TMI Blog2024 (1) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... the DTAA. The AO did not accept that the Assessee did not have a PE in India - Tribunal held that the amounts received by the Assessee were royalties - whether the Assessee s income receipts from SOSA are liable to be taxed as royalties? HELD THAT:- In terms of Section 7 of Article III, it was agreed that the Assessee would identify, recruit and assist in appointing any non-local employees of the Hotel including General Manager, key personnel and Executive Committee Members for and on behalf of the Owner. However, it was also specified that the same would be in consultation with the Owner and it would have the right to approve such appointments. It is apparent from the plain reading of Article III and other provisions of SOSA that the Assessee had an overarching role in the management of the Hotel albeit at the policy level, with further right to oversee its implementation to ensure that the Hotel is operated as an upscale Hotel commensurate with the standards of the Hyatt chain of hotels Hyatt Operating Standards. It is also amply clear that the policies and procedures framed by the Assessee covered every aspect of the management of the Hotel. It is material to note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical Services (FTS). We are unable to accept the same. This is also inconsistent with the submissions advanced before this Court. The fee received is not fees for technical services but in consideration for wide range of services as discussed above. Since, the Assessee is in the business of providing such services for management of Hotels, the income is required to be classified as income from business. The first question is, thus, answered in the affirmative in favour of the Assessee and against the Revenue. Permanent establishment in India within the meaning of the DTAA - Whether the Assessee had sufficient control over the premises of the Hotel for the same to be construed at its disposal for carrying on its business.? - In terms of paragraph (1) of Article 5 of the DTAA, the term Permanent Establishment would mean a fixed place of business through which business of an enterprise is wholly or partly carried out. According to the Revenue, the Hotel premises constituted a fixed place through which the Assessee carried on its business in part. According to the AO, the Assessee had access to the chambers of the General Manager of the Hotel and the same could be construed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt that the Assessee had carried out its business activities through the Hotel premises. Admittedly, the Assessee also performed an oversight function in respect of the Hotel. This function was also carried out, at least partially if not entirely, at the Hotel premises. Assessee is correct in its submission that there is no provision in the SOSA, which entitled the Assessee to carry on any activity or business in respect of any other hotel from the premises of the Hotel. However, there is no specific bar that proscribed the Assessee s employees from making decisions or issuing policies in respect of management of other hotel while they were stationed or visiting the Hotel Premises in connection with rendering services under the SOSA. Since the Hotel premises were at the disposal of the Assessee in respect of its business activities, we find no infirmity with the Arbitral Tribunal s decision holding that an Assessee had a PE in India in the form of a fixed place through which it carried on its business. Given the nature of the Assessee s business, it is difficult to accept that the Assessee s senior employees deputed in India would completely be insulated from addressing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Advocates who appeared in this case: For the Appellant : Mr S. Ganesh, Senior Advocate with Mr U.A. Rana and Mr Himanshu Mehta, Advocates. For the Respondent : Mr Sanjay Kumar, Senior Standing Counsel for Revenue with Ms Easha Kadian, Advocate. JUDGMENT VIBHU BAKHRU, J. INTRODUCTION 1. Hyatt International Southwest Asia Ltd. (hereafter the Assessee ) is a company incorporated under the Companies Law, Dubai International Financial Centre (DIFC) Law No. 3 of 2006 in the United Arab Emirates (hereafter UAE ). It is a tax resident of the UAE under Article 4 of the Agreement between Government of India and the UAE for Avoidance of Double Taxation (hereafter the DTAA ). 2. The Assessee has filed the present appeals under Section 260A of the Income Tax Act, 1961 (hereafter the Act ) impugning the orders passed by the Income Tax Appellate Tribunal (hereafter the Tribunal ) in the respective appeals preferred by the Assessee against the orders passed by the Assessing Officer (hereafter the AO ) under Section 143(3) of the Act read with Section 144C of the Act in respect of the Assessment Years 2009-2010 to 2017-2018. