LexHYATT INTERNATIONAL SOUTHWEST ASIA LTD versus ADDITIONAL DIRECTOR OF INCOME TAX
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[2025] 7 S.C.R. 1497 : 2025 INSC 891 Hyatt International Southwest Asia Ltd. v. Additional Director of Income Tax (Civil Appeal No. 9766 of 2025) 24 July 2025 [J.B. Pardiwala and R. Mahadevan,* JJ.] Issue for Consideration Issue arose whether the appellant, a tax resident of the UAE, has a Permanent Establishment-PE in India u/Art.5(1) of the Indo-UAE Double Taxation Avoidance Agreement-DTAA, and consequently, whether its income derived under the Strategic Oversight Services Agreement-SOSA is taxable in India. Headnotes† Income Tax Act, 1961 – ss. 92F(iii-a), 143(3) – Double Taxation Avoidance Agreement (Indo-UAE) – Arts. 4, 5(1), 7 – Strategic Oversight Services Agreement-SOSA – Art. I to V – Permanent Establishment-PE – Appellant company incorporated in Dubai, a tax resident of UAE, engaged in rendering consultancy services in the hotel sector – Appellant entered into SOSAs with Indian company, one for Delhi Hotel and other for Mumbai hotel – Assessment orders by the assessing officer taxing the hotel related services rendered by the appellant, on the ground that the appellant has a Permanent Establishment in India in the form of a place of business u/Art.5(1) of the DTAA – Affirmed by the ITAT and High Court – Correctness: Held: High Court rightly held that the appellant has a fixed place Permanent Establishment-PE in India and income received under the SOSA is attributable to such PE and is thus, taxable in India – Taxability is based on business presence and not the global profitability of the enterprise – Under DTAAs, the taxing rights of the source State over the business profits of a foreign enterprise are contingent upon the existence of a PE in the source country – One of the sine qua non for a fixed place PE is that the place through which the business is carried on must be ‘at the disposal’ of the enterprise, the “disposal test” principle – High Court was correct in concluding that the appellant’s role was not confined to high-level * Author 1498 [2025] 7 S.C.R. Supreme Court Reports decision making, but extended to substantive operational control and implementation – Detailed review of the SOSA executed between the appellant and the Indian Company demonstrates that the appellant exercised pervasive and enforceable control over the hotel’s strategic, operational, and financial dimensions – Appellant’s ability to enforce compliance, oversee operations, and derive profit-linked fees from the hotel’s earnings demonstrates clear and continuous commercial nexus and control with the hotel’s core functions – This nexus satisfies the conditions necessary for the constitution of a Fixed Place Permanent Establishment u/Art.5(1) of the India-UAE DTAA – Appellant’s executives and employees made frequent and regular visits to India to oversee operations and implement the SOSA – Findings of the assessing officer, based on travel logs and job functions, establish continuous and coordinated engagement, even though no single individual exceeded the 9-month stay threshold – u/Art.5(2)(i), the relevant consideration is the continuity of business presence in aggregate, not the length of stay of each individual employee – Once it is found that there is continuity in the business operations, the intermittent presence or return of a particular employee becomes immaterial and insignificant in determining the existence of a permanent establishment. [Paras 15-24] Case Law Cited Formula One World Championship Limited v. Commissioner of Income Tax, International Taxation-3, Delhi & Anr. [2017] 2 SCR 152 : (2017) 15 SCC 602 – relied on. Assistant Director of Income Tax-1, New Delhi v. M/s. E-Funds IT Solutions Inc. [2017] 10 SCR 157 : (2018) 13 SCC 294 – distinguished. Union of India & Anr. v. U.A.E Exchange Centre [2020] 4 SCR 719 : (2020) 9 SCC 329 – referred to. List of Acts Income Tax Act, 1961. List of Keywords Indo-UAE Double Taxation Avoidance Agreement (DTAA); Permanent Establishment (PE); Income tax; Fixed place of business; Hotel consultancy; Fees for Technical Services (FTS); [2025] 7 S.C.R. 1499 Hyatt International Southwest Asia Ltd. v. Additional Director of Income Tax Strategic Oversight Services Agreement (SOSA); Disposal test; Degree of control and supervision; UN Model Double Taxation Convention (2021); OECD Model Tax Convention (2017); Tax resident of UAE; Consultancy services in the hotel sector; Global profitability; Business profits of foreign ente
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