The Supreme Court in its recent judgment in Hyatt International Southwest Asia Ltd. v. Additional Director of Income Tax 2025 INSC 891, addressed the question of whether a foreign entity providing strategic services to Indian hotels could be said to have a “Permanent Establishment” in India under Article 5 of the India-UAE Double Taxation Avoidance Agreement (DTAA).

Hyatt, a UAE-based company, had entered into two Strategic Oversight Services Agreements (SOSAs) dated 04.09.2008 with ASL, India - one in respect of the Delhi hotel and the other, for the Mumbai hotel. These agreements conferred rights to oversee brand standards, long-term planning, and operational strategy. Hyatt contended that its services were rendered entirely from Dubai, with only brief and incidental visits to India by its personnel. It argued that it had no Permanent Establishment in India and that its income was not taxable under Article 7 of the DTAA.

The assessing officer, however, asserted that Hyatt exercised substantive control over hotel operations in India. It pointed to the SOSAs, which allowed Hyatt to influence staffing decisions, financial planning, and brand implementation. It was argued that these rights amounted to Hyatt having a place at its disposal in India, thereby satisfying the “fixed place of business” test under Article 5 of the DTAA. The High Court had accepted this reasoning, holding that Hyatt’s presence and control over hotel premises constituted a Permanent Establishment. Hyatt appealed to the Supreme Court, challenging the finding regarding a Permanent Establishment and the consequent attribution of income.

The Supreme Court undertook a doctrinal interpretation of Article 5, focusing on the “disposal” test and the nature of business activities carried out in India. The Supreme Court relied at various precedents and held that a Permanent Establishment exists where an enterprise has a place at its disposal through which business is wholly or partly carried on. The Court found that Hyatt’s contractual rights under the SOSAs were not merely advisory but operational in nature. Hyatt’s personnel made regular, coordinated visits to India, and their activities were integral to the functioning of the hotels. The Court emphasized that physical ownership or long-term presence is not necessary to establish a Permanent Establishment; what matters is the degree of control and continuity of business activity.

The Court relied on its earlier decision in Formula One World Championship Ltd v. Commission of Income Tax (2017) 15 SCC 602 to reaffirm that the “disposal test” is not contingent on exclusive possession or legal title. What matters is whether the premises were functionally at the enterprise’s disposal and used to carry on its core business. The Court noted that Hyatt’s role extended beyond strategic planning-it included appointing key personnel, implementing operational policies, and exercising financial oversight. These functions were not auxiliary but central to the hotel’s operations.

Ultimately, the Supreme Court upheld the High Court’s decision, affirming that Hyatt had a Permanent Establishment in India and that income attributable to that Permanent Establishment was taxable. The judgment reinforces the principle that strategic and contractual control when exercised with continuity and operational impact can constitute a Permanent Establishment even in the absence of physical infrastructure.

By - Gurkaranbir Singh