The Supreme Court of India upheld the Delhi High Court’s ruling that Hyatt International Southwest Asia Ltd. had a Permanent Establishment (PE) in India under Article 5(1) of the India-UAE Double Taxation Avoidance Agreement (DTAA). The Court emphasized that a fixed place of business PE exists if the enterprise has a right to use and control a physical location for its business activities, regardless of exclusive possession. The appellant’s extensive control over hotel operations under the Strategic Oversight Services Agreement (SOSA) satisfied the “disposal test” and established a PE. Consequently, the income derived from these activities was deemed taxable in India under Article 7 of the DTAA. The appeals were dismissed, affirming the tax liability.
Facts Of The Case:
Hyatt International Southwest Asia Ltd., a company incorporated in Dubai and a tax resident of the UAE, entered into Strategic Oversight Services Agreements (SOSA) with Asian Hotels Limited (later renamed Asian Hotels (North) Limited) in India for providing advisory and operational support to Hyatt-branded hotels in Delhi and Mumbai. The agreements allowed Hyatt to oversee strategic planning, branding, staffing, and financial policies, with its employees occasionally visiting India for supervision. For multiple assessment years (2009-10 to 2017-18), the appellant filed nil income returns, claiming no taxable presence in India. However, the Assessing Officer held that Hyatt had a Permanent Establishment (PE) in India under the India-UAE DTAA, attributing taxable income to its operations. The Income Tax Appellate Tribunal (ITAT) and the Delhi High Court upheld this view, ruling that Hyatt exercised sufficient control over hotel operations through its employees’ presence and contractual rights, constituting a fixed place PE. The High Court referred one question (on profit attribution despite global losses) to a larger bench but affirmed the PE finding. Aggrieved, Hyatt appealed to the Supreme Court, arguing that it had no fixed place of business in India and that its role was purely advisory. The Supreme Court dismissed the appeals, holding that the appellant’s operational control and continuous business presence under the SOSA established a PE, making its income taxable in India.
Procedural History:
The case originated with the Assessing Officer (AO) holding that Hyatt International Southwest Asia Ltd. had a taxable presence in India, constituting a Permanent Establishment (PE) under the India-UAE DTAA for Assessment Years 2009-10 to 2017-18. The AO passed draft and final assessment orders, which were challenged before the Dispute Resolution Panel (DRP). The DRP upheld the AO’s findings, leading to final assessments. Hyatt then appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the appeals, relying on the Supreme Court’s decision in Formula One World Championship Ltd. to affirm the existence of a PE. Aggrieved, Hyatt filed appeals before the Delhi High Court under Section 260A of the Income Tax Act, 1961, raising substantial questions of law. The High Court, while answering some questions in Hyatt’s favor, upheld the ITAT’s finding on the PE issue and referred one question (regarding profit attribution despite global losses) to a larger bench. Dissatisfied, Hyatt approached the Supreme Court via special leave petitions, which were converted into civil appeals. The Supreme Court dismissed the appeals, affirming the High Court’s view that Hyatt’s operational control under the SOSA established a fixed place PE in India, making its income taxable under the DTAA. The procedural journey thus spanned assessments, DRP objections, ITAT appeals, High Court litigation, and a final Supreme Court ruling.
READ ALSO:Supreme Court Clarifies Limits of SC/ST Act: No Prosecution Without Caste-Based Intent
Court Observation:
The Supreme Court made several key observations while dismissing Hyatt’s appeal. It emphasized that a Permanent Establishment (PE) under Article 5(1) of the India-UAE DTAA requires a “fixed place of business through which the enterprise carries out its operations,” but does not mandate exclusive possession or ownership of the premises. The Court noted that Hyatt’s Strategic Oversight Services Agreement (SOSA) granted it pervasive control over the Indian hotels’ operations, including staffing, financial policies, and branding decisions, which went beyond mere advisory services. Relying on its earlier judgment in Formula One World Championship Ltd., the Court reiterated that temporary or shared use of space can constitute a PE if the enterprise has “disposal” over it for business purposes.The Court rejected Hyatt’s argument that its employees’ intermittent presence in India negated a PE, observing that the 20-year agreement demonstrated sufficient continuity and control. It distinguished E-Funds IT Solutions Inc., cited by Hyatt, by noting that unlike back-office support services, Hyatt’s role involved core operational control over the hotels. The Court also affirmed that legal separateness of Hyatt India Pvt. Ltd. did not override the substantive economic control exercised by the appellant. Finally, it upheld the High Court’s view that profit attribution to a PE is independent of the foreign entity’s global profitability, reinforcing the principle of source-based taxation under the DTAA. The ruling clarified that functional and factual analysis, not formalistic distinctions, determine PE existence.
Final Decision & Judgement:
The Supreme Court dismissed Hyatt International Southwest Asia Ltd.’s appeals, upholding the Delhi High Court’s ruling that the company had a taxable Permanent Establishment (PE) in India under Article 5(1) of the India-UAE Double Taxation Avoidance Agreement (DTAA). The Court concluded that Hyatt’s extensive operational control over the Indian hotels—evidenced by its Strategic Oversight Services Agreement (SOSA), which granted it authority over staffing, financial policies, branding, and day-to-day management—satisfied the “disposal test” for a fixed place PE. The Court emphasized that neither exclusive possession nor continuous physical presence was required, as long as the enterprise had a stable and productive business foothold in India. Rejecting Hyatt’s reliance on E-Funds IT Solutions Inc., the judgment distinguished mere advisory roles from Hyatt’s substantive, profit-linked involvement in hotel operations. The Court also affirmed that income attribution to a PE is determined independently of the entity’s global financial results, reinforcing India’s right to tax profits generated within its jurisdiction. The ruling underscored a substance-over-form approach, aligning with international tax principles and prior precedents like Formula One World Championship Ltd.. No costs were awarded, and all pending applications were closed. The decision solidified the tax authority’s stance on cross-border service arrangements with significant operational control in India.
Case Details:
Case Title:Hyatt International Southwest Asia Ltd. vs. Additional Director of Income Tax Citation:(2025) INSC 891 Civil Appeal No: Civil Appeal Nos. 9766-9773 of 2025 Date of Judgment:24 July 2025 Judges/Justice Name:Justice J.B. Pardiwala & Justice R. Mahadevan
Download The Judgement Here