# Hyatt International Southwest Asia Ltd v. Additional Director of Income Tax

- **Citation:** 2025 INSC 891
- **Court:** Supreme Court of India
- **Decided:** 2025-07-24
- **Case number:** Civil Appeal No. 9766 of 2025
- **Bench:** J.B. Pardiwala, R. Mahadevan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/hyatt-international-southwest-asia-ltd-v-additional-director-of-income-tax-38430
- **Pages:** 33

## Headnote

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]

## Text

_Characters 0–39,964 of 67,629. This is a partial read: ask again with offset=39964 for what follows._

[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 enterprise.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9766 of 2025
From the Judgment and Order dated 22.12.2023 of the High Court
of Delhi at New Delhi in ITA No. 216 of 2020
With
Civil Appeal No(s). 9767, 9768, 9769, 9770, 9771, 9772 and 9773
of 2025
Appearances for Parties
Advs. for the Appellant:
S. Ganesh, Sr. Adv., Ujjwal A. Rana, Himanshu Mehta, for M/s.
Gagrat And Co.
Advs. for the Respondent:
N Venkatraman, A.S.G., Arijit Prasad, Rupesh Kumar, Sr. Advs., Raj
Bahadur Yadav, Shashank Bajpai, V Chandrashekhara Bharathi,
Santosh Kumar, Diwakar Sharma.
Judgment / Order of the Supreme Court
Judgment
R. Mahadevan, J.
Leave granted.
2.
All these appeals arise out of the common judgment and order dated
22.12.2023 passed by the High Court of Delhi1 in the Income Tax
Appeals preferred by the appellant / assessee, in respect of the
Assessment Years 2009-10, 2010-11, 2011-12, 2012-13, 2013-14,
2014-15, 2016-17 and 2017-18. The details of the impugned orders
1
For short, "the High Court"
1500
[2025] 7 S.C.R.
Supreme Court Reports
before this Court, before the High Court and before the Income Tax
Appellate Tribunal, along with the corresponding tax effect involved
in each case, are tabulated below:
Case No.
High Court
ITAT
AO
Tax effect
evolved
SLP (C) No.
5710 of 2024
ITA
No.216/2020
Order dated
22.12.2023
579/Del/2013
Order dated
04.12.2019
21.11.2012
AY 2009-10
85,14,156/-
SLP (C) No.
1 0 1 5 2 o f
2024
ITA
No.219/2020
Order dated
22.12.2023
1762/Del/2015
Order dated
04.12.2019
28.01.2015
AY 2011-12
2,98,96,262/-
SLP (C) No.
1 0 1 5 7 o f
2024
ITA
No.217/2020
Order dated
22.12.2023
957/Del/2016
Order dated
04.12.2019
18.12.2015
AY 2012-13
2,85,75,313/-
SLP (C) No.
1 0 7 9 6 o f
2024
ITA
No.201/2023
Order dated
22.12.2023
6363/Del/2019
Order dated
20.12.2022
19.06.2019
AY 2016-17
4,05,14,966/-
SLP (C) No.
1 0 7 9 7 o f
2024
ITA
No.215/2023
Order dated
22.12.2023
712/Del/2021
Order dated
20.12.2022
13.04.2021
AY 2017-18
4,05,14,966/-
SLP (C) No.
1 0 7 9 8 o f
2024
ITA
No.140/2021
Order dated
22.12.2023
727/Del/2017
Order dated
12.03.2021
24.11.2016
AY 2013-14
2,91,07,664/-
SLP (C) No.
1 0 8 0 0 o f
2024
ITA No.36/2022
Order dated
22.12.2023
6179/Del/2017
Order dated
27.07.2021
28.07.2017
AY 2014-15
3,05,12,883/-
S L P ( C )
Diary No.
1 4 9 7 2 o f
2024
ITA
No.218/2020
Order dated
22.12.2023
779/Del/2014
Order dated
04.12.2019
28.11.2013
AY 2010-11
2,98,96,262/-
[2025] 7 S.C.R.
