Supreme Court decision on Hyatt International vs. Addl. DIT
CA Ankit Marlecha
Ankit Marlecha is a Chartered Accountant and affiliate of the Association of Chartered Certified Accountants, United Kingdom (ACCA), Mr. Marlecha is a partner at Marlecha Surana & Associates, Bangalore.
He began his career with reputed firms such as H.C. Khincha & Associates and KPMG, gaining expertise in tax consultancy, litigation, and risk advisory services.
With over a decade of post-qualification experience, the professional has handled a wide range of domestic and international tax and regulatory issues. His work includes litigation and consultancy services for family trusts, listed companies, and high net-worth individuals. He has also represented clients before various Income-tax forums and tribunals.
Beyond practice, he has co-authored articles on diverse income-tax topics published on various platforms and has delivered lectures at Study Circles, SICASA, and other professional forums.
Introduction:
If you run the show, you cannot run from tax!!
The Supreme Court’s ruling in Hyatt International Southwest Asia Ltd. v. Addl. DIT [2025] 176 taxmann.com 783 is a landmark in India’s international tax law. The Court widened the scope of “Permanent Establishment” (PE) under Article 5(1) of the India–UAE DTAA, holding that substance prevails over form when foreign companies exercise real control over Indian operations. By drawing a sharp line between mere advice and effective operational command, the judgment sets important benchmarks for cross-border service arrangements. This article offers a detailed analysis of the decision, the principles that emerge, and its wider implications for multinational enterprises and tax administration in India.
Facts of the Case
The brief facts of the case are outlined below:
a. Hyatt International Southwest Asia Ltd. (“Hyatt”), a company incorporated in the Dubai International Financial Centre, is a tax resident of the UAE under Article 4 of the India–UAE Double Taxation Avoidance Agreement (DTAA).
b. It entered into two Strategic Oversight Services Agreements (SOSAs) dated September 4, 2008, with Asian Hotels Limited (AHL)—one covering a hotel in Delhi and the other in Mumbai.
c. Under these SOSAs, Hyatt agreed to provide strategic planning, branding, operational oversight, and know-how to ensure the hotels function as high-quality international full-service properties, in return for fees linked to hotel revenues. For the relevant assessment years, Hyatt declared ‘nil’ income in India.
d. Simultaneously, Hyatt India Consultancy Pvt. Ltd., an Indian entity, entered into Hotel Operations Services Agreements (HOSAs) for day-to-day operations and hotel management.
Findings of Lower Authorities
- The Assessing Officer (AO) found that Hyatt had significant functional control over the Indian hotels and treated the service fees received under the Strategic Oversight Services Agreement (SOSA) as taxable income in India. The AO held that Hyatt had a Permanent Establishment (PE) due to its control and involvement. This view was upheld by the Dispute Resolution Panel (DRP), which emphasized Hyatt’s operational role and the long-term contractual arrangement as evidence of a fixed place PE.
- The Income Tax Appellate Tribunal (ITAT) agreed with the AO and DRP, interpreting the SOSA as more than just an advisory agreement. The ITAT recognized Hyatt as having direct and enforceable influence on the hotels’ daily operations, including branding, staffing, and financial decisions. It rejected Hyatt’s argument that its activities were merely auxiliary or preparatory, affirming the substantial role Hyatt played.
- The Delhi High Court affirmed the ITAT’s conclusions, noting that Hyatt exercised functional control over the hotel premises, which constituted a fixed place of business. The Court highlighted that Hyatt’s personnel made frequent visits and maintained a continuous business presence in India through management involvement and revenue-linked services under the SOSA. Consequently, the High Court held that Hyatt had a PE in India under Article 5(1) of the India–UAE DTAA.
- The question before the Apex Court was whether Hyatt, through long-term SOSA and active control over Indian hotels, had a PE in India under the India–UAE DTAA.