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a common order dated 14.03.2023 in ITA 216/2019, ITA 217/2020, ITA 218/2020, ITA 219/2020, ITA 140/2021 and ITA 36/2022, had re-stated the questions that arise for consideration in these appeals as under: (i) Whether the Tribunal misdirected itself both in law and on facts in holding that service charges received by the Appellant under the various SOSA Agreements were taxable as royalty? (ii) Whether the Appellant has Permanent Establishment in India within the meaning of the Double Taxation Avoidance Agreement? (iii) Whether the findings recorded by the Tribunal, in paragraphs 56, 57 and 59 are perverse and contrary to the terms of the Strategic Oversight Services Agreement (SOSA)? (iv) Is Article 7(1) of the DTAA at all applicable to the Appellant, having regard to the fact that it has incurred losses in the relevant financial years? FACTUAL CONTEXT 9. This Court shall consider the facts relating to the assessment for the Assessment Year 2009-10 which is the subject matter of ITA No. 216/2020 for the purpose of addressing the aforesaid questions. 10. The aforesaid questions arise in the context of the following facts. On 04.09.2008, the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the services provided by it to the Owner during the relevant Assessment Year. The Assessee also provided details of the visits of its employees to India in connection with SOSA during the relevant Previous Year. In all, the Assessee s six employees had stayed in India during the relevant period for an aggregate period of 158 days (one hundred and fifty-eight days). The Assessee also provided the job description of its employees who had visited India during the relevant period. ASSESSMENT ORDER 16. The AO furnished a draft assessment order dated 28.12.2011 holding that the Assessee was actually operating the hotels belonging to the owners in each and every manner . The AO held that there was continuous presence of the Assessee through its employees or other personnel throughout the year. The AO concluded that apart from operating the Hotel, the Assessee also provided its proprietary, written knowledge, skill, experience, operational and management information and associated technologies etc. and therefore, its receipts constituted royalties as defined in Section 9(1)(vi) of the Act and Article 12 of the DTAA. 17. The AO held that the Assessee s activities constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 5(1) and Article 5(2) of the DTAA. 19.2 Second, that the AO had disregarded the audited financial statement (on global basis), which disclosed that the Assessee had declared losses. And, the AO had arbitrarily adopted 25% of the gross receipts as taxable income attributable to the Assessee s alleged PE in India. 19.3 Third, that the payment of ₹8,51,41,569/- received from the Owner under the SOSA was primarily for consultancy services and the AO had erred in treating the same as royalty under the DTAA on an erroneous assumption that it relates to the provisions of Know-how, skill, experience, commercial information and other intangibles. 19.4 Fourth, that the AO had erred in not granting an opportunity to the Assessee to clarify as to why the fees for consultancy services did not constitute payment for intangibles to be categorized as royalty. 20. The DRP rejected the aforesaid objections. Thereafter, on 21.11.2012, the AO passed the Final Assessment Order. TRIBUNAL S ORDER 21. The Assessee appealed the Assessment Order dated 21.11.2012 before the Tribunal. The Tribunal examined the terms of the SOSA and rejected the Assessee s contention that it d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties of any other enterprise too. Thus, it can be said that the assessee who is running the business operations at the premises available for constant disposal in the hotel can be said to be a place of business. The availability of an office premises to a foreign company in the premises of the contracting party in order to ensure that both the parties comply with their obligations to the contract for a long period of time will constitute a permanent establishment. As long as, the premises is at the disposal of the assessee and having the right to use the premises for the purpose of the assessee s business on behalf of the party to the agreement can constitute a fixed place PE. We also find that the physical criteria (existence of a geographical location), subject to criteria (right to use the place) and the functional criteria (carrying on the business through that place) as mentioned in the OECD principles with relation to the existence and determination of PE as held by the Mumbai Tribunal in the case of Air Linese Rotables Vs. DIT 131 TTJ 385 have been found to be met by the assessee before us, so as to treat them as having a PE in India. Though, it was argued that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Formula One World Championships prove that the assessee has got fixed place of business and can be considered having a permanent establishment in view of Article 5(1) of the DTAA. 58. With regard to the permanent establishment it has been examined whether the assessee has got PE in relation to Article 5(1) or Article 5(2) of the DTAA. Article 5(2)(i) stipulates a PE in case of the furnishing of services including consultancy services provided that such activities continue for the same project or connected project for a period or periods aggregating more than 9 months within any 12 months period. Thus, the period of stay stipulated only in relation to invocation of Article 5(2) but not with regard to Article 5(1) of DAA. Thus, we hold that based on the DAA of Indo-UAE under Article 5(1), the assessee is having a permanent establishment in India. 