Kiran Raj

The Supreme Court of India Division Bench of Justice J.B. Pardiwala and Justice R. Mahadevan dismissed a series of appeals challenging the Delhi High Court's decision upholding the existence of a Permanent Establishment (PE) in India under Article 5(1) of the India-UAE Double Taxation Avoidance Agreement (DTAA). The Court affirmed that the hotel premises constituted a fixed place PE of the appellant company, thereby making its income taxable in India under Article 7(1) of the DTAA. The Bench observed that the appellant exercised "pervasive and enforceable control over the hotel’s strategic, operational, and financial dimensions" and rejected the contention that the role was merely advisory. The Court consequently upheld the High Court's judgement and dismissed all connected civil appeals.

The appellant, a company incorporated under the Companies Law, Dubai International Financial Centre Law No. 3 of 2006, in the United Arab Emirates, is a tax resident of the UAE under Article 4 of the DTAA. The company engaged in rendering hotel consultancy and advisory services, executed two Strategic Oversight Services Agreements (SOSA) on 04.09.2008 with Asian Hotels Limited (AHL), India – one for Delhi and another for Mumbai. Following AHL's reorganization, Asian Hotels (North) Limited assumed the agreement's obligations.

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Under the SOSA, the appellant agreed to provide strategic planning services and "know-how" to ensure the hotel was developed and operated as an efficient and high-quality international full-service hotel. The agreement permitted occasional and temporary visits by the appellant’s employees to India but mandated service delivery from Dubai.

For AY 2009-10, the appellant filed a 'Nil' return of income and claimed a refund of Rs.87,99,091/-. The Assessing Officer initiated proceedings under Section 142(1) read with Section 143(3) of the Income Tax Act, 1961. In response, the appellant stated that its income was not taxable in India as:

(i) there was no specific Article in the DTAA to tax Fees for Technical Services,

(ii) there was no fixed place of business in India,

(iii) its employees did not exceed the nine-month threshold under Article 5(2)(i) of the DTAA,

(iv) and it did not have a PE in India.

However, the Assessing Officer, by draft assessment order dated 28.12.2011, held that the appellant:

(i) had a business connection under Section 9(1)(i) of the Act,

(ii) had a PE under Article 5 of the DTAA,

(iii) received royalties and fees for technical services under Section 9(1)(vi)/(vii), and

(iv) received royalties under Article 12 of the DTAA.

Objections filed before the DRP were rejected, and final assessment orders were passed. Similar orders were passed for AYs 2010-11, 2011-12, and 2012-13.

Appeals before the ITAT were dismissed by common order dated 04.12.2019, wherein the Tribunal, relying on Formula One World Championship Ltd. v. CIT (2017) 15 SCC 602, held the appellant had a fixed place of business in India.

The appellant challenged these orders before the Delhi High Court. Similar assessment orders for AYs 2013-14, 2014-15, 2016-17, and 2017-18 were passed and challenged, eventually leading to eight appeals being clubbed before the High Court.

The High Court framed four questions of law, answering two against the appellant:

(ii) whether the appellant had a PE in India;

(iii) whether the ITAT's findings were perverse in view of SOSA's terms.

The High Court held that the appellant had a fixed place PE in India and exercised substantive control over hotel operations. The High Court answered question (i) in the appellant's favour and referred question (iv), relating to loss-making years, to a larger Bench.

Aggrieved by the High Court's findings regarding PE, the appellant approached the Supreme Court through Special Leave Petitions.

Before the Supreme Court, the appellant argued that:

• It rendered services exclusively from Dubai.

• It had no fixed place, branch, or office in India.

• Employee visits were brief and did not satisfy the threshold.

• There was no physical space at its disposal.

• Operational control lay with Hyatt India Pvt. Ltd., a separate legal entity under a different agreement (HOSA).

The respondent revenue argued that:

• The SOSA granted the appellant operational and strategic control.

• Employees operated from the hotel premises.

• The appellant exercised functional control over personnel, bank accounts, procurement, and branding.

• The appellant’s employees were stationed in India.

• Income was linked to hotel profits.

The Supreme Court, noting the appellant had fully paid the tax demand under protest, stayed penalty proceedings pending final adjudication.

The Bench recorded, "The appellant exercised pervasive and enforceable control over the hotel’s strategic, operational, and financial dimensions."

In discussing Article 5(1) of the DTAA, the Court stated, "The concept of ‘Permanent Establishment’ is well defined under Article 5 of the 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.'"

The Court stated, "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 Court relied heavily on Formula One (2017) 15 SCC 602, reiterating, "A PE must demonstrate the three core attributes of: stability, productivity, and a degree of independence. Among these, the 'disposal test' is pivotal."

Quoting Formula One, the Court recorded, "It is not necessary that the premises are owned or even rented by the enterprise. It will be sufficient if the premises are put at the disposal of the enterprise."

Addressing the appellant's argument on absence of a designated office, the Court held, "Temporary or shared use of space is sufficient, provided business is carried on through that space."

Further, "The actual role of the appellant is not just advisory in nature but extends to various other administrative roles."

"From the nature of functions carried out by the appellant, it cannot be said that they were performing merely 'auxiliary' functions."

Regarding the duration of the SOSA, the Court noted, "They were to be continuously performed over a period of twenty years, under an agreement that included revenue sharing."

On exclusive permission to conduct business from the premises, the Court held, "The test is not whether a formal right of use is granted, but whether, in substance, the premises were at the disposal of the enterprise."

Addressing the role of Hyatt India Pvt. Ltd., the Court noted, "It is well established that legal form does not override economic substance in determining PE status."

The Court differentiated E-Funds IT Solutions Inc. (2018) 13 SCC 294, stating, "In that case, the Indian subsidiary merely provided back-office support... In contrast, the hotel itself was the situs of the appellant’s primary business operations."

On frequency of employee visits, the Court observed, "The findings of the assessing officer, based on travel logs and job functions, establish continuous and coordinated engagement... the intermittent presence or return of a particular employee becomes immaterial."

The Court also quoted from the Delhi High Court's Larger Bench in Hyatt International Southwest Asia Ltd v. ADIT: "The activities of a permanent establishment are liable to be independently evaluated... we find ourselves unable to countenance the submission of the source State being deprived of its right to tax a permanent establishment or that right being dependent upon the overall and global financials of an entity."

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The Supreme Court affirmed the Delhi High Court's conclusion that the appellant had a fixed place PE in India within the meaning of Article 5(1) of the India – UAE DTAA. It declared that the income received under the SOSA is attributable to such PE and is therefore taxable in India.

The Court observed, "We find no merit in the appeals. Accordingly, all the appeals are dismissed. There shall be no order as to costs."

It further ordered, "Consequently, connected miscellaneous application(s), if any, shall stand closed."

The interim order staying penalty proceedings until further orders was not modified, suggesting its continuation until explicitly vacated.

Advocates Representing the Parties:

For Appellants: Ujjwal A. Rana, Himanshu Mehta, Gagrat & Co.

For Respondents: N. Venkatraman, Arijit Prasad, Rupesh Kumar, Raj Bahadur Yadav, Madhulika Upadhyay, Shashank Bajpai, V. Chandrashekhara Bharathi, Santosh Kumar, Diwakar Sharma.

Case Title: Hyatt International Southwest Asia Ltd. v. Additional Director of Income Tax

Neutral Citation: 2025 INSC 891

Case Number: Civil Appeal No. 9766 of 2025 & connected matters

Bench: Justice J.B. Pardiwala, Justice R. Mahadevan