Permanent establishment taxation applies where integrated hotel operations in India are at the non-resident's disposal and control.

Payments for global reservation services were held taxable in India as business profits attributable to a fixed place permanent establishment. The Authority applied the settled PE test and found that the integrated hotel arrangement placed the Indian hotel at the non-resident's disposal, with exclusive and effective control over core functions including staffing, marketing, pricing, purchasing, capital improvements, technical inputs and reservation services. Because the receipts were effectively connected with the permanent establishment, Article 12 was displaced by Article 7, and the separate royalty and fees for technical services characterisation was not examined further.

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Issues: (i) Whether the payments received for global reservation services were chargeable to tax in India as royalty or fees for technical services, and whether the income was attributable to a permanent establishment in India.

Analysis: The agreements were read together as an integrated arrangement for the development, operation and management of the hotel. On that composite reading, the hotel in India was held to be at the disposal of the applicant. The applicant exercised exclusive and effective control over core hotel functions, including staffing, marketing, pricing, purchasing, capital improvements, technical inputs and reservation-related services. Applying the settled test for a fixed place permanent establishment, the Authority found that there was a fixed place in India, that the place was at the applicant's disposal, and that the applicant carried on its business through that place. Once the receipts were found attributable to the permanent establishment, the characterisation of the same receipts as royalty or fees for technical services was held to be unnecessary for the taxability question because Article 12 yielded to Article 7 where the income was effectively connected with the permanent establishment.

Conclusion: The payments for global reservation services were held taxable in India as business income attributable to the applicant's permanent establishment, and the royalty and fees for technical services characterisation was not examined further.

Ratio Decidendi: Where a non-resident's integrated hotel operations in India are carried on through a fixed place that is effectively at its disposal and under its control, the income from the relevant services is taxable as business profits attributable to the permanent establishment, and Article 12 does not govern the tax treatment if the income is effectively connected with that permanent establishment.

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