Delhi High Court Partially Overturns Tribunal's Ruling on Hyatt's Service Payments and Confirms Permanent Establishment

Dated 22 December 2023

In 1993, Asian Hotels Limited and Hyatt International-Southwest Asia Limited entered into a service agreement, later replaced by contracts including a Strategic Oversight Services Agreement (SOSA) and trademark license agreements. By 2012, Indian tax authorities reclassified some service payments to Hyatt as royalties and claimed Hyatt had a Permanent Establishment (PE) in India. Hyatt challenged this, but the Income Tax Appellate Tribunal upheld the tax authorities' decision, prompting Hyatt to appeal to the High Court.

operations through Hyatt India, meeting the criteria for a PE.

The High Court partially overturned the Tribunal's decision, rejecting the classification of the service payments as royalties. It ruled that the fees paid to Hyatt were compensation for services under the SOSA and did not qualify as royalties under the Double Taxation Avoidance Agreement (DTAA). However, the Court agreed that Hyatt had a PE in India, citing Hyatt's control over hotel operations through Hyatt India, meeting the criteria for a PE.

The Court also upheld the Tribunal's requirement for Hyatt to annually detail the financial apportionment of revenue and losses to determine the profits attributable to the PE. It emphasized that profits from the PE in India could be taxed, regardless of losses in other jurisdictions, with further deliberations assigned to a larger bench.

A copy of the full judgment can be found at https://tpcases.com/india-vs-hyatt-international-southwest-asia-ltd-december-2023-high-court-of-delhi-case-no-ita-216-2020-cm-nos-32643-2020-56179-2022/