In a landmark ruling dated 24 July 2025, the Supreme Court of India upheld the Delhi High Court's decision against Hyatt International Southwest Asia Ltd., confirming that a foreign entity operating through a shared or temporary premise can still be held liable to pay income tax in India. The verdict reaffirms that substantial operational control, not ownership, is the key to establishing a Permanent Establishment (PE) under the India–UAE Double Taxation Avoidance Agreement (DTAA).
"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." — Supreme Court Judgment
A two-judge bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan dismissed Hyatt's appeals, confirming the findings of the Delhi High Court and Income Tax Appellate Tribunal (ITAT), which had earlier held that Hyatt’s services through its Strategic Oversight Services Agreement (SOSA) gave rise to a taxable presence in India.
Case Background:
- Hyatt, incorporated in Dubai, signed a 20-year SOSA with Asian Hotels Ltd. (owners of Hyatt Regency Delhi and Mumbai) to provide strategic planning and operational guidance.
- Although Hyatt claimed it had no office or fixed place of business in India, it exercised continuous operational, strategic, and financial control over the hotel.
- ITAT and High Court ruled this constituted a Fixed Place PE, making Hyatt liable to pay tax on profits earned in India.
- No exclusive office in India.
- Employees stayed temporarily for oversight visits.
- Operations handled by Hyatt India Pvt. Ltd, a separate legal entity.
- No article in DTAA specifically allows taxation of Fees for Technical Services (FTS).
However, the Supreme Court rejected all contentions, holding that:
"Exclusive possession is not essential – temporary or shared use of space is sufficient, provided business is carried on through that space."
The Court emphasized that Hyatt’s long-term control over hotel staff, strategy, recruitment, branding, and operations met all the functional and legal tests for PE.
- Formula One World Championship v. CIT: Even limited access can establish PE if control is exercised.
- E-Funds Case: Distinguished, as Hyatt's role wasn’t auxiliary but integral to core business.
The SOSA agreement allowed Hyatt to receive performance-based fees tied to the hotel's earnings, demonstrating direct commercial involvement and further supporting the existence of PE.
“The appellant’s ability to enforce compliance, oversee operations, and derive profit-linked fees from the hotel’s earnings demonstrates a clear and continuous commercial nexus…” — SC Observation
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- The hotel premises constitute a fixed place of business.
- Hyatt has a Permanent Establishment in India under Article 5(1) of the DTAA.
- Profits attributable to such PE are taxable in India under Article 7(1).
“We find no merit in the appeals. Accordingly, all the appeals are dismissed.” — SC Bench
Cause Title: HYATT INTERNATIONAL SOUTHWEST ASIA LTD. VERSUS ADDITIONAL DIRECTOR OF INCOME TAX & ORS.