Direct Tax Quarterly Milestones (July-September 2025)

The Supreme Court has held that Hyatt International Southwest Asia Ltd. (Hyatt International), a tax resident of the United Arab Emirates (UAE), had a fixed place permanent establishment (PE) in India under the provisions of the India-UAE tax treaty. Accordingly, income earned by Hyatt International from the provision of services to Asian Hotels Limited (AHL), an Indian unrelated entity, under the Strategic Oversight Services Agreements (Oversight Agreements), was taxable in India.

Hyatt International entered into Oversight Agreements with AHL to provide services to ensure that AHL’s hotels were developed and operated as efficient and high-quality international full-service hotels. Hyatt International filed a ‘nil’ return in India on the basis that its income was not taxable in India as it did not have a PE in India, and there was no specific article under the India-UAE tax treaty for taxing service fees.

However, the tax authorities, and subsequently the Income Tax Appellate Tribunal and the High Court, concluded that Hyatt International had a fixed place PE in India, considering the hotels as the situs of its primary business operations.

On appeal, the Supreme Court upheld the finding, making several key observations. It clarified that determining a fixed place PE is a fact-specific exercise, requiring assessment of factors like the non-resident’s right of disposal and degree of control, without a rigid formula. The Court found that the Oversight Agreements enabled Hyatt International to exercise ‘pervasive and enforceable control’ over the hotels’ strategic, operational, and financial aspects. Further, Hyatt International’s remuneration, structured as a percentage of room and other revenues rather than a fixed fee, indicated active commercial involvement.

This ruling provides valuable guidance on how agreements that confer long-term managerial authority, allow extensive control over day-to-day operations, such as appointment or supervision of key personnel, operation of bank accounts, or link compensation to operational profitability, may expose foreign entities to the risk of constituting a PE in India even in the absence of exclusive office space or continuous physical presence. It underscores the principle of substance over form. As a result, foreign companies and cross-border service providers must review and reassess the structure and terms of their Indian arrangements, ensure robust documentation of functions and control, and ensure that on-ground conduct is in line with documented agreements and protocols.

To read our detailed update on this ruling, please click here.

The Telangana High Court has held that sale and purchase transactions undertaken through the stock market do not fall under the purview of the General Anti-Avoidance Rules (GAAR) as outlined under the Income Tax Act, 1961 (ITA).

Facts of the case

Anvida Bandi (Petitioner) earned long-term capital gains on the sale of certain unlisted shares in the financial year (FY) 2019-20. Using the sale proceeds, the Petitioner acquired the shares of an Indian listed company (ListCo) in the same FY and sold them on the stock exchange, resulting in a short-term capital loss. The said loss was offset against the long-term capital gains earned by the Petitioner from the sale of unlisted shares.

The tax authorities alleged that the purchase and sale of shares of the ListCo constituted an impermissible avoidance arrangement (IAA) under the ITA, and therefore, GAAR provisions would apply. The matter was referred to the approving panel for GAAR, which held the transactions in the List Co to be an IAA.

Petitioner’s arguments before the High Court

The Petitioner contended that the tax authorities failed to demonstrate any ‘arrangement‘ with another party since the transactions were conducted through a stock exchange. The Petitioner relied upon the expert committee report, which contains an illustration stating that stock market transactions would not come under the GAAR provisions. It was also argued that these transactions were part of the normal investment activities of the Petitioner.

High Court’s ruling

The High Court allowed the writ petition and held that the purchase and sale transactions in ListCo constituted pure trading done by the Petitioner with no knowledge of the identity of the buyer. The Court observed there was insufficient evidence to deem the transactions an IAA, considering the Petitioner’s status as a regular investor who conducted such transactions through stock exchanges and a demat account, indicating that they were not isolated occurrences.

Further, the Court referenced the expert committee report, which unequivocally stated that stock market transactions do not fall under GAAR. Consequently, based on the factual matrix, the Court concluded that the transactions in question did not attract GAAR provisions.

This decision is significant as it provides judicial affirmation to the expert committee’s view that transactions executed on stock exchanges fall outside the scope of GAAR. It reaffirms the principle that where a transaction is backed by genuine commercial considerations and the tax advantage, if any, is only incidental, GAAR provisions would not apply.