Summary and Analysis of Hyatt International Southwest Asia Ltd. vs. Additional Director of Income Tax (2025 INSC 891)
1. Heading of the Judgment
Hyatt International Southwest Asia Ltd. vs. Additional Director of Income Tax
(Civil Appeals Nos. 9766-9773 of 2025)
Core Issue: Whether the appellant (Hyatt) had a Permanent Establishment (PE) in India under the India-UAE Double Taxation Avoidance Agreement (DTAA), making its income taxable in India.
2. Related Laws & Sections
Income Tax Act, 1961:
Section 9(1)(i): Taxability of income through "business connection" in India.
Section 92F(iii-a): Definition of "Permanent Establishment" (PE).India-UAE Double Taxation Avoidance Agreement (DTAA):
Article 5(1): Defines PE as a "fixed place of business through which business is wholly/partly carried on".
Article 7(1): Profits taxable in India if attributable to a PE in India.Key Precedents:
Formula One World Championship Ltd. v. CIT (2017): "Disposal test" for PE.
*E-Funds IT Solutions Inc. v. ADIT (2018)*: Criteria for fixed place PE.
3. Basic Case Details
AspectDetailsPartiesAppellant: Hyatt International (Dubai-based hotel consultancy).
Respondent: Indian Tax Authorities.AgreementStrategic Oversight Services Agreement (SOSA) with Indian hotels (2008).Tax DisputeIncome tax levied on Hyatt for 8 assessment years (2009–2018).Key Claim by HyattNo PE in India; services rendered from Dubai; no control over Indian hotels.Courts BelowITAT & High Court upheld taxability, ruling Hyatt had a PE in India.Supreme Court OutcomeAppeals dismissed; Hyatt has a PE in India; income taxable.
4. Explanation of the Judgment
Background
Hyatt (UAE-based) signed SOSAs with Indian hotel owners (e.g., Hyatt Regency Delhi) to provide strategic oversight services.
Indian tax authorities levied tax on Hyatt’s income, claiming its activities created a PE in India.
Hyatt argued:
Services were advisory, rendered from Dubai.
No physical office/control in India.
Day-to-day operations handled by Hyatt India Pvt. Ltd. (separate entity).
Key Questions Decided
Did Hyatt have a "fixed place PE" under Article 5(1) of the DTAA?
Court's Ruling: Yes.
Reasoning:
The hotel premises qualified as a "fixed place of business" at Hyatt’s disposal.
Hyatt exercised operational control via SOSA terms:
Appointed key staff (e.g., General Manager).
Controlled branding, pricing, HR policies, and bank accounts.
Assigned employees to Indian hotels without owner’s consent.
Duration: 20-year contract ensured "stability, productivity, and dependence" (Formula One test).Was exclusive physical space necessary for a PE?
Court's Ruling: No.
Reasoning:
Shared/temporary use suffices if business is conducted through that space.
Hyatt’s employees frequently visited Indian hotels for oversight, embedding its presence.Could income be taxed in India despite Hyatt’s global losses?
Court's Ruling: Yes (affirmed High Court reference to Larger Bench).
Reasoning:
Taxability depends on profits attributable to the Indian PE, not overall entity profitability.
Dismissal of Hyatt’s Defenses
"No exclusive office" argument: Rejected. Physical space need not be exclusive (Formula One).
"Only advisory role" claim: Rejected. SOSA gave Hyatt enforceable control over operations, not just advice.
"Hyatt India handles operations" defense: Rejected. Legal form cannot override economic substance of control.
Reliance on E-Funds: Distinguished. E-Funds involved back-office support; Hyatt performed core business functions.
Final Ruling
Hyatt had a PE in India under Article 5(1) of the DTAA. Income from SOSA is taxable in India as it was attributable to this PE.
Key Takeaways
PE Test Focuses on Substance:
A "fixed place" need not be owned/leased; control and business use matter more.
Long-term contracts with operational influence = PE.Global Losses Irrelevant:
Only profits linked to the PE are taxable in the source country (India).Corporate Structure Not Decisive:
Separate entities may be ignored if economic control rests with the foreign enterprise.