12.3.
17. Hyatt International case, 2025 SCC OnLine SC 1506, para 13.
18. Union of India v. UAE Exchange Centre, (2020) 9 SCC 329.
20. Hyatt International case, 2025 SCC OnLine SC 1506.
22. Income-tax Act, 1961, S. 92-F(iii-a) states that:
92-F. Definitions of certain terms relevant to computation of arm’s length price, etc.— (iii-a) “permanent establishment”, referred to in cl. (iii), includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.
It is pertinent to note that this definition is qua Income-tax Act, 1961, Ch. X (i.e. the domestic law) which contains “special provisions relating to avoidance of tax”, particularly addressing transfer pricing. However, qua regular taxation of India sourced business income of non-resident, the domestic law does not employ the expression “permanent establishment” and instead taxes such income upon existence of a “business connection” of a non-resident in India, vide Income-tax Act, 1961, S. 9(1).
23. Hyatt International case, 2025 SCC OnLine SC 1506, para 11 of the decision is instructive. It states as under:
11. At the outset, it is necessary to analyse the relevant clauses of the DTAA and the SOSA for effective adjudication. The concept of “permanent establishment” is well-defined under Art. 5 of the DTAA, and similar provisions are found in international models such as the UN Model Double Taxation Convention (2021) and the OECD Model Tax Convention (2017). These model conventions provide an inclusive yet exhaustive definitions of PE, with the precise scope depending upon the terms of the bilateral DTAA. Article 5(1) of the India — UAE DTAA defines a PE as “a fixed place of business through which the business of an enterprise is wholly or partly carried on”. This is consistent with the definition provided in Income-tax Act, 1961, S. 92-F(iii-a).
24. In this case the Supreme Court referred to 2017 OECD Model Double Taxation Convention whereas the India-UAE DTAA entered into force in September 1993 and was last modified by way of Indian official notification issued in April 2013.
25. Model Tax Convention on Income and on Capital 2017
26. , 2017.
27. Engg. Analysis Centre of Excellence (P) Ltd. v. CIT, (2021) 432 ITR 471 : (2022) 3 SCC 321, paras 156-177.
28. Ministry of Law and Justice, BCI Rules for Registration and Regulation of Foreign Lawyers or Foreign Law Firms in India, 2022, F. No. BCI:D: 3335/2025 (Notified on 13-5-2025).
29. Ministry of Law and Justice, BCI Rules for Registration and Regulation of Foreign Lawyers or Foreign Law Firms in India, 2022, F. No. BCI:D: 3335/2025, Regulation 9.
30. Hyatt International Southwest Asia Ltd. v. CIT, 2025 SCC OnLine SC 1506
35. Income-tax Act, 1961, S. 5(2).
36. Income-tax Act, 1961, S. 9(1).
37. See generally, Income-tax Rules, 1962, R. 10.
38. See generally, CIT v. Set Satellite (Singapore) Pte. Ltd., (2008) 307 ITR (AT) 181 : 2007 SCC OnLine ITAT 2 which inter alia observes the following to explain the principle:
11. … The basic philosophy underlying a force of attraction rule is that when an enterprise sets up a permanent establishment in other country, it brings itself within the fiscal jurisdiction of that other country to such a degree that such other country can properly tax all profits that the enterprise derives from that country — whether through the permanent establishment or not. Therefore, under the force of attraction rule, mere existence of permanent establishment in other country, leads all profits, which can be said to be derived from that other country, being treated as taxable of that other country. That was the classical force of attraction rule but what is in vogue today is a much improvised and subdued form which restricts application of this rule to few specified areas. Even this subdued and improvised form of force of attraction rule, however, does not find much favour in the contemporary tax treaties, and particularly in OECD Model Convention on which the present tax treaty, in material respects, is based. The expression confining taxability of profits to
“only so much of them as is directly or indirectly attributable to that permanent establishment” only confirm this paradigm feature.…
39. For illustration, see, CIT v. WNS North America Inc., (2014) 30 ITR (Trib) 646 which agrees that “force of attraction” principle applies in context of India-United State DTAA, though is limited in application, inter alia observing as under:
9. The plain reading of Art. 7(1) makes it clear that only in case when enterprise of contracting State carries on business in the other contracting State through its permanent establishment as well as otherwise and both the activities are of same or similar kind then the business activities carried on not through permanent establishment shall also be treated as attributable to the permanent establishment and the profit of the enterprise may be taxed in the other State so much of them as it is attributable to permanent establishment. There is no scope of any ambiguity as the Art. 7(1) gives a clear understanding that the force of attraction rule applied only in respect of the business carried on by an enterprise of contracting State in the other contracting State through permanent establishment as well as without involvement of permanent establishment. Therefore, the two essential conditions emerge for applying the force of attraction rule are: (i) the business activity carried on should be in the other State where the permanent establishment is situated; and (ii) the business activity carried on must be of the same or similar kind as those effected through permanent establishment.…
40. Income-tax Act, 1961, S. 9(1)(i).
41. See generally, Ishikawajma-Harima Heavy Industries Ltd. v. CIT, (2007) 288 ITR 408 : (2007) 3 SCC 481, paras 79-83, in context of DTAA – India and Japan.