1501
Hyatt International Southwest Asia Ltd. v.
Additional Director of Income Tax
3.
The necessary facts leading to the filing of the present appeals, as
culled out from the impugned orders, are as follows:
3.1. The appellant is a company incorporated under the Companies
Law, Dubai International Financial Centre Law No.3 of 2006, in
the United Arab Emirates2. It is a tax resident of the UAE under
Article 4 of the Agreement between the Government of India
and the UAE for the avoidance of Double Taxation3.
3.2. On 04.09.2008, the appellant entered into two Strategic
Oversight Services Agreements4 with Asian Hotels Limited5,
India - one for AHL, Delhi and another for AHL, Mumbai. Under
the SOSA, the appellant agreed to provide strategic planning
services and "know-how" to ensure that the hotel was developed
and operated as an efficient and a high-quality international
full-service hotel. Subsequently, AHL underwent reorganization
and its name was changed to Asian Hotels (North) Limited,
which continued to own the hotel. On 18.07.2010, the SOSA
was partially amended.
3.3. For the Assessment Year 2009-10, the appellant filed its
return of income declaring 'Nil' income and claiming a refund
of Rs.87,99,091/-. After scrutiny, the Assessing Officer issued
a notice dated 20.08.2010 under Section 142(1) read with
Section 143(3) of the Income Tax Act, 19616. In response,
the appellant submitted a reply dated 25.08.2011, asserting
that its income was not taxable under the Act as there was no
specific Article under the DTAA for taxing Fees for Technical
Services. It further stated that it did not have any fixed place
of business, office, or branch in India, and that the presence
of its employees in India during the relevant previous year did
not exceed the nine-month threshold under Article 5(2) of the
DTAA. Therefore, the appellant claimed that it did not have a
Permanent Establishment (PE) in India and that its business
income was not taxable under Article 7 of the DTAA.
2
For short, "UAE"
3
For short, "DTAA"
4
For short, "SOSA"
5
For short, "AHL"
6
For short, "the Act"
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[2025] 7 S.C.R.
Supreme Court Reports
3.4. On 28.12.2011, the Assessing Officer passed a draft assessment
order under Section 143(3) read with Section 144C of the Act,
holding inter alia that the appellant's activities constituted
(i)
a business connection under Section 9(1)(i) of the Act;
(ii)
a PE under Article 5 of the DTAA;
(iii) royalties and fees for technical services under Section
9(1)(vi)/(vii) of the Act; and
(iv) royalties under Article 12 of the DTAA.
3.5. The appellant filed its objections dated 22.01.2012 before the
Dispute Resolution Panel (DRP), which rejected the objections
and upheld the Assessing Officer's findings. Consequently,
the Assessing Officer passed a final assessment order
dated 21.11.2012, for the assessment year 2009-10. Similar
assessment orders were passed for the Assessment Years
2010-11, 2011-12 and 2012-13.
3.6. Challenging the above assessment orders, the appellant filed
four appeals before the Income Tax Appellate Tribunal (ITAT).
By a common order dated 04.12.2019, the ITAT rejected the
appellant's contention that it did not have a PE in India and
dismissed the appeals. In doing so, the ITAT relied on the
decision of this Court in Formula One World Championship
Limited v. Commissioner of Income Tax, International
Taxation-3, Delhi & Anr.7 and held that the appellant had
a fixed place of business in India, thereby constituting a PE
under Article 5(1) of the DTAA. Aggrieved by the said order,
the appellant filed further appeals under Section 260A of the
Act before the High Court.
3.7. In the meanwhile, the Assessing Officer passed a similar
assessment order dated 24.11.2016 for the Assessment Year
2013-14, which the appellant challenged by filing ITA No.727/
Del/2017 before the ITAT. By order dated 12.03.2021, the
ITAT dismissed the appeal, following its earlier order dated
04.12.2019. Aggrieved, the appellant preferred ITA No.140 of
2021 before the High Court.
