Case Law (SC) – Profit attribution to a PE in India is permissible even if the overall foreign enterprise has incurred losses. It is well established that legal form does not override economic substance in determining PE status. 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 permanent establishment (PE). 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. even though no single individual exceeded the 9-month stay threshold. Further, the extent of control, strategic decision-making, and influence exercised by the appellant clearly establish that business was carried on through the hotel premises, satisfying the conditions under Article 5(1).
HYATT INTERNATIONAL SOUTHWEST ASIA LTD. v. ADIT [2025 INSC 891] dated 24.07.2025. Issue before Court is: - “Whether the appellant – Hyatt International Southwest Asia Ltd., a tax resident of the UAE, has a Permanent Establishment (PE) in India under Article 5(1) of the Indo – UAE Double Taxation Avoidance Agreement (DTAA), and consequently, whether its income derived under the Strategic Oversight Services Agreement (SOSA) is taxable in India” Decision: - “ 17. The appellant’s contention that the absence of an exclusive or designated physical space within the hotel precludes the existence of a PE, is misconceived. In Formula One, this Court expressly held that exclusive possession is not essential – temporary or shared use of space is sufficient, provided business is carried on through that space. The actual role of the appellant is not just advisory in nature but extends to various other administrative roles. In this case, the 20-year duration of the SOSA, coupled with the...