Appellant’s Arguments before the Apex Court
The Appellant argued that the findings of the lower courts were erroneous on the following grounds:
a. The Appellant, Hyatt, argued before the Supreme Court that it did not maintain any fixed office or exclusive premises in India. There was no designated space or office at the hotel premises in Delhi or Mumbai that was either specifically reserved for or placed at the disposal of the Appellant.
b. It contended that its employees’ visits were infrequent, advisory in nature, and did not exceed the nine-month threshold set by Article 5(2)(i) of the DTAA for establishing a Service PE.
c. Hyatt also contended that it neither owned nor leased the hotel premises, nor exercised direct control over them, limiting its role under the SOSA to providing strategic and managerial advice—likening its interaction with the hotel to an auditor’s temporary use of a client’s facilities.
d. It further asserted that it had no employees or agents permanently operating under its control in India, negating the existence of a fixed place or agency PE.
e. Hyatt also relied on Article 5(4) to argue that its activities were merely preparatory or auxiliary and thus excluded from PE status.
f. Additionally, Hyatt maintained that, as it incurred global losses during the relevant periods, even if a PE existed, no taxable profits could be attributed to India.
Findings of the Supreme Court
The Apex Court concluded that Hyatt constituted a Fixed Place Permanent Establishment (PE) in India under Article 5(1) of the India–UAE Double Taxation Avoidance Agreement (DTAA), and was therefore liable to pay tax in India on income attributable to that PE. The relevant findings of the Supreme Court are summarised below:
a. The Court rejected Hyatt’s claim that a PE cannot exist without an exclusive physical office. Relying on the decision in Formula One[1], it clarified that even temporary or shared use of premises is enough if the foreign enterprise is conducting business activities from such premises. The Court clarified that “Exclusive possession is not essential – temporary or shared use of space is sufficient, provided business is carried on through that space… The functions performed by the appellant… were core and essential functions, clearly establishing their control over the day-to-day operations.[2]”
b. On the nature of Hyatt’s role, the Court found that it was not confined to giving advice. Instead, Hyatt’s functions went far beyond consultancy and extended into the “actual conduct of day-to-day operations of the hotels.” The Court observed “… 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.”
c. With respect to the argument that Hyatt India Pvt. Ltd. is a separate legal entity, the Court applied the principle of substance over form. It held “It is well established that legal form does not override economic substance in determining PE status. The extent of control, strategic decision-making, and influence exercised by the appellant clearly establishes that business was carried on through the hotel premises, satisfying the conditions under Article 5(1).”
d. The Court also distinguished the case of ADIT v. E-Funds IT Solutions Inc. (2018) 13 SCC 294. It noted that, unlike in E-Funds, where only back-office support services were provided, the present case involved the conduct of the main business functions of Hyatt through the Indian hotel premises.
e. On profit attribution, the Court upheld the view of the larger bench in Hyatt, which held that taxability was determined by the presence of a PE and profits attributable to it—not global profitability.
Key Legal Principles Established
The Supreme Court in Hyatt International established several crucial legal principles regarding the determination of a Permanent Establishment (PE)
a. It reaffirmed the findings in Formula One (supra), holding that exclusive possession is not required to create a PE.
b. The disposal test does not require formal rights such as ownership or lease agreements. Shared or temporary use of space suffices if the enterprise carries on business through that place.
c. Presence and control, rather than mere formalities or contractual definitions, govern the creation of a taxable PE under the DTAA framework
d. The actual nature and substance of the activities carried out by the enterprise take precedence over the formal contractual language
e. The continuity and regularity of business activities in India, rather than the duration of stay of individual employees, are determinative. The enterprise’s coordinated and ongoing presence was sufficient to establish a PE.
f. Intermittent but systematic visits supporting business operations cumulatively amount to a permanent presence
Concluding Remarks
The Supreme Court’s decision in Hyatt International represents an important development in India’s international tax framework, but it also brings new challenges. The ruling emphasizes economic substance and actual functional control over formal contractual structures, thereby lowering the bar for what can qualify as a Permanent Establishment (PE). This approach could extend India’s taxing rights to foreign enterprises that operate through service-oriented or asset-light models.
On one hand, the judgment reinforces India’s source-based taxation and aligns with global anti-avoidance initiatives. On the other hand, it creates uncertainty for multinational groups that rely on structured contractual arrangements, as the traditional indicators of a PE—such as exclusive office space or continuous employee presence—have been diluted. By treating agreements with wide operational involvement as sufficient for PE, the Court has blurred the conventional boundaries between advisory and operational functions.
Substance over form is no longer just a principle; after Hyatt, it’s the law of the land. The decision is likely to trigger closer scrutiny of cross-border service arrangements and a careful evaluation of “substance versus form” by taxpayers, consultants, and the tax authorities alike.
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