Hyatt may be declared a permanent establishment under the Double Taxation Avoidance Agreement, requiring payment of taxes in India, as per the ruling of the Supreme Court.
In a landmark decision, the Supreme Court of India has ruled that foreign companies exercising significant operational control over their local subsidiaries in India are considered to have a Permanent Establishment (PE) in India, making them liable to pay income tax there [1][2][3]. The Court upheld the Delhi High Court's decision, confirming that:
- Hyatt International Southwest Asia Ltd. (HISA), although a UAE-based company, had substantial operational control—including control over hotel operations, staffing, and strategic decisions—via its Strategic Oversight Services Agreements with Indian hotel subsidiaries [3].
- This control transcended a mere advisory role, fulfilling the criteria of a Fixed Place Permanent Establishment under Article 5(1) of the India-UAE Double Taxation Avoidance Agreement (DTAA) [1][2][3].
- The presence of an exclusive physical office is not mandatory; even shared or temporary premises under control can qualify as a PE [1].
- For tax purposes, this PE is treated as a separate taxable entity, allowing India to tax profits attributable to the PE even if the foreign parent company incurs global losses [2].
The ruling applies to the case of Hyatt International Southwest Asia Ltd. vs. Additional Director of Income Tax. The case originated from tax assessments for the years 2009-10 to 2017-18. Hyatt, a company incorporated in Dubai, entered into SOSAs with Asian Hotels Limited (now Asian Hotels (North) Limited) in 2008 for hotels in Delhi and Mumbai [3].
The Assessing Officer concluded that Hyatt's activities constituted a PE and classified the income as royalties and fees for technical services. The Delhi High Court ruled in Hyatt's favor on the issue of royalties but held that it had a PE in India due to its operational control over the hotels [1].
The IT department was represented by Additional Solicitor General N Venkatraman, Arijit Prasad, Rupesh Kumar, Raj Bahadur Yadav, Shashank Bajpai, V Chandrashekhara Bharathi, Santosh Kumar, and Diwakar Sharma. Hyatt was represented by Senior Advocate S Ganesh, Ujjwal A Rana, and Himanshu Mehta from Gagrat And Co. [2]
The ruling was made by a bench comprising Justices JB Pardiwala and R Mahadevan [1]. The Court noted that the SOSA granted Hyatt extensive powers, including appointing key personnel, setting policies, and managing finances [3].
The Court referred to its ruling in Formula One World Championship vs. Commissioner of Income Tax, International Taxation stating that a PE requires stability, productivity, and dependence [2]. The Court also emphasized that taxability of a PE depends on its business presence in India, not the enterprise's global profitability [2].
In essence, the ruling establishes that significant operational control through local subsidiaries effectively creates a taxable presence (PE) in India for foreign companies, thereby subjecting their attributable income to Indian taxation despite their foreign domicile or lack of exclusive offices [1][3]. The ruling further clarifies that foreign enterprises with significant control over Indian operations, even without a dedicated office, can be taxed in India if they meet the PE criteria [2]. The Court upheld the High Court ruling on the referred question, stating that the submission of global income being determinative of the question is unsustainable [2].
This landmark ruling by the Supreme Court of India signifies that foreign companies, such as Hyatt International Southwest Asia Ltd., with significant operational control over their Indian subsidiaries in areas like hotel operations, staffing, and strategic decisions, are considered to have a Permanent Establishment (PE) in India and are thus liable to pay income tax there [1][2][3]. In the case of Hyatt, their operational control transcended a mere advisory role, leading to their being classified as having a PE, despite being a company incorporated in Dubai [1]. This decision demonstrates that a foreign company's business activities in India, regardless of their global profitability or the absence of an exclusive office, can be subjected to Indian taxation if they meet the criteria for a PE [2].
