Supreme Court Declares Hyatt Has Permanent Establishment in India, Must Pay Tax Under Indo-UAE Treaty [Read Judgement]

The Supreme Court of India held that Hyatt International Southwest Asia Ltd., a company incorporated in Dubai, has a permanent establishment (PE) in India under Article 5(1) of the Indo-UAE Double Taxation Avoidance Agreement (DTAA), and is therefore liable to pay tax on its income earned through hotel consultancy services in India.

Hyatt International entered into Strategic Oversight Services Agreements (SOSA) in 2008 with Asian Hotels Ltd. (India) to provide strategic guidance, brand alignment, and operational support for Hyatt-branded hotels in Delhi and Mumbai.

The company claimed that these services were rendered from Dubai, that it had no office or fixed place in India, and that its employees visited India only occasionally. Based on this, Hyatt filed tax returns declaring nil income and sought refunds.

The Assessing Officer issued orders stating that Hyatt had a business connection and a fixed place of business in India and that its income was taxable under Indian law and the DTAA. These findings were upheld by the Income Tax AppellateTribunal (ITAT) and the Delhi High Court.

The company's counsel argued that the SOSA only allowed for policy-level support from Dubai and that on-ground operations were handled by Hyatt India Pvt. Ltd., a separate legal entity. They also argued that the limited presence of Hyatt’s employees in India did not amount to a continuous business presence and that mere oversight of brand standards did not qualify as a fixed place PE.

The Revenue Department’s counsel argued that Hyatt exercised significant control over hotel operations, including appointing key staff, directing marketing and procurement, and making strategic decisions. They argued that even without exclusive office space, the company operated through hotel premises in a way that satisfied the legal test for a PE..

The bench comprising Justices J.B. Pardiwala and R. Mahadevan observed that Hyatt’s control over hotel operations, its right to assign personnel without hotel owner approval, and its revenue-linked fees indicated deep commercial involvement. They observed that the legal requirement was not exclusive use of physical space but the ability to conduct core business activities from a location in the source country.

The court further observed that the twenty-year agreement, strategic involvement, and continuous presence of employees established the elements of stability, productivity, and dependence necessary for a PE.

The argument that Hyatt's income should not be taxed due to global losses was also rejected, as the court clarified that tax liability depends on the activities of the Indian PE, not on the overall profits of the global entity.

The Supreme Court dismissed the appeals and upheld the Delhi High Court’s ruling, holding that Hyatt has a permanent establishment in India and that the income earned under the SOSA agreements is taxable in India under Article 7 of the DTAA.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates