Foreign companies with permanent establishment taxable in India: Supreme Court

New Delhi: The Supreme Court on Thursday held that UAE-based Hyatt International Southwest Asia, providing hotel consultancy and advisory services in India as part of its business operations, has a fixed place Permanent Establishment (PE) here, therefore the income received by it under its Strategic Oversight Services Agreement (SOSA) is taxable in the country.

A bench of Justices J B Pardiwala and R Mahadevan dismissed the appeals by Hyatt International Southwest Asia Ltd, while affirming the findings of the Delhi HC that Hyatt had a fixed place PE in India within the meaning of Article 5(1) of the DTAA (Double Tax Avoidance Agreement).

The High Court had said the income received under the strategic oversight services agreements (SOSA) is attributable to such PE and is, therefore, taxable in India.

The court noted that Hyatt's executives and employees paid frequent and regular visits to India to oversee operations and implement SOSA.

“The finding of the assessing officer, based on travel logs and job functions, establish continuous and coordinated engagement, even though no single individual exceeded the 9-month stay threshold,” the bench said.

The court also pointed out under Article 5(2)(i) of the agreement between the government of India and the United Arab Emirates for avoidance of double taxation (DTAA) Under Article 5(2)(i) of the DTAA, the relevant consideration is the continuity of business presence in aggregate – not the length of stay of each individual employee.

"Once it is found that there is continuity in the business operations, the intermittent presence or return of a particular employee becomes immaterial and insignificant in determining the existence of a PE," the bench said in its judgment.

The court held that the High Court was correct in concluding that Hyatt's role was not confined to high-level decision making, but extended to substantial operational control and implementation.