7
(2017) 15 SCC 602
[2025] 7 S.C.R.
1503
Hyatt International Southwest Asia Ltd. v.
Additional Director of Income Tax
3.8. Similarly, the appellant challenged the assessment orders for
the Assessment Years 2014-15, 2016-17, and 2017-18 by filing
appeals before the ITAT. By separate orders dated 27.07.2021
and 20.12.2022, the ITAT dismissed the appeals again, following
its earlier order dated 04.12.2019. Aggrieved by these orders,
the appellant filed ITA Nos.36 of 2022, 201 of 2023, and 215
of 2023 before the High Court.
3.9. The High Court heard all eight appeals together and framed
the following substantial questions of law for consideration:
(i)Whether the Tribunal misdirected itself both in law
and on facts in holding that service charges received
by the appellant under the various SOSA agreement
were taxable as royalty?
(ii)Whether the appellant has Permanent Establishment
in India within the meaning of the Double Taxation
Avoidance Agreement?
(iii)Whether the findings recorded by the Tribunal, in
paragraphs 56, 57 and 59 are perverse and contrary
to the terms of the Strategic Oversight Services
Agreement (SOSA)?
(iv)Is article 7(1) of the DTAA at all applicable to the
appellant, having regard to the fact that it has incurred
losses in the relevant financial years?
3.10. By a common judgment and order dated 22.12.2023, the High
Court answered the first question in favour of the appellant /
assessee, and referred the fourth question to a larger
Bench. However, it answered questions (ii) and (iii) against
the appellant holding that the appellant, being a company
incorporated in Dubai and a tax resident of the UAE, had a
Permanent Establishment (PE) in India in the form of a fixed
place of business. Aggrieved by this part of the High Court's
judgment, the appellant has preferred the present appeals.
4.
Challenging the findings of the High Court regarding the existence
of a Permanent Establishment (PE) in the form of a fixed place of
business in India under the Indo-UAE DTAA, the learned Senior
Counsel for the appellant / assessee vehemently contended that
1504
[2025] 7 S.C.R.
Supreme Court Reports
the appellant is a Dubai based company engaged in rendering
hotel consultancy and advisory services from Dubai to hotels in
the Hyatt Group of Hotels, including several located in India. These
services are rendered under a SOSA entered into with each hotel
owner individually. The SOSA explicitly stipulates that the appellant
shall render its services from Dubai and is not obligated to send or
station any employee in India. However, the agreement permits at
the appellant's sole discretion, occasional and temporary visits by
its employees to India.
4.1. It was further submitted that the income of the appellant is
not taxable in India under the provisions of the Act, as there
is no specific Article in the DTAA enabling taxation of Fees for
Technical Services (FTS). Furthermore, the appellant does not
maintain a fixed place of business, office, or branch in India.
The limited and occasional presence of its employees in India,
did not exceed the threshold of nine months under Article 5(2)
(i) of the DTAA, thereby excluding the existence of a PE.
4.2. The learned Senior Counsel argued that the High Court
erroneously disregarded the two essential conditions laid down in
Formula One (supra) and Assistant Director of Income Tax1, New Delhi vs. M/s. E-Funds IT Solutions Inc..8, which are
essential for the existence of a fixed place of business PE viz.,
(a) There must be a specific, fixed, and identifiable physical
location in India; and
(b) Such location must be at the disposal of the foreign
enterprise for use in carrying out its own business activities.
4.3. It was further submitted that there was no designated space
or office at the hotel premises in Delhi or Mumbai that was
either specifically reserved for or placed at the disposal of the
appellant. The appellant exercised no control or dominion over
any part of the premises. Mere involvement in policy decisions
or enforcement of brand standards does not amount to a fixed
place of business PE. Ownership and operational control of the
hotel remained entirely with the Indian entity, as reaffirmed by
Article 1, Section 3 of the SOSA.
8
(2018) 13 SCC 294
[2025] 7 S.C.R.
1505
Hyatt International Southwest Asia Ltd. v.
