Foreign Entity Doing Business Through Temporary Premises In India Liable To Tax : Supreme Court Rejects Hyatt International's Appeal

The Supreme Court on Thursday (July 24) ruled that the existence of a Permanent Establishment (PE) is sufficient to attract tax liability for a foreign entity in India, even in the absence of exclusive possession of a fixed place of business. The Court clarified that temporary or shared use of premises, when combined with administrative or operational control, is adequate to establish a PE, thereby triggering income tax liability in India.

Holding so, the bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan dismissed Hyatt International's appeal against the Delhi High Court's order, which had held the company liable to pay income tax in India on income earned through its Strategic Oversight Services Agreements (SOSA) with Asian Hotels Ltd. for 20 years, the operator of Hyatt's hotel business in India.

The Court observed that Hyatt International exercised substantial control over the day-to-day operations of the hotels, going well beyond a mere advisory role thereby qualifying as a Permanent Establishment (PE) for the purposes of taxation under Indian law.

“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.”, the court observed.

An Argument was made by the Appellant-Hyatt International Ltd. that since the company, having its registered office at Dubai, UAE, do not have a designated space or office at the hotel premises in India, and the ownership and operational control of the hotel remained entirely with the Indian entity, therefore its mere involvement in policy decisions or enforcement of brand standards does not amount to a fixed place of business PE to attract income tax.

Rejecting such an argument, the judgment authored by Justice Mahadevan, relying on Formula One World Championship Limited v. Commissioner of Income Tax, International Taxation-3, Delhi & Anr. (2017) 15 SCC 602 observed that because the hotel premises were effectively at the disposal of Hyatt due to its continuous and substantial control over key operational aspects of the hotel business, therefore exclusive ownership or physical possession is not a precondition for establishing a PE and even shared or temporary access to premises can constitute a PE if the foreign entity conducts business through them.

“In Formula One, this Court expressly held that exclusive possession is not essential – temporary or shared use of space is sufficient, provided business is carried on through that space. The actual role of the appellant is not just advisory in nature but extends to various other administrative roles. In this case, the 20-year duration of the SOSA, coupled with the appellant's continuous and functional presence, satisfies the tests of stability, productivity and dependence. From the nature of functions carried out by the appellant, it cannot be said that they were performing merely “auxiliary” functions. Rather, the functions performed by the appellant, through its staff operating from the hotel premises, were not just limited for setting up a pattern of activities for the hotel, but were core and essential functions, clearly establishing their control over the day to-day operations of the hotel. Moreover, they were to be continuously performed over a period of twenty years, under an agreement that included revenue sharing. Therefore, the hotel premises clearly satisfy the criteria required to be classified as a “fixed place of business” or PE.”, the court observed.

“Accordingly, the High Court was correct in concluding that the appellant's role was not confined to high-level decision making, but extended to substantive operational control and implementation. 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 and control with the hotel's core functions. This nexus satisfies the conditions necessary for the constitution of a Fixed Place Permanent Establishment under Article 5(1) of the India – UAE DTAA.”, the court added.

Accordingly, the appeal failed and was hereby dismissed.

Cause Title: HYATT INTERNATIONAL SOUTHWEST ASIA LTD. VERSUS ADDITIONAL DIRECTOR OF INCOME TAX (and connected matters)

Citation : 2025 LiveLaw (SC) 738

Click here to read/download the judgment

Appearance:

For Petitioner(s) : Mr. S. Ganesh, Sr. Adv. Mr. Ujjwal A. Rana, Adv. Mr. Himanshu Mehta, Adv. For M/s. Gagrat And Co, AOR

For Respondent(s) : Mr. N Venkatraman, A.S.G. Mr. Arijit Prasad, Sr. Adv. Mr. Rupesh Kumar, Sr. Adv. Mr. Raj Bahadur Yadav, AOR Mr. Shashank Bajpai, Adv. Mr. V Chandrashekhara Bharathi, Adv. Mr. Santosh Kumar, Adv. Mr. Diwakar Sharma, Adv.