Supreme Court (2025)
Income deemed to accrue or arise in India; double taxation relief
Yes on both counts. Continuous and pervasive operational control exercised through the hotel premises establishes a fixed place permanent establishment, and attribution to a profitable Indian establishment does not depend on the global profitability of the enterprise.
Does a foreign hotel operator providing strategic oversight and operational services to Indian hotels have a fixed place permanent establishment, and can profits be attributed to it where the enterprise as a whole is loss-making?
A UAE-resident company within an international hotel group entered into strategic oversight services agreements with Indian hotel owners. Under those agreements it was responsible for the strategic planning and operational policy of the hotels, including brand standards, pricing policy, marketing, procurement norms and the appointment and supervision of key personnel, in return for fees linked to revenue and profit. Its personnel visited India regularly and had access to the hotel premises in performing these functions, though the hotels themselves were owned by the Indian parties. The Revenue held that the company had a permanent establishment in India and attributed profits to it; the company contended that it merely rendered advisory services from abroad and that, in any event, it had incurred losses at the enterprise level.
The matter was considered by a Full Bench of the Delhi High Court, which held that a permanent establishment existed, and came before the Supreme Court on appeal. The Supreme Court affirmed.
For the assessee
The hotels were owned and operated by the Indian parties, and the company had no premises of its own in India and no right of occupation. Its role was to provide strategic advice and brand standards, largely from outside India. Visits by personnel were periodic rather than continuous. Separately, where the enterprise as a whole has incurred a loss, there is no profit capable of being attributed to any establishment.
For the Revenue
The agreements gave the company pervasive control over how the hotels were run — from pricing and personnel to operating standards — and its personnel had continuous access to the premises to exercise that control. That is carrying on business through a place at its disposal. Attribution concerns the profits of the Indian operations, which were profitable, and is not governed by results elsewhere in the group.
The Court examined the substance of the arrangements rather than their description as advisory services. It found that the agreements conferred on the company comprehensive authority over the conduct of the hotels — control over strategic and operational policy, the ability to direct staffing and standards, and a continuing right of access exercised by its personnel — and that the company earned its remuneration by reference to the revenues and profits generated. On that footing the hotel premises were a place through which the company carried on its own business, satisfying the disposal test for a fixed place permanent establishment. The Court held that the regularity and continuity of the presence, taken with the degree of control, was sufficient, and that the absence of exclusive possession or ownership of premises does not preclude a permanent establishment. On attribution, the Court held that once a permanent establishment exists and the Indian operations are profitable, the profits attributable to that establishment are taxable in India irrespective of losses incurred by the enterprise globally. The permanent establishment is treated as a distinct and separate enterprise, and its results are not netted against the worldwide position of the head office.
A recent and significant addition to permanent establishment law under Sections 9 and 159 of the IT Act 2025, and the natural counterpoint to E-Funds and Morgan Stanley, where outsourcing and stewardship arrangements were held not to create one. The distinction lies in the degree of operational control: advisory input does not create a permanent establishment, but directing how a business is run, from premises to which the foreign enterprise has continuing access, does. It bears directly on hotel, retail and franchise management arrangements. Verify the citation before relying on it, as the decision is very recent.