Additional Director of Income Tax
4.4. The learned Senior Counsel further contended that the role of
the appellant under the SOSA, was limited to strategic guidance,
brand compliance, and long-term planning. The day-to-day
operations of the hotel were carried out by Hyatt India Pvt.
Ltd, under a separate Hotel Operating Services Agreement
(HOSA) entered into with the hotel owner. The appellant had
no involvement in such daily management. However, the High
Court erred in conflating the two separate legal agreements -
the SOSA entered into by the appellant and the HOSA entered
into by Hyatt India Pvt. Ltd. - and mistakenly attributed the dayto-day control of hotel operations to the appellant. According to
the learned Senior Counsel, Hyatt India Pvt. Ltd. is a distinct
legal entity, taxable independently under Indian law, and its
operational activities cannot be attributed to the appellant for
the purpose of determining PE under the DTAA.
4.5. It was also submitted that the High Court laid undue emphasis
on the fact that six employees of the appellant visited India
and stayed at the hotel premises during the relevant years.
These visits, however, were brief and routine in nature and
the same executives visited other Hyatt hotels across India
including those in Goa, Bengaluru, Kochi, and Chennai. These
oversight visits were intended to ensure brand uniformity and
quality compliance. The short duration spread across multiple
locations, and lack of exclusive use or control over any space
do not satisfy the legal requirement of a fixed place of business
PE. Furthermore, the Department failed to produce documentary
evidence to establish that any such designated space was ever
placed at the disposal of the appellant.
4.6. It was submitted that the High Court incorrectly inferred that the
absence of an express prohibition in the SOSA on decisionmaking by appellant's employees during their stay at the hotel
implies a right of disposal. In law, a fixed place of business PE
cannot be presumed from the mere absence of a restriction;
there must be an affirmative grant of a right to use a specific
physical location to carry on the enterprise's own business.
4.7. Ultimately, the learned senior counsel submitted that the High
Court's findings are legally untenable and factually erroneous.
The essential legal requirements for the constitution of a fixed
place of business PE were not satisfied in the present case.
1506
[2025] 7 S.C.R.
Supreme Court Reports
4.8. Accordingly, it was prayed that the findings of the High Court
regarding the existence of a fixed place of business PE be set
aside and a declaration be made to the effect that the appellant
does not have a PE in India under Article 5 of the Indo-UAE
DTAA, and that its income is not taxable in India under Article
7 of the said DTAA.
5.
Per contra, the learned Additional Solicitor General of India appearing
for the respondents submitted that on 04.09.2008, the appellant
entered into SOSA with AHL, an Indian company and the owner of
the Hyatt Regency Delhi, for providing oversight services in relation
to the hotel for a period of 20 years. Under the SOSA, they had
more than mere access to the hotel premises - the premises were
at the appellant's full and unconditional disposal.
5.1. According to the learned Senior Counsel, the appellant's
business was carried on through the employees stationed
at the hotel, thereby satisfying the criteria of a fixed place of
business Permanent Establishment (PE) under Article 5 of the
Indo-UAE DTAA.
5.2. It was further submitted that Article 5(1) of the DTAA defines a
PE as a "fixed place of business through which the business
of an enterprise is wholly or partly carried on". This definition
is echoed in Section 92F(iii-a) of the Income Tax Act, 1961.
Article 7(1) of the DTAA provides that profits of an enterprise
are taxable only in the State of residence unless the enterprise
carries on business through a PE in the other State. If a PE
exists, then the profits attributable to the PE are taxable in the
source country.
5.3. Referring to the various Clauses of the SOSA, it was submitted
that the appellant's role extended beyond high-level policy
formulation and into the domain of actual implementation. The
appellant was involved in the appointment and training of staff,
monitoring daily operations, exercising financial oversight, and
influencing procurement and operational decisions - all of which
demonstrate managerial and functional control, particularly
through the General Manager, who reported to the appellant.
5.4. The learned Senior Counsel pointed out the documentary
evidence mentioned in the impugned orders, which include
records of names, roles, and durations of stay of the appellant's
[2025] 7 S.C.R.