59. Further, various clauses of SOA such as the AHL cannot unreasonably withheld or delay the appointment of GM and appointment of employees as full time members of executive staff goes to prove the extent of control and management of HISWA in the affairs of the running of the business. The agreement provides absolute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961. SUBMISSIONS 25. At the outset, Mr. S. Ganesh, learned senior counsel appearing for the Assessee submitted that the conclusions of the AO and the Tribunal were premised on the reading of the SOSA and therefore, the questions whether the payments received by the Assessee were taxable as royalty and whether the Assessee had a PE in India, were required to be determined on a careful reading of the SOSA and the terms of the DTAA. 26. He submitted that the Tribunal had grossly erred in proceeding on the basis that the Assessee had complete control and discretion with respect to all aspects or operations of the hotel and that was totally involved in the maintenance and operation of running hotels even allowing the owner a very minimal role . He contended that the said conclusion disregards and ignores a crucial fact that the Owner had simultaneously while entering into the SOSA with the Assessee also entered into a Hotel Operation Service Agreement (hereafter HOSA ) with Hyatt India Consultancy Pvt. Ltd. (hereafter Hyatt India ) whereby Hyatt India had agreed to provide day-to-day management assistance and render technical assistance for the operation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the Assessee s contention that it only issues guidelines, is misleading. He contended that the guidelines would remain guidelines only if the Owner had the discretion not to accept the same. He submitted that the terms of the SOSA clearly indicated that the Owner could not reject or defy any guidelines or directions issued by the Assessee in respect of running the Hotel. He submitted that the Assessee s contention that the management services were provided by a separate entity was not tenable. He pointed out that Section 5 of Article III of the SOSA stipulated that all debts and liabilities to third persons in the course of operation of the guidelines would be that of the Owner and the Assessee would not be liable for the same. He contended that this clearly indicated that the Assessee had complete control over the Owner in the business of the Hotel. Such terms had the potential to affect the profit making capability of the Indian entity which in turn adversely affected the interest of the Revenue. Similarly, he referred to other clauses, which granted immunity to the Assessee in respect of any matter relating to the hotel or performance of the SOSA. He submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is partly offset by profits arising from India. In these circumstances, if it is held that the Assessee has a PE in India, prima facie the Assessee would be liable to pay tax on the income attributable to its PE in India notwithstanding the losses suffered in other jurisdictions. This aspect was not deliberated in the case of Commissioner of Income Tax (International Taxation)-2 v. Nokia Solutions and Networks OY. (2023) 455 ITR 157 35. This Court was of the view that the fourth question as raised by the Assessee ought to be referred to a larger Bench. This was recorded by this Court in an order dated 14.03.2023. However, the learned senior counsel appearing for the Assessee had requested this Court to consider the other questions and had asserted that the Assessee would not press the fourth question, if the Assessee s appeals are disposed of in its favour on the basis of the other questions as framed. The learned counsel for the parties had also agreed that if the appellant succeeded before this Court in respect of the first three questions, the Assessee would finally give-up the fourth question without any recourse. 36. In view of the above, this Court is confining f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that such activities continue for the same project or connected project for a period or periods aggregating more than 9 months within any twelve-month period. *** *** *** Article 7 Business profits 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. 2. Subject to the provisions of paragraph (3), where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. 3. In determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience but do not include royalties or other payments in respect of the operation of mines or quarries or exploitation of petroleum or other natural resources. 4. The provisions of paragraphs (1) and (2) shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein or performs in that other State independent personal services from a fixed base situated therein and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 5. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties, whether he is a resident of a Contracting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of a contracting state carries on business in the other Contracting State in which royalties arise through a permanent establishment and the right or property in respect of which the royalties arise is effectively connected with the permanent establishment. In such a case, provisions of Article 7 of the DTAA would apply. Thus, notwithstanding that the receipts are royalties, as defined in paragraph (3) of Article 12 of the DTAA, the same would be taxable as business profits. In such case the restriction that the amount of tax be limited to a maximum of 10% on the gross receipts as provided in paragraph (2) of Article 12 of the DTAA, would be inapplicable. Re Question no. (i) 43. The first and foremost question to be addressed is whether the Assessee s income receipts from SOSA are liable to be taxed as royalties. The expression royalty is defined in Sub-paragraph (3) of Article 12 of the DTAA to, inter alia, mean payment of any kind received as consideration for the use of or the right to use... artistic or scientific work ..any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use.. or for information concerning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve term of SOSA would be for a term of twenty years from the Effective date and could be extended for a period of ten years by mutual Agreement. 48. The SOSA would become operative subject to the approvals, if any, required by the Government. It is also provided that till the SOSA became effective, the Original Management Agreement would continue to be operative. 49. Article III of the SOSA sets out the covenants in respect of the Operation of the Hotel. In terms of Section 1 of Article III, the parties agreed that the Hotel would be operated consistent with the standards comparable to those prevailing in International Hotels Operated by Hyatt International and its subsidiaries ( Hyatt Operating Standards ). The Assessee agreed to provide strategic plans, policies, process, guidelines and parameters for operating the Hotel in a manner consistent with the Hyatt Operating Standards . 50. The Assessee also agreed to use its reasonable efforts to minimise conflict among Hyatt International Branded Hotels and the Hotel. 51. In terms of Section 2 of Article III of SOSA, the parties agreed that the Assessee would have complete control and discretion in formulating and estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y with the laws of India and the performance of its obligations hereunder. Owner acknowledges that it has selected Strategic Services Provider to provide strategic plans, policies, processes, guidelines and parameters in the operation of the Hotel in substantial part because of Strategic Services Provider's expertise in the management and operation of a chain of full service, upscale, international hotels and resorts, and the benefits which Owner expects to derive by including the Hotel as part of the chain of H.I-branded hotels. Owner further acknowledges that it has determined, on an overall basis, that the benefits of operation of the Hotel as part of the H.I. chain of Hotels are substantial, notwithstanding that not all H.I. Hotels will benefit equally by inclusion therein. Owner further acknowledges that in certain respects all hotels compete with all other hotels and that conflicts may, from time to time, arise between the Hotel and other H.I. branded hotels. Strategic Services Provider agrees, however, that it shall use reasonable efforts to minimize conflicts among H.I. branded hotels, and will in all events proceed, both in its provision of services to the Hotel and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of such overall strategic plans, policies, processes, guidelines and parameters will, among other matters, cover: (a) recruiting, interviewing and assistance in hiring the General Manager, and any other Hotel employees, to the extent of any such recruiting, interviewing and hiring needs to be conducted outside of India; (b) formulating and establishing overall human resource policies consistent with Hyatt Operating Standards including, without limitation, selection, employment, training, allocation, transfer and termination of employment of all employees of the Hotel, the establishment of the conditions of employment, staffing list and salary and benefit structures, and formulation and establishment of training and motivational programs for employees such as the Training for Your Future program and other training and motivational programs implemented from time to time in hotels managed by subsidiaries of H.I.; (c) establishing overall and strategic purchasing policies with respect to selection of goods, supplies (and suppliers) and materials, including without limitation food, beverages, operating supplies and expendables, Furnishings and Equipment and suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IV, below. Owner hereby confirms, acknowledges and agrees that the Know-How and any expertise arising therefrom or relating thereto shall be used only in connection with the Hotel and shall be