Operational control and not formal ownership or exclusivity is relevant for determining if appellant has a PE in India: SC
Hyatt International Southwest Asia Ltd. vs. Additional Director of Income Tax [2025 INSC 891]
Synopsis of the case and judgement:
1. Though the Strategic Oversight Services Agreements (SOSA) with Indian Hotels claimed services were to be rendered from Dubai, Hyatt International had operational control in Indian Hotels in so far as appointment of key staff, Implementation of branding, pricing, HR, and marketing policies, power to assign employees to hotel premises and revenue-based fee structure are concerned.
2. Hon. SC held that the hotel premises in India constituted a Fixed Place PE of Hyatt under Article 5(1) of the India–UAE DTAA. The income earned by Hyatt under the SOSA is taxable in India under Article 7 of the DTAA.
3. It rejected appellant’s argument that absence of exclusive office space or short employee visits prevented PE formation. It also clarified that economic substance and operational control override mere legal form or documentation.
Significance of the judgement:
1. The ruling reaffirms and builds upon the “disposal test” laid down in Formula One (2017), emphasizing that a PE exists even without exclusive possession or legal title, if the foreign enterprise has enforceable access and control over a fixed place through which it carries out core business functions.
2. Hyatt’s 20-year agreement, role in appointing senior staff, setting policies, and deriving performance-based fees were held sufficient to establish PE.
3. It also affirms India’s source-based taxation rights, independent of global profitability, in line with OECD’s BEPS Action.
What precautions should non resident corporations take now?
1. Review cross-border contracts for clauses that may imply operational control or strategic oversight in India.
2. Avoid long-term physical presence of employees unless essential—and track duration strictly.
3. Many MNCs use long-term management, franchising, or licensing contracts with Indian affiliates. This case sets a precedent for deeper scrutiny of such relationships.
The copy of the order is as under:
