9911796707
TMI Blog2024 (1) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Article 12 of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces (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 as Assessee s fixed p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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 the issues of other hotels under the manageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh, 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 appeals against the order dated 21.11.2012 passed by the AO in respect of the Assessment Year 2009-10; order dated 28.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 entered into two Strategic Oversight Services Agreements (hereafter 'the SOSA') with Asian Hotels Limited, India. One in respect of a hotel (Hyatt Regency, D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 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 constituted (i) business connection under Section 9(1)(i) of the Act; (ii) PE under Article 5 of the DTAA; (iii) royalties and FTS under Section 9(1)(vi)/(vii) of the Act; and, (iv) royalti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 did not have a PE in India. 22. The Tribunal held that the amounts received by the Assessee were royalties. 23. The Tribunal referred to the decision of the Supreme Court in the case of Formula One World Champi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility 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 assessee has got no right to use the premises and no premises of AHL was at their disposal, we find on going to the agreements and the work executed, that the premises of AHL was very much at the disposal of the assessee for carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blishment 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 control to the assessee over the day to day management administration finance and all other sphere of the running of the hotel including opening and operating of the bank accounts. Thus, it cannot be held that the assessee is only giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther 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 the Hotel. He submitted that the SOSA could not be read in isolation and was required to be read in conjunction with the HOSA. This would clearly establish that the Assessee was not in control of the day-to-day management, administration, finance and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wner 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 there is no dispute that the Assessee had sent employees to India and they were working from the Hotel premises, thus, the Assessee had a principal place of business in the Hotel premises at its disposal. 31. He also relied on the decision of the Supreme Court in Formula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 further deliberations to the first three questions as set out above. Indo-UAE DTAA 37. The principal questions to be addressed is whether the Assessee's revenue receipts in terms of the SOSA are taxable as royalty and whether the Assessee has a PE in India within the meaning of the DTAA. 38. Before procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acting 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 determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. 6. Where, by reason of a special relationship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame 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 industrial, commercial or scientific experience." Thus, the main question is whether the Assessee's receipts in terms of SOSA is consideration for the use of or the right to use any scientific work, patent, trademark, design or model, a plan, secret formula or process or for information concerning commercial or scientific experience. 44. There is no dispute that the aforesaid question is required to be ascertained on a plain reading of the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 establishing the general and strategic plan with regard to all aspects of the hotel including branding, marketing, product development and day to day onsite operations. 52. In terms of Section 3 of Article III of SOSA, the Assessee agreed to formulate and establish overall strategic plans, policies, process, guidelines and parameters in accordance with the Hyatt Operating Standards. It was further agreed that the provision of strategic plans, policies, processes, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the provision of services to other hotels, in a good faith manner and in a manner reasonably deemed to serve the overall best interests, on a long term basis, of all H.I. branded hotels, including the Hotel; provided that the day-to-day management and operations of the Hotel are implemented in a manner consistent with the strategic plans, policies, processes, guidelines and parameters, rendered by Strategic Services Provider, from time to time. Owner hereby consents t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, 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 such other services and merchandise necessary for the proper operation of the Hotel, and as necessary, establishing policies to facilitate the purchase and procurement of utilities, equipment maintenance, telephone and other electronic communication services, vermin extermination, security protection, garbage removal and other services necessary for the operation of the Hotel; (d) determining policies on (i) the terms of guest admittance, (ii) use of the Hotel for customary purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls, 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 software to enable the use of certain Know-How, when necessary and to the extent required under the circumstances. Strategic Services Provider shall have the right to modify the Know-How in order to satisfy local requirements for operating the Hotel. Such modifications shall be made by Strategic Services Provider in its home country outside of India. Owner understands and acknowledges that Owner shall have no rights to the use of the Know-How, save for use thereof by Service Provider and the General Manager ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 costs for certain services including internal audits, management operation reviews and specialised training program. It is implicit that the Assessee had also agreed to render the said services. The relevant extract of Section 6 of Article III of SOSA is set out below: "Section 6. Strategic Services Provider's Right to Reimbursement. During the Operating Term, Strategic Services Provider may elect to advance or to cause H. I. or any of its affiliates (collectively, "H. I. Group") to advance its own funds in payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, 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 policies consistent with the Hyatt Operating Standards. The Assessee could also assign its employees on a temporary basis to discharge the function of full time members of the executive staff of the Hotel as well. Section 7 of Article III of SOSA is set out below: "Section 7. Employees of the Hotel. Strategic Services Provider shall, on behalf of and in consultation with Owner, identify, recruit and assist in appointing any non-local employees of the Hotel, including the General Manager, expatriate personnel, key executives and executive committee m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 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 * Assisting the operations of the finance department and local compliances. * Assistance with respect to the use of technology in the hotels and safeguard the confidentiality of finance data. * Assistance in aligning of finance activities with the Corporate Marketing Strategy and Functions of Divisional Office. * Oversee budgets and reporting of information 3 Nirbhik Goel Director of Human Resource * Guide the Human Resource Department in implementing the strategies of the Hotel Corporate Values, Culture, Policies and Procedures. * Assistance with respect to the recruitment and development of people. * oversee the payroll management, maximization of employee's productivity, manpower planning 4 Thierry Bertin Director of Sales and Marketing * Assistance in promoting and managing the Brand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided by the Assessee under SOSA and for operating the Hotel. Merely because the extensive services rendered by the Assessee in terms of the SOSA also included access to written knowledge, processes, and commercial information in furtherance of the services, cannot lead to the conclusion that the fee received by the Assessee was in the nature of royalty as defined under Article 12 of the DTAA. 65. In Director of Income Tax v. Sheraton International Inc., the Coordinate Bench of this Court had, inter alia, considered the question whether the fee received by Sheraton International Inc. (a company engaged in providing services to hotels in various part of the world) could be considered as royalty in terms of Double Taxation Avoidance Agreement between India and United States of America. The Commissioner of Income Tax (Appeals) in that case had held that the fee received by Sheraton International Inc. towards service for maintenance of high international standards as well as use of trademarks, trade name and stylized 'S', which were ostensibly provided free of charge, would constitute royalty under Section 9(1)(vi) of the Act and also under Article 12(3)(a) of the Indo-US DTAA. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has a permanent establishment in India within the meaning of the DTAA. The operative part of the impugned order (paragraph no. 58) indicates that the learned Tribunal had sustained the Revenue's case that the Assessee has a PE in India on the basis that it carried on its business through a fixed place of business - the Hotel. Accordingly, the Tribunal has held that the Assessee has a PE under Article 5(1) of the DTAA. Thus, the main issue to be determined is whether the Assessee has a fixed place of business in India which can be construed as its PE (Permanent Establishment) under Article 5(1) of the DTAA. 70. 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. 71. In Formula One World Championship Ltd. v. Commissioner of Income Tax, International Taxation-3, Delhi & Anr., the Supreme Court had referred to the text of "A Manual on the OECD Model Tax Convention on Income and on Capital" by Philip Baker Q.C. and had noted that the author had classified 'PE' as contemplated under Article 5 of the Organization for Economic Cooperation and D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that there is a possibility of a third type of PE i.e. a construction or installation site may be regarded as PE under certain circumstances. In the first type of PE i.e. associated permanent establishments, primary requirement is that there must be a fixed place of business through which the business of an enterprise is wholly or partly carried on. It entails two requirements which need to be fulfilled: (a) there must be a business of an enterprise of a contracting State (FOWC in the instant case); and (b) PE must be a fixed place of business i.e. a place which is at the disposal of the enterprise. It is universally accepted that for ascertaining whether there is a fixed place or not, PE must have three characteristics: stability, productivity and dependence. Further, fixed place of business connotes existence of a physical location which is at the disposal of the enterprise through which the business is carried on. ** ** ** ** ** 33. The principal test, in order to ascertain as to whether an establishment has a fixed place of business or not, is that such physically located premises have to be "at the disposal" of the enterprise. For this purpose, it is not necessary that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity. The extent of control required for the fixed place of business to be construed as the PE depends on the business activity carried on by the taxpayer. It is recognized that whilst certain activities may require a lesser degree of control over the place of business and yet be construed at the disposal of the enterprise, certain other activities may require a higher degree of control. 