1507
Hyatt International Southwest Asia Ltd. v.
Additional Director of Income Tax
employees posted at the hotel. Some individuals remained in
India for up to nine months and were involved in substantive hotel
operations, clearly indicating operational presence in line with
the terms of the SOSA. In view of the same, it was submitted
that the appellant had full and effective control over the hotel
premises and that the premises were indeed at its disposal
for conducting its business. Therefore, the hotel satisfies the
definition of a fixed place of business PE under Article 5(1) of
the DTAA. Consequently, in terms of Article 7(1) of the DTAA,
the profits attributable to such PE are liable to be taxed in India
and the appellant be taxed in India on the income derived from
such activities.
5.5. To substantiate his contention, the learned Senior Counsel
placed reliance on the decision of this Court in Formula One
(supra). In that case, the assessee (FOWC) incorporated in the
UK, entered into a Race Promotion Contract (RPC) with Jaypee
Sports International Ltd. to host the Formula One Grand Prix in
India. The Court had to determine whether Jaypee constituted
a fixed place PE of FOWC in India under the terms of the RPC.
The Court held in paragraphs 74 and 76.5 of the judgment that
for a fixed place PE to exist, two conditions must be met: (a)
there must be a fixed place of business, and (b) through that
place, the business of the enterprise must be wholly or partly
carried on. Although FOWC's claimed, it only had access to
the race circuit for three days a year, the Court noted that the
contract term extended to five years (renewable to ten), and
FOWC had full control during the race period. Therefore, the
premises were held to constitute a PE. The Court also referred
to the OECD Commentary [paragraph 40(c) and 40(d)] to clarify
that the duration of access is not determinative in itself - the
right of disposal and conduct of business through the premises
are the core tests. It further emphasized three key features of
a PE: stability, productivity, and dependence.
5.6. Applying these principles to the present case, the learned Senior
Counsel contended that the appellant - Hyatt International
Southwest Asia Ltd - has entered into a long-term agreement
(20 years) under which it enjoys broad and continued control
over the hotel's key functions, including staffing, operations,
strategic policy, and financial oversight. This arrangement
1508
[2025] 7 S.C.R.
Supreme Court Reports
reflects the three core characteristics of a PE: stability (20year term), productivity (fee linked to business outcomes), and
dependence (reliance on hotel infrastructure and staff to carry
out its business).
5.7. It was further submitted that the decision in E-Funds (supra),
is factually distinguishable and therefore, not applicable to the
present case.
5.8. In view of the foregoing submissions, particularly the principles
laid down in Formula One (supra), the learned Senior Counsel
submitted that the appellant's operation satisfies all conditions
for the existence of a fixed place of business PE under Article
5(1) of the Indo-UAE DTAA. The appellant's plea of lacking
day to-day control is untenable given the pervasive control and
continuous nature of its involvement.
5.9. Accordingly, it was submitted that the hotel premises constitutes
a fixed place of business of the appellant in India, and in terms
of Article 7(1) of the DTAA, the profits attributable to such PE
are liable to tax in India. Therefore, the present appeals are
liable to be dismissed.
6.
We have heard the learned senior counsel appearing for the
appellant and the learned Additional Solicitor General appearing for
the respondents and also perused the materials available on record.
7.
On 16.05.2024, when these matters were taken up for consideration,
this Court passed the following interim order:
"We have heard learned senior counsel for the petitioner
and learned Additional Solicitor General for the respondentdepartment.
It is stated at the Bar that the tax demand has been
fully met by the petitioners (under protest). However, the
apprehension is with regard to the initiation of penalty
proceedings pending consideration of the matter before
this Court.
It was submitted that the petitioner has a good case on
merits and therefore, initiation of penalty proceedings and
the demand made thereon would ultimately be prejudicial
to the petitioner herein.
[2025] 7 S.C.R.
1509
Hyatt International Southwest Asia Ltd. v.
