Foreign Hotel Consultant Is Held To Have Permanent Establishment In India; Appeals Dismissed

A bench of Justice R. Mahadevan and Justice J.B. Pardiwala heard appeals by Hyatt International Southwest Asia Ltd. challenging the Delhi High Court’s finding that the Dubai‑incorporated assessee had a Permanent Establishment (PE) in India under the Indo‑UAE Double Taxation Avoidance Agreement (DTAA). The appeals arose from assessment orders for multiple assessment years in which the Assessing Officer, the Income‑Tax Appellate Tribunal (ITAT) and subsequently the High Court found that strategic oversight services agreements (SOSA) with Indian hotel owners created a fixed place of business PE in India, attracting taxability under Article 7 of the DTAA.

The Court dismissed the appeals and affirmed the High Court’s conclusion that the appellant had a fixed place PE in India and that income under the SOSA was attributable to that PE and therefore taxable in India. The Court held that the inquiry was fact‑specific and must address whether the foreign enterprise had rights of disposal and control over premises through which its business was carried on; mere advisory role was insufficient where the contractual rights enabled substantive operational involvement. The Court, in its reasoning, observed: “The principal test, in order to ascertain as to whether an establishment has a fixed place of business or not, is that such physically located premises have to be ‘at the disposal’ of the enterprise.… The place would be treated as ‘at the disposal’ of the enterprise when the enterprise has right to use the said place and has control thereupon.” The judgment further noted that the PE inquiry required assessing the attributes of “stability, productivity and dependence” and that the appellant’s rights under the SOSA went “well beyond mere consultancy” and conferred “pervasive and enforceable control” over strategic, operational and financial aspects.

Background The dispute arose after Hyatt International Southwest Asia Ltd., a company incorporated under Dubai International Financial Centre law and treated as a UAE tax resident under the DTAA, entered into long‑term SOSAs (dated 04.09.2008) with Indian hotel owners for oversight and brand‑standards services at Hyatt hotels in Delhi and Mumbai. The Assessing Officer issued scrutiny notices and held that the appellant had a business connection and a PE in India, and that fees represented royalties/fees for technical services or profits attributable to a PE; final assessment orders for several assessment years followed. The ITAT dismissed the appellant’s appeals, relying on this Court’s decision in Formula One World Championship Ltd. v. CIT, and the High Court, while allowing one question on royalty, answered against the appellant on existence of PE and referred a fourth question on profit attribution to a Larger Bench.

Before this Court, the appellant argued that SOSA envisaged services to be rendered from Dubai, that the presence of employees in India was occasional and did not satisfy the Article 5(2) threshold, that there was no designated space at hotels placed at the appellant’s disposal, and that day‑to‑day operations were carried out by a separate Indian entity (Hyatt India Pvt. Ltd.). The Revenue countered that the SOSA conferred an enforceable right to implement policies, appoint and supervise key personnel including the General Manager, control HR and procurement policies, operate bank accounts and derive revenue‑linked fees; the contractual term (20 years) and continuous operational involvement exhibited the attributes of a fixed place PE.

The Court performed a detailed contractual and treaty analysis, applying the disposal test and the Formula One principles, and emphasised that exclusive possession was not essential where the enterprise had rights and control to use the premises for conducting business. The Court found that the SOSA granted the appellant continuing and enforceable rights — appointment and supervision of key staff, operational policy implementation, authority to assign personnel and a remuneration structure linked to hotel revenues — which cumulatively satisfied the tests of stability, productivity and dependence. The Court held that the hotel premises constituted a fixed place of business PE under Article 5(1) and that profits attributable to that PE were taxable in India. The appeals were dismissed and the interim orders staying penalty proceedings (earlier recorded by this Court) remained pertinent until finality.

Case Details: Case No.: CIVIL APPEAL NOS. 9766–9773 OF 2025 (arising out of SLP(C) Nos. 5710/2024, 10152/2024, 10157/2024, 10798/2024, 10800/2024, 10796/2024, 10797/2024 and SLP Diary No. 14972/2024) Case Title: Hyatt International Southwest Asia Ltd. v. Additional Director of Income Tax Appearances: For the Petitioner(s): Senior Counsel for the appellant (name not specified in judgment) For the Respondent(s): Additional Solicitor General of India (name not specified in judgment)