77. It is well accepted that an enterprise would be recognized as controlling the fixed place of business if it can use it at its discretion. In Formula One World Championship Ltd. v. Commissioner of Income Tax, International Taxation-3, Delhi & Anr., the Supreme Court had referred to the OECD Manual Convention and had noted as under: "The OECD MC shows a paramount tendency (though no strict rule) that PEs should be treated like subsidiaries (cf. Article 24(3) OECD and UN MC), and that facilities of a subsidiary would rarely been unusable outside the office hours of one of its customers (i.e. a third person), the view of the two courts is still more convincing. Along these lines, a POB will usually exist only where the taxpayer is free to use the POB: - at any time of his own choice; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its business through a fixed place of business - Buddh International Circuit. The said track was owned by Jaypee Sports International Ltd. (an Indian Company). The appellant (Formula One World Championship Ltd.) had granted the right to host the Formula One Grand Prix of India (event) to Jaypee Sports International Ltd. The Supreme Court accepted the finding that the appellant had full access through its personnel, to the said place (Buddh International Circuit) and could also dictate who are authorized to enter the areas reserved for it. Although, the said access was granted only two weeks prior to the event and continued till one week succeeding the date of event; the Court found that the appellant had sufficient control in respect of the said premises to be construed as its fixed place of business. 80. In view of the above, the issue to be addressed is 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. 81. The Tribunal examined the terms of the SOSA and found that the Assessee had sufficient control over the premises. The Tribunal noted that the term of the SOSA was twenty year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dversely affect the Assessee's performance on the services for the benefit of the Hotel. As noticed by the Tribunal, in terms of SOSA, the Owner was not entitled to use the Hotel as a collateral unless it obtained non-disturbance and attornment agreements acceptable to the Assessee from such lenders. It was obvious that this was to ensure that the Assessee's ability to continue performing the SOSA and realise its fees was not adversely affected by the Owner creating any encumbrance on the Hotel. The relevant extract of Section 4 of Article I of the SOSA is set out below: "Section 4. Title to the Hotel. Owner warrants that throughout the Operating Term (as defined below), Owner will maintain full ownership of the Hotel (or if Owner's right and interest in the Hotel is derived through a lease, concession or other agreement, Owner shall keep and maintain said lease, concession or other agreement in full force and effect throughout the Operating Term), subject to Section 2 of Article XVI, free and clear of any liens, encumbrances, covenants, charges, burdens or claims, except (a) any that do not materially and adversely affect Strategic Services Provider's performance of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 3 of Article III of SOSA expressly provided that the Assessee had no obligation and was not expected to assign any of its employees to India on a permanent basis. However, it did have the sole discretion to assign any one or more of its employees or employees of its affiliates to India on occasional basis. The relevant extract of Section 3 of Article III is set out below: "Section 3. Oversight and Strategic Planning Services ...Strategic Services Provider will have no obligation, and will not be expected to assign any of its employees to India on a permanent basis. If and when the need arises, Strategic Services Provider may elect, in its sole and absolute discretion, to assign to India one or more of its employees or the employees of its affiliates (including any H.I. branded hotel) on an occasional basis only. Further, it is understood and agreed to by Owner that Strategic Services Provider, H.I., and their affiliates (other than Service Provider) will perform their duties hereunder from and out of their principal offices outside of India, and further that all duties related to the day-to-day operations management assistance and technical assistance services as appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion coupled with the fact that the Assessee could depute its employees at its discretion, we find no infirmity with the decision of the Tribunal accepting that the Hotel premises would be sufficiently at the disposal of the Assessee through which it carries on its business. 91. It is apparent from the plain reading of the SOSA that the Assessee exercised control in respect of all activities at the Hotel, inter alia, by framing the policies to be followed by the Hotel in respect of each and every activity, and by further exercising apposite control to ensure that the said policies are duly implemented. The Assessee's affiliate (Hyatt India), was placed in control of the day to day operations of the Hotel in terms of the HOSA. This further ensured that the policies and the diktats by the Assessee in regard to operations of the Hotel were duly implemented without recourse to the Owner. As noted above, the Assessee had the discretion to send its employees at its will without concurrence of either Hyatt India or the Owner. This clearly indicates that the Assessee exercised control over the premises of the Hotel for the purposes of its business. Thus, the condition that a fixed place ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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