provided to Service Provider by Owner solely for such purpose. Any use of the Know-How outside the context set forth herein, shall be deemed a default by Owner, subject to the immediate termination of this Agreement by Strategic Services Provider, solely at its discretion. Particular areas of such knowledge, skills, experience, operation and management information and associated technologies that comprise the Know-How furnished under this Agreement are generally described in Appendix 1, which forms an integral part of this Agreement. From and after the Effective Date, Strategic Services Provider shall provide to Owner, through the General Manager, access to and the right to use the Know-How, solely as required in connection with the operation of the Hotel, in written form, by electronic mail, or in any other appropriate form depending on the nature of the Know-How. Strategic Services Provider shall additionally provide to Owner, through the General Manager, with the special purpose soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipal offices outside of India, and further that all duties related to the day-to-day operations management assistance and technical assistance services as appropriate and required to operate and manage the Hotel within India shall be performed by Service Provider, employees of the Hotel, or their designees. It is further understood and agreed to by Owner that employees of Strategic Services Provider, H.I. and their affiliates will be in India only when, in the sole discretion of Strategic Services Provider, H.I. or their affiliates, their presence is required, and then only on a temporary basis. 53. In addition to the above, in terms of Section 4 of Article III of SOSA, the Assessee also agreed to establish policies with regard to handling of Operating Bank Account(s) for operating the Hotel. 54. It is apparent from the above that the Assessee was required to render services in the area of strategic planning, maintaining the Hyatt Operating Standards and covering all aspects of the operation of the Hotel. 55. Section 6 of Article III of SOSA provided for Assessee s entitlement for reimbursement of certain expenses. It was agreed that the Assessee would be reimbursed c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its and M.O.R.s averages two to three (2-3) weeks per audit or M.O.R. and the per diem charges range from US$200 to US$350 (in 2008 Dollars) dependent upon the seniority of the executives performing the audit, M.O.R. or training. * key executives (including, without limitation, expatriate personnel s) social benefits, including, without limitation, life, disability and health insurance, incentive compensation and pension benefits arranged by Strategic Services Provider or H.I. * premiums for the worldwide insurance coverage (including, without limitation public liability and crime insurance, such as employee fidelity and cash-in-transit coverage) maintained by Strategic Services Provider or H.I. 56. In terms of Section 7 of Article III, it was agreed that the Assessee would identify, recruit and assist in appointing any non-local employees of the Hotel including General Manager, key personnel and Executive Committee Members for and on behalf of the Owner. However, it was also specified that the same would be in consultation with the Owner and it would have the right to approve such appointments. 57. The Assessee was also required to formulate human resource polici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icies. The Assessee was called upon to provide the job description of various employees deputed during the Previous Year for rendering assistance for operation of the Hotel (as well as the hotel in Mumbai). A tabular statement indicating the name of the employee, designation and the job description as set out in the impugned order is reproduced below: Sr.No. Name of Employee Designation Job Description 1 Peter Fulton Managing Director Overseeing the operations of hotels per agreement Assistance in meeting the standards of operation, profitability, legal and financial fiduciary requirements Overseeing administrative duties, client relationship and budgets, resources utilization and reporting of information. Supervising the implementation of the Corporate Hotel Actions. Guidelines on maintaining Brand Standards and compliances with management contracts and agreements. 2 N.Ravichandran Director of Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Know-How would be in furtherance of the oversight and strategic planning services to be provided for the benefit of the Hotel . 63. In consideration of the host of services to be provided in terms of the SOSA, the Assessee would be entitled to fee (strategic fee as well as incentive fee) as set out in SOSA. It is clear that the said fee is not a consideration for use of or the right to use any process or for information of commercial or scientific experience. The fees payable is in consideration of providing the services as set out in SOSA and as highlighted above. 