TaxTMI 
TaxTMI 
2019 (12) TMI 1667
X X X X Extracts X X X X
X X X X Extracts X X X X
.... - Alleged Permanent Establishment in India of the Appellant under the Article 5(1) and 5(2)(i) of the India UAE Tax Treaty (the Tax Treaty) 1.1 On the facts and in the circumstances of the case and in law, the Assessing Officer ('AO') and the Dispute Resolution Panel ('DRP') erred in concluding that the Appellant has a