Additional Director of Income Tax
Per contra, learned Additional Solicitor General submitted
that having regard to the fact that three authorities, including
the High Court, having held against the petitioner herein
on the basis of the judgments of this Court, there is no
reason as to why the penalty proceedings should be stayed
or frustrated at this stage.
However, we find that since notices have been issued
in these matters pending consideration of these special
leave petitions and bearing in mind the fact that the tax
demand has been made by the petitioners herein, the
penalty proceedings shall remain stayed till the next date
of hearing.
List the matters on 23.09.2024."
7.1 On 23.09.2024, the aforesaid interim order was directed to be
continued until further orders of this Court.
8.
It is not in dispute that the appellant is a company incorporated in
Dubai, and is a tax resident of the UAE within the meaning of Article
4 of the Agreement between the Government of India and the UAE
for the Avoidance of Double Taxation. The appellant is engaged in
rendering consultancy services in the hotel sector. It entered into two
SOSAs both dated 04.09.2008 with ASL, India - one in respect of
the Delhi hotel and the other, for the Mumbai hotel. For the relevant
assessment years, the Assessing Officer passed assessment orders
taxing the hotel related services rendered by the appellant, inter alia,
on the ground that the appellant has a Permanent Establishment
(PE) in India in the form of a place of business under Article 5(1) of
the DTAA. These findings were affirmed by the ITAT.
9.
As noted earlier, the High Court, at the time of final hearing of the
appeals, framed four substantial questions of law, whereby it answered
three of them, and referred the fourth question to a Larger Bench.
Aggrieved by the finding of the High Court that the appellant has a
Permanent Establishment in the form of a place of business in India
as contemplated under Article 5(1) of the DTAA, the present appeals
have been filed before this Court.
10. The principal issue that arises for determination herein is whether the
appellant - Hyatt International Southwest Asia Ltd., a tax resident
of the UAE, has a Permanent Establishment (PE) in India under
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Article 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.
11. At the outset, it is necessary to analyse the relevant clauses of
the DTAA and the SOSA for effective adjudication. The concept
of 'Permanent Establishment' is well defined under Article 5 of the
DTAA, and similar provisions are found in international models such
as the UN Model Double Taxation Convention (2021) and the OECD
Model Tax Convention (2017). These model conventions provide an
inclusive yet exhaustive definitions of PE, with the precise scope
depending upon the terms of the bilateral DTAA. Article 5(1) of the
India - UAE DTAA defines a PE as "a fixed place of business through
which the business of an enterprise is wholly or partly carried on".
This is consistent with the definition provided in Section 92F(iii-a) of
the Income Tax Act, 1961. For better appreciation, Article 5 of the
India - UAE DTAA is extracted below:
"PERMANENT ESTABLISHMENT
1. For the purposes of this Agreement, the term "permanent
establishment" means a fixed place of business through
which the business of an enterprise is wholly or partly
carried on.
2. The term "permanent establishment" includes especially:
(a) a place of management ;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a mine, an oil or gas well, a quarry or any other place
of extraction of natural resources;
(g) a farm or plantation;
(h) a building site or construction or assembly project or
supervisory activities in connection therewith, but only
where such site, project or activity continues for a period
of more than 9 months;
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(i) the furnishing of services including consultancy services
by an enterprise of a Contracting State through employees
or other personnel in the other Contracting State, provided
that such activities continue for the same project or
connected project for a period or periods aggregating more
than 9 months within any twelve-month period.
3. Notwithstanding the preceding provisions of this Article,
the term "permanent establishment" shall be deemed not
to include:
(a) the use of facilities solely for the purpose of storage,
display or delivery of goods or merchandise belonging to
the enterprise;
(b) the maintenance of a stock of goods or merchandise
belonging to the enterprise solely for the purpose of storage,
display or delivery;
(c) the maintenance of a stock of goods or merchandise
belonging to the enterprise solely for the purpose of
processing by another enterprise;
(d) the maintenance of a fixed place of business solely
for the purpose of purchasing goods or merchandise, or
of collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for
the purpose of carrying on, for the enterprise, any other
activity of a preparatory or auxiliary character.
4. Notwithstanding the provisions of paragraphs (1) and
(3), where a person - other than an agent of independent
status to whom paragraph (5) applies - is acting on behalf
of an enterprise and has, and habitually exercises in a
Contracting State an authority to conclude contracts on
behalf of the enterprise, that enterprise shall be deemed
to have a permanent establishment in that State in respect
of any activities which that person undertakes for the
enterprise, unless the activities of such person are limited
to the purchase of goods or merchandise for the enterprise.
5.An enterprise of a Contracting State shall not be deemed
to have a permanent establishment in the other Contracting
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State merely because it carries on business in that other
State through a broker, general commission agent or any
other agent of an independent status, provided that such
persons are acting in the ordinary course of their business.
However, when the activities of such an agent are devoted
wholly or almost wholly on behalf of that enterprise, he will
not be considered an agent of independent status within
the meaning of this paragraph."
11.1. Article 7 of the DTAA governs the taxation of business profits.
Article 7(1) provides that the profit of an enterprise shall be
taxable only in the State of its residence, unless the enterprise
carries on business in the other Contracting State through a
permanent establishment (PE) situated therein. In such a case,
only so much of the profits as is attributable to that PE may be
taxed in the other State. The provision reads as follows:
"Article 7 - Business profits
(1) The profits of an enterprise of a Contracting State
shall be taxable only in that State unless the enterprise
carries on business in the other Contracting State
through a permanent establishment situated therein.
If the enterprise carries on business as aforesaid, the
profits of the enterprise may be taxed in the other
State but only so much of them as is attributable to
that permanent establishment."
12. Insofar as the SOSA is concerned, the relevant clauses have already
been extracted by the High Court in the impugned order; hence, we
do not consider it necessary to reproduce them here once again.
However, for contextual clarity, it may be noted that Section 4 of
Article I of the SOSA deals with the 'title to the hotel'. It provides
that if the hotel owner desires to obtain financial assistance for the
construction or refinancing of the hotel - or if the hotel is to be used
as collateral for any borrowing unrelated to the hotel business -
the owner is required to obtain a non-disturbance and attornment
agreement from the lender, which must be acceptable to the assessee.
This provision ensures that the assessee can perform its obligation
under the SOSA and realise its fees without interference but also.
12.1. Article II of the SOSA pertains to operating terms. As per
Sections 1 and 2 of Article II, the SOSA is to remain in force
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for a term of twenty years from the effective date, with a
possibility of extension by ten years through mutual agreement.
12.2. Article III governs the operation of the hotel. Section 1 stipulates
that the hotel shall be operated in accordance with standards
comparable to those prevailing in international hotels operated
by Hyatt International and its subsidiaries. The assessee is
responsible for providing strategic plans, policies, procedures,
and guidelines to ensure adherence to the 'Hyatt Operating
Standards'. There is also an obligation to use reasonable
efforts to avoid conflicts between Hyatt branded hotels and the
subject hotel. Under Section 2, the assessee is vested with
complete control and discretion in formulating and establishing
the strategic plan for all aspects of hotel operations, including
branding, marketing, product development, and daily operations.
Section 3 further empowers the assessee to assign employees
(either its own or its affiliates) to India without needing prior
approval from the hotel owner or management. The assessee
is also responsible for formulating policies relating to human
resources, procurement, guest admittance, use of premises,
pricing, sales and marketing, and reservations. Section 4
authorizes the assessee to formulate policies governing the
hotel's operating bank accounts. Section 7 authorizes the
assessee to identify, recruit and assist in appointing nonlocal hotel employees - including the General Manager, key
personnel, and members of the Executive Committee - on
behalf of the hotel owner. The assessee is further required to
align the hotel's human resource policies with Hyatt Operating
Standards. It may also temporarily assign its own employees
to serve as full-time executive staff at the hotel.
