The Supreme Court, in a recent judgment in Hyatt International Southwest Asia Ltd v Additional Director of Income Tax, addressed whether a foreign entity providing strategic services to Indian hotels could be said to have a “permanent establishment” in India under article 5 of the India-UAE Double Taxation Avoidance Agreement (DTAA).
Hyatt, a UAE-based company, entered into two strategic oversight services agreements (SOSAs) dated 4 September 2008 with ASL, India – one in respect of the Delhi hotel and the other for the Mumbai hotel. These agreements conferred rights to oversee brand standards, long-term planning and operational strategy.
Hyatt contended that its services were rendered entirely from Dubai, with only brief and incidental visits to India by its personnel. It argued that it had no permanent establishment in India and that its income was not taxable under article 7 of the DTAA. The assessing officer asserted that Hyatt exercised substantive control over hotel operations in India. The SOSAs allowed Hyatt to influence staffing decisions, financial planning and brand implementation. These rights amounted to Hyatt having a place at its disposal in India, thereby satisfying the “fixed place of business” test under article 5 of the DTAA.
The high court accepted this reasoning, holding that Hyatt’s presence and control over hotel premises constituted a permanent establishment. Hyatt appealed to the Supreme Court, challenging this finding and the consequent attribution of income.
The Supreme Court interpreted article 5, stressing that a permanent establishment exists where an enterprise has a place functionally at its disposal. Hyatt’s SOSA rights were operational, not advisory, with personnel making regular visits integral to hotel operations. The court emphasised that physical ownership or long-term presence is not necessary to establish a permanent establishment. What matters is the degree of control and continuity of business activity.
The court reaffirmed from the case of Formula One World Championship Ltd v Commission of Income Tax (2017) that a permanent establishment exists if premises are functionally at an enterprise’s disposal, even without ownership. Hyatt’s role – appointing key personnel, implementing policies and exercising financial oversight – was central to hotel operations.
The Supreme Court upheld the high court’s decision that Hyatt had a taxable permanent establishment in India, stressing that strategic and contractual control with continuity can create such an establishment even without physical infrastructure.
The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.
