On 24 July 2025, in Hyatt International Southwest Asia Ltd. versus Additional Director of Income Tax, the Supreme Court decided on two important principal issues:
- Whether the appellant- Hyatt International Southwest Asia Ltd, a tax resident of the UAE has a Permanent Establishment (PE) in India under Article 5(1) of the Indo-UAE Double Taxation Avoidance Agreement (DTAA); and consequently
- Whether the appellant’s income derived under the Strategic Oversight Agreement (SOSA) which was entered into between the appellant and Asian Hotels Limited is taxable in India.
The brief highlights of the judgement are as follows:
- The Supreme Court relied on the principle of “disposal test”. This means that for a fixed place PE- the place through which the business is carried on must be ‘at the disposal of the enterprise’. Further determining a fixed place PE 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 was of the view that pursuant to SOSA, the appellant exercised pervasive and enforceable control over the hotel’s strategic, operational and financial dimensions and that these rights go well beyond mere consultancy.
- It was also established that an exclusive or designated physical space is not essential- a temporary or shared use of space is sufficient provided business is carried on through that space. Further continuous and functional presence satisfies the test of stability, productivity and dependence.
- The Court delved into the fact that the absence of specific clause in the agreement (in this case, SOSA) permitting conduct of business does not negate the existence of PE. It held that the test is not whether a formal right of use is granted under the agreement but whether in substance the premises were at disposal of the enterprise and were used for conducting its core business functions.
- Further, an existence of a separate legal entity handling the daily operations does not decisively establish that the appellant has no PE in India. It is firmly rooted that legal form does not override economic substance in determining PE status.
- Additionally, the appellant’s executive and employees made frequent visits to India to oversee operations establishing a continuous and coordinated engagement even though no single individual exceeded the 9 month threshold prescribed under Article 5(2)(i) of the DTAA. It was established that the relevant consideration is the continuity of business presence in aggregate- not the length of stay of each individual.
- The appellant’s ability to enforce compliance, oversee operations and derive profit linked fees demonstrates a clear and commercial nexus and control and satisfies the conditions of a fixed place PE in India.
- The Supreme Court upheld the decision of the larger bench at Delhi High Court where it was held that profit attribution to a PE in India is permissible even if the overall foreign enterprise has incurred losses. The Supreme Court reinforced the principle that taxability is based on business presence and not the global profitability of the enterprise.
- Therefore, answering both the questions above, the Supreme Court held that the appellant has a fixed place PE in India within the meaning of Article 5(1) of the DTAA, and that, the income received under SOSA is attributable to such PE and is therefore taxable in India.
The judgement can be accessed at: https://api.sci.gov.in/supremecourt/2024/9277/9277_2024_9_1502_62468_Judgement_24-Jul-2025.pdf