Foreign firm using shared premises in India liable to income tax: SC

SC rules foreign firm's control over Indian business via shared office space qualifies as a permanent establishment, triggering income tax liability

The Supreme Court on Thursday held that a foreign company may be taxed in India if it exercises substantial control over a local business — even without owning or exclusively occupying office space in the country, Live Law reported.

 

Clarifying the conditions that qualify as a permanent establishment (PE), the apex court ruled that even temporary or shared access to a fixed place, if used to conduct business, is enough to trigger tax liability under Indian law.   

 

Hyatt loses appeal in hotel tax dispute

 

The judgment came in a case involving Hyatt International Southwest Asia Ltd, which had appealed against a Delhi High Court ruling that held the company liable to pay income tax in India. The case centred on Hyatt’s Strategic Oversight Services Agreement (SOSA) with Asian Hotels Ltd, which operated Hyatt’s Indian hotels for over two decades.

 

 

A Bench of Justice JB Pardiwala and Justice R Mahadevan upheld the high court’s decision, concluding that Hyatt’s sustained involvement in hotel operations and its enforceable rights under the SOSA amounted to a PE.

 

Court says Hyatt’s role was operational, not just advisory

 

The top court observed that Hyatt’s function went beyond high-level guidance or branding and extended into operational control.  The agreement allowed Hyatt to implement policies and monitor compliance, which, the court said, satisfied the threshold for a Fixed Place PE under Article 5(1) of the India-UAE Double Tax Avoidance Agreement (DTAA), Live Law reported.

 

“From the contractual provisions, it is evident the appellant’s role was not confined to policy formulation,” the court said. “The control exercised clearly exceeds advisory capacity and aligns with PE criteria.”   

 

Exclusive ownership not required, SC affirms

 

Rejecting Hyatt’s argument that it lacked exclusive office space in India and that the local operator retained control, the court stressed that ownership is not essential to establish a PE, the news report said

 

Citing the 2017 ruling in Formula One World Championship Ltd vs CIT, the judges reiterated that continuous and substantial business control — even through temporary or shared premises — is enough to meet PE conditions.

 

Long-term agreement showed continuity and control

 

The court also emphasised the 20-year operational relationship between Hyatt and Asian Hotels Ltd. It noted that revenue-sharing terms and the presence of Hyatt’s staff on-site further demonstrated sustained control.

 

“The appellant’s ability to enforce compliance, oversee operations, and receive profit-linked fees showed a clear and ongoing commercial nexus,” the judgment said.

 

The Supreme Court ultimately ruled that the Delhi High Court was right to treat the hotel premises as Hyatt’s Fixed Place PE in India. The appeal was dismissed.