Income Tax: Supreme Court Holds Hyatt has Fixed Place PE in India; SOSA Fees Taxable

Supreme Court bench constituting J.B. PARDIWALA and R. MAHADEVAN, has adjudged that Hyatt International, a company incorporated under the Companies Law, Dubai International Financial Centre Law No. 3 of 2006, in the United Arab Emirates (UAE), has Fixed Place Permanent Establishment in India under Indo-UAE DTAA.

Quoting Formula One (supra), the Apex court discussed what constitutes a “place of business” under Article 5(1) of the DTAA.

The question of what constitutes a “place of business” under Article 5(1) of the DTAA is no longer res integra. In Formula One (supra), this Court unequivocally held that for a Permanent Establishment (PE) to exist, two essential conditions must be satisfied: (i)the place must be “at the disposal” of the enterprise, and (ii) the business of the enterprise must be carried on through that place. The Court further held that a PE must demonstrate the three core attributes of: stability, productivity, and a degree of independence. Among these, the “disposal test” is pivotal, meaning thereby the enterprise must have a right to use the premises in such a way that enables it to carry on its business activities. This test is to be applied contextually, taking into account the commercial and operational realities of the arrangement.

The Supreme Court noted that the appellant exercised pervasive and enforceable control over the hotel’s strategic, operational, and financial dimensions.

In the present case, a detailed review of the SOSA executed between the appellant and AHL demonstrates that the appellant exercised pervasive and enforceable control over the hotel’s strategic, operational, and financial dimensions.

Specifically, the agreement vested the appellant with powers to:

– Appoint and supervise the General Manager and other key personnel,

– Implement human resource and procurement policies,

– Control pricing, branding, and marketing strategies,

– Manage operational bank accounts,

– Assign personnel to the hotel without requiring the owner’s consent.

These rights go well beyond mere consultancy and indicate that the appellant was an active participant in the core operational activities of the hotel.

As per the Supreme Court, “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.”

In view of the foregoing analysis, we affirm the findings of the High Court that the appellant has a fixed place PE in India within the meaning of Article 5(1) of the DTAA, and that, the income received under the SOSA is attributable to such PE and is therefore taxable in India.