64. We are unable to accept the Revenue s contention that the fee received by the Assessee in terms of SOSA could be termed as consideration for use or for right to use any design, model, process and also for information concerning commercial and scientific experience. Indisputably, in terms of the SOSA, the Assessee had agreed to provide access. However, such access is only incidental to the services agreed to be provided by the Assessee. The obligation to grant access to information, knowledge and software is solely to certain information, written knowledge, skill and experience in furtherance of the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 9(1)(vi) read with Explanation 2 or in the nature of fee for technical services under section 9(1)(vii) read with Explanation 2 or taxable under article 12 of the DTAA. The payments received were thus, rightly held by the Tribunal, to be in the nature of business income. 66. In view of the above, the consideration received by the Assessee in terms of SOSA cannot be termed as Royalty under Article 12 of the DTAA. It is clearly in the nature of business income. 67. It is relevant to note that the Assessee had contended before the authorities that the amount received under SOSA was Fees for Technical Services (FTS). We are unable to accept the same. This is also inconsistent with the submissions advanced before this Court. The fee received is not fees for technical services but in consideration for wide range of services as discussed above. Since, the Assessee is in the business of providing such services for management of Hotels, the income is required to be classified as income from business. 68. The first question is, thus, answered in the affirmative in favour of the Assessee and against the Revenue. Re Question (ii) 69. The next question to be exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E must be a fixed place of business, which is at the disposal of an enterprise. Further, the Court had explained that for ascertaining whether there is a fixed place of business or not, PE must have three characteristics being stability, productivity and independence. The Court held that one of the principal tests to determine whether an enterprise has a PE or not is to determine whether the fixed place of business, stated to be the PE is at the disposal of the enterprise. The relevant extract of the said decision is set out below: 30. Emphasising that as a creature of international tax law, the concept of PE has a particularly strong claim to a uniform international meaning, Philip Baker discerns two types of PEs contemplated under Article 5 of OECD Model. First, an establishment which is part of the same enterprise under common ownership and control an office, branch, etc., to which he gives his own description as an associated permanent establishment . The second type is an agent, though legally separate from the enterprise, nevertheless who is dependent on the enterprise to the point of forming a PE. Such PE is given the nomenclature of unassociated permanent establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprise has a right to use the said place and exercises control over the said place of business. 74. According to the Revenue, the Hotel premises constituted a fixed place through which the Assessee carried on its business in part. According to the AO, the Assessee had access to the chambers of the General Manager of the Hotel and the same could be construed as Assessee s fixed place of business. 75. There is no cavil that the Hotel premises has all attributes of being a fixed place. The only issue is whether the Hotel was at the disposal of the Assessee through which it carried on its business. 76. In Formula One World Championship Ltd. v. Commissioner of Income Tax, International Taxation-3, Delhi Anr., the Supreme Court referred to the text of Klaus Vogel on Double Taxation Conventions and accepted the proposition that a fixed place would be at the disposal of the enterprise if it controls the place of business to a considerable extent. It is not necessary that the enterprise has any legal right to exclude other persons from the said premises or holds any legal interest in the fixed place, for it to be construed as at its disposal. It is sufficient that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be provided a space in the office of its client for the purpose of auditing the books of accounts of the said client. Although, the auditor may have an unhindered access, the space at his client s office cannot be construed his fixed place of business. This is because the access to the space is limited for the purposes of providing services to the specified client. A Chartered Accountant can neither service his other clients from the said premises nor use the same at his will to carry on any of his other activities. The Supreme Court had also referred to the decision of Canadian Federal Court of Appeal [William Dudney v. R., (1999) 99 DTC 147 (Can)] ruling that a self-employed engineer who had access to his customers premises to perform the services required under his contract but had no control over the premises because he had access only during the customers regular office hours and was not entitled to carry on business of his own from the said premises. 