12.3. Section 1(a) and 1(b) of Articles V of the SOSA sets out the
assessee's entitlement to "Strategic Fees" for the services
provided. The consideration is not a fixed fee; instead, it is
calculated as a percentage of room revenue and other revenues
and income - whether directly or indirectly derived from the
hotel's operations - as well as cumulative gross operating
profit. This remuneration structure clearly reflects an active
commercial involvement, linking the assessee's income to the
financial and operational performance of the hotel.
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12.4. From the contractual provisions detailed above, it is evident that
the appellant's role was not confined to mere policy formulation.
On the contrary, the SOSA conferred upon the appellant a
continuing and enforceable right to implement its policies and
ensure compliance in all operational aspects of the hotel. The
degree of control and supervision exercised by the appellant
clearly transcends a mere advisory capacity and aligns with
the criteria for a Fixed Place Permanent Establishment (PE)
under Article 5(1) of the India - UAE DTAA.
13. The question of what constitutes a "place of business" under Article
5(1) of the DTAA is no longer res integra. In Formula One (supra),
this Court unequivocally held that for a Permanent Establishment
(PE) to exist, two essential conditions must be satisfied: (i)the place
must be "at the disposal" of the enterprise, and (ii)the business of
the enterprise must be carried on through that place. The Court
further held that a PE must demonstrate the three core attributes of:
stability, productivity, and a degree of independence. Among these,
the "disposal test" is pivotal, meaning thereby the enterprise must
have a right to use the premises in such a way that enables it to
carry on its business activities. This test is to be applied contextually,
taking into account the commercial and operational realities of
the arrangement. The relevant paragraphs from the judgment are
extracted below for better appreciation:
"29. Philip Baker explains that the concept of PE is
important for several articles of the Conventions; the
concept, or its cognate, also appears in the domestic law
of some countries. According to him, the concept marks
the dividing line for businesses between merely trading
with a country and trading in that country; if an enterprise
has a PE, its presence in a country is sufficiently
substantial that it is trading in the country. He has
quoted the following passage from the judgment of the
Andhra Pradesh High Court, authored by Justice (Retd.)
Jagannadha Rao (as his Lordship then was, later Judge
of this Court) in CIT v. Visakhapatnam Port Trust [CIT v.
Visakhapatnam Port Trust, 1983 SCC OnLine AP 287:
(1983) 144 ITR 146]: (SCC OnLine AP para 54)
"54. ... the words "permanent establishment"
postulate the existence of a substantial element
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of an enduring or permanent nature of a foreign
enterprise in another country which can be
attributed to a fixed place of business in that
country. It should be of such a nature that it
would amount to a virtual projection of the
foreign enterprise of one country into the
soil of another country."
30. Emphasising that as a creature of international tax
law, the concept of PE has a particularly strong claim to
a uniform international meaning, Philip Baker discerns
two types of PEs contemplated under Article 5 of OECD
Model. First, an establishment which is part of the
same enterprise under common ownership and
control-an office, branch, etc., to which he gives
his own description as an "associated permanent
establishment". The second type is an agent, though
legally separate from the enterprise, nevertheless who
is dependent on the enterprise to the point of forming a
PE. Such PE is given the nomenclature of "unassociated
permanent establishment" by Baker. He, however,
pointed out that there is a possibility of a third type of PE
i.e. a construction or installation site may be regarded
as PE under certain circumstances. In the first type
of PE i.e. associated permanent establishments,
primary requirement is that there must be a fixed
place of business through which the business of an
enterprise is wholly or partly carried on. It entails
two requirements which need to be fulfilled: (a) there
must be a business of an enterprise of a contracting
State (FOWC in the instant case); and (b) PE must be
a fixed place of business i.e. a place which is at the
disposal of the enterprise. It is universally accepted
that for ascertaining whether there is a fixed place
or not, PE must have three characteristics: stability,
productivity and dependence. Further, fixed place of
business connotes existence of a physical location
which is at the disposal of the enterprise through
which the business is carried on.
........
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33. 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.