The Supreme Court, in Hyatt International Southwest Asia Ltd. v. Additional Director of Income Tax, examined whether the appellant, a company incorporated in Dubai and a tax resident of the United Arab Emirates, had a Permanent Establishment (PE) in India under Article 5(1) of the India–UAE Double Taxation Avoidance Agreement (DTAA), and whether income earned under Strategic Oversight Services Agreements (SOSA) with Indian hotel owners was taxable in India.

The appellant had entered into long-term SOSAs with Asian Hotels Limited for providing strategic planning, brand oversight, operational control, and management supervision in respect of hotels located in Delhi and Mumbai. Although the appellant contended that services were rendered from Dubai and that its employees’ visits to India were temporary and intermittent, the tax authorities held that the appellant had a fixed place PE in India and assessed its income accordingly. These findings were upheld by the Dispute Resolution Panel, the Income Tax Appellate Tribunal, and the Delhi High Court.

Before the Supreme Court, the appellant argued that it neither owned nor leased any premises in India, had no exclusive office space at the hotels, and exercised no day-to-day operational control. It relied on E-Funds IT Solutions Inc. to contend that mere oversight and advisory services do not constitute a fixed place PE. The Revenue, on the other hand, relied on the detailed provisions of the SOSA and the decision in Formula One World Championship Ltd., asserting that the hotel premises were at the disposal of the appellant and were used for carrying on its core business activities.

After an exhaustive analysis of Article 5 and Article 7 of the India–UAE DTAA, OECD Commentary, and international jurisprudence, the Supreme Court held that for a fixed place PE to exist, the decisive test is whether the premises are “at the disposal” of the foreign enterprise and whether business is carried on through that place. Ownership or exclusive possession was held to be unnecessary. What is material is the degree of control, continuity, and functional integration.

The Court found that under the SOSA, the appellant exercised pervasive and enforceable control over hotel operations, including appointment and supervision of key personnel, formulation of operational and financial policies, control over branding, pricing, procurement, and assignment of employees to India without the hotel owner’s consent. The agreements were for a long duration of twenty years, with remuneration linked to hotel revenues and profits, demonstrating stability, productivity, and economic dependence.

The Supreme Court held that the appellant’s activities went far beyond preparatory or auxiliary functions and constituted core business operations carried on through the hotel premises. The absence of a formally designated office or exclusive space was held to be immaterial, as the hotel premises were effectively at the disposal of the appellant for carrying on its business. The Court distinguished E-Funds on facts and affirmed the applicability of Formula One World Championship Ltd..

It was further held that continuity of business presence, rather than the duration of stay of individual employees, is relevant for determining PE. Even though no single employee exceeded the nine-month threshold, the aggregate and continuous presence of personnel satisfied the requirement under Article 5 of the DTAA.

Accordingly, the Supreme Court upheld the findings of the High Court and held that Hyatt International Southwest Asia Ltd. had a fixed place Permanent Establishment in India. The income earned under the SOSA was held to be attributable to such PE and taxable in India under Article 7 of the India–UAE DTAA. The appeals were dismissed without any order as to costs.

Source Link - https://api.sci.gov.in/supremecourt/2024/9277/9277_2024_9_1502_62468_Judgement_24-Jul-2025.pdf

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