Case Title: Hyatt International Southwest … vs Dcit (International Taxation),…
Case No: ITA 215/2023 & CM APPL. 18200/2023
Decided on: 22 December, 2023
CORAM: JUSTICE VIBHU BAKHRU and JUSTICE AMIT MAHAJAN
Facts of the Case
Hyatt International – Southwest Asia Ltd., a company incorporated in Dubai, has lodged appeals challenging the orders issued by the Income Tax Appellate Tribunal concerning the assessment years spanning from 2009-10 to 2017-18. These appeals specifically pertain to Strategic Oversight Service Agreements (SOSA) entered into with Asian Hotels Ltd., subsequently rebranded as Asian Hotels (North) Ltd. The crux of the matter revolves around the contentions raised by the Assessing Officer (AO), who asserts that the assessee, Hyatt International – Southwest Asia Ltd., maintains a permanent establishment (PE) within the jurisdiction of India. The AO further contends that the receipts generated by the assessee should be categorized as royalties and fees for technical services. This classification forms the basis for the taxation assessments under scrutiny during the aforementioned assessment years. In essence, the legal dispute encompasses the characterization of the relationship between Hyatt International – Southwest Asia Ltd. and Asian Hotels (North) Ltd. through the Strategic Oversight Service Agreements, and the consequential determination of the tax implications arising from the alleged permanent.
Legal Provisions
Article 12 of the DTAA deals with the taxation of royalties. Article 5(1) of the DTAA defines Permanent Establishment (PE). Section 44A of the Income Tax Act relates to computation of income.
Issues
Whether the Assessee’s revenue receipts from SOSA are taxable as royalties under Article 12 of the Double Taxation Avoidance Agreement (DTAA)? Whether the Assessee has a Permanent Establishment (PE) in India under Article 5(1) of the DTAA? Whether the Tribunal’s decision on the taxability of receipts under Article 12 nullifies findings on the PE under Article 5(1)? Whether the fees received by the Assessee should be considered as royalty or business income?
Courts Analysis and Decision
In adjudicating the matter at hand, the court has rebuffed the Revenue’s contention characterizing the fee as royalty, citing a precedent involving Sheraton International Inc. Notably, the court underscores that the Assessee’s services pertain to the hotel industry, distinct from technical or consultancy services. A critical examination of the degree of control exercised over the hotel premises has been undertaken to ascertain the presence of a Permanent Establishment (PE). While acknowledging the Assessee’s supervisory role, the court scrutinizes the Tribunal’s stance on royalty, invoking considerations such as contractual agreements, the temporal aspect of the Service Operating and Support Agreement (SOSA), and discretionary powers concerning employee assignments as pivotal in establishing control. The court concurs with the Tribunal’s determination of the Assessee having a PE but directs the submission of particulars for the purpose of apportionment. Furthermore, the court expresses reservations regarding the Tribunal’s lack of elucidation on the taxability under Article 12 and its potential ramifications on the PE findings, seeking clarity on this matter.
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Written by- Komal Goswami
