Introduction
The Supreme Court of India, in Hyatt International Southwest Asia Ltd. v. Additional Director of Income Tax, 2025 INSC 891, delivered a ruling on multinational taxation in India. The Court examined whether Hyatt’s business activities in India constituted a Permanent Establishment (PE) under the India–UAE Double Tax Avoidance Agreement (DTAA). This decision reflects India’s increasingly strict tax enforcement strategy, especially in sectors like hospitality, services, and the digital economy.
Background Facts of the Hyatt Tax Case
In 2008, Dubai-based Hyatt International LLC signed agreements with Indian hotel owners. These agreements claimed that Hyatt would only provide advisory services related to brand promotion, marketing support, and limited technical guidance. Importantly, the contracts stated that Hyatt had no role in daily hotel operations.
However, between 2009 and 2018, Hyatt’s senior management frequently visited India. They actively participated in hotel management decisions, including staffing, finances, vendor selection, procurement, and even room rate fixation. In practice, Hyatt was deeply involved in operational management. Yet, the company filed tax returns in India declaring zero tax liability, arguing that it did not have a PE under the India–UAE DTAA.
Indian Tax Department’s Argument
The Indian Revenue Department disputed Hyatt’s claims. It argued that Hyatt was not merely providing advisory services but was, in reality, managing and supervising hotel operations in India. The regular presence of Hyatt’s senior staff making crucial business decisions amounted to a fixed place Permanent Establishment under Article 5 of the DTAA.
Since business profits attributable to a PE are taxable under Article 7(1) of the India–UAE DTAA, Hyatt’s claim of zero taxable income was considered invalid.
Hyatt’s Defence
Hyatt’s defence relied heavily on contractual wording. The company argued that:
1. Its activities were restricted to advisory services and brand promotion.
2. It had no physical office space or permanent place of business in India.
3. Without such a physical presence, the conditions for a Permanent Establishment under the DTAA were not satisfied.
Thus, Hyatt maintained that the absence of a permanent office shielded it from Indian taxation.
Legal Issue: Defining Permanent Establishment under India–UAE DTAA
The central issue was whether Hyatt’s activities created a Permanent Establishment in India. According to Article 5 of the DTAA, a PE exists if a foreign company maintains a fixed place of business such as an office, branch, factory, or workshop—through which it conducts operations.
Modern tax jurisprudence, however, goes beyond physical premises. Courts adopt a substance-over-form approach, analysing the actual nature of foreign companies’ activities. If a company substantially conducts business in India, it may be considered to have a PE, even without an office or legal entity.
Supreme Court’s Ruling in the Hyatt Tax Case
The Supreme Court rejected Hyatt’s arguments and upheld the view of the tax authorities. It emphasized that Hyatt executives were not limited to giving advice but were actively engaged in hotel operations in India. Their consistent and significant involvement amounted to a Permanent Establishment.
The Court held that even without a registered office, Hyatt’s continuous presence in India constituted a PE. Accordingly, profits earned in India were taxable under Article 7(1) of the India–UAE DTAA.
This ruling confirmed that in taxation matters, substance prevails over contractual form.
Broader Context: India’s Tax Enforcement Approach
The Hyatt ruling aligns with India’s broader policy of tightening tax enforcement against multinational corporations (MNCs). Key measures include:
• Significant Economic Presence (SEP): Introduced to tax remote businesses earning from Indian consumers without physical presence.
• Equalisation Levy: Applied to online advertising and e-commerce transactions of foreign firms.
• General Anti-Avoidance Rule (GAAR): Prevents tax evasion through artificial or technical arrangements.
By recognizing Hyatt’s de facto management of hotels, the Court reinforced India’s commitment to taxing foreign enterprises that derive significant value from its economy.
Implications for Multinational Corporations in India
The Supreme Court’s decision carries important lessons for MNCs operating in India:
1. Office Not Essential for PE: A Permanent Establishment can exist even without leased premises if employees or agents regularly operate in India.
2. Risk of Reassessment: Foreign companies declaring low or zero income may face reassessment if evidence shows substantial business activity in India.
3. Industry Exposure: Sectors like hospitality, IT services, and consulting where foreign companies often understate presence are particularly exposed.
Conclusion
The Hyatt tax case underscores that business reality, not contractual wording, determines tax liability. Multinational corporations cannot avoid Indian taxation through carefully crafted agreements if their actions reveal active operational involvement.
By affirming substance over form, the Supreme Court aligned India’s tax system with OECD BEPS principles, ensuring that companies benefiting from the Indian market pay their fair share. The judgment sends a strong message: real business in India means real taxes.