79. The duration for which the fixed place of business is at the control of the Chartered Accountant may not be material. In Formula One World Championship Ltd. v. Commissioner of Income Tax, International Taxation-3, De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SOSA not only provided the Assessee with unrestricted right to access the Hotel premises but also complete control over such premises. The Tribunal accepted that in view of the length and duration of the use by the Assessee and the non- invasive activities being carried out from the Hotel, the Assessee had certain amount of physical space at its disposal in the form of the Hotel premises. 84. There is no dispute that it is not necessary that an enterprise has a legal and exclusive control in respect of the fixed place of business for the same to be construed at its disposal. The plain test is to determine whether de facto the enterprise had sufficient control over the fixed place for the purpose of carrying on its business. It is relevant to note that SOSA was one amongst other agreements that were entered into contemporaneously. Whereas the SOSA was for providing overarching strategic services for management of the Hotel, the HOSA was for day to day management of the Hotel. 85. In terms of Section 4 of Article I of SOSA, the owner had warranted that it would maintain full ownership of the Hotel and subject to Section 2 of Article XVI of SOSA, keep the said property clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services Provider's rights pursuant to this Agreement. Notwithstanding the foregoing, if the performance by Strategic Services Provider of any of its obligations under this Agreement is prevented or interfered by any lender or any lessor (if the Site is subject to a lease) as a result of any default or breach by Owner under the applicable loan or lease documents, respectively, then any such inability of Strategic Services Provider to perform its obligations, arising therefrom, shall not be deemed a default or a breach of this Agreement by Strategic Services Provider. Owner shall timely pay and discharge any ground rents, or other rental payments, concession charges and any other charges payable by Owner in respect of the Hotel and, at its expense, undertake and prosecute all appropriate actions, judicial or otherwise, required to permit the operation of the Hotel as contemplated in this Agreement. Owner shall further timely pay all real estate taxes, personal property taxes and assessments that may become a lien on the Hotel and that may be due and payable during the Operating Term, unless payment thereof is in good faith being contested by Owner and provided enforcement t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid Section 2, it was agreed that the Assessee would have complete control and discretion in formulating and establishing the overall and general strategic plan with regard to all aspects of the operation of the Hotel including training, branding, marketing, product development and day-to-day on-site operations. 89. The Assessee may be correct in its submission that it was not required to carry on day-to-day management of the Hotel. However, it would be erroneous to accept that the agreements entered into by the Assessee did not provide a pervasive control. This is also apparent when one considers that the SOSA was entered simultaneously with Hyatt India (an affiliate of the assessee) entering into the agreement for managing the day-to-day operations of the Hotel. There is no dispute that the day-to-day management of the Hotel was required to be conducted in the manner and in terms of the policy and guidelines laid down by the Assessee. Article III of SOSA indicates that the policies would cover every aspect of functioning of the Hotel. 90. It is important to note that six senior employees of the assessee had visited India during the said term. The job description clearly ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Assessee had a PE in India in the form of a fixed place through which it carried on its business. 93. Given the nature of the Assessee s business, it is difficult to accept that the Assessee s senior employees deputed in India would completely be insulated from addressing the issues of other hotels under the management of the Hyatt Group, while they were at the Hotel. 94. In view of the above, the question no.(ii) is answered in the affirmative. Re Question No.(iii) 95. Insofar as the Tribunal s finding that the Assessee has a fixed place of business in India as it has sufficient control over the operations of the Hotel, this Court finds no infirmity with the same. 96. It is not necessary to examine whether the Assessee has a PE under Para 2 of Article 5 of the DTAA as the Tribunal has proceeded on the finding that the Assessee has a PE in terms of Article 5(1) of the DTAA. This is apparent from the Tribunal s conclusion in Paragraph 58 of the impugned order. 97. Insofar as the Tribunal s finding that the payments made are in the nature of royalty under Article 12 of the DTAA is concerned, we are unable to concur with the conclusion of the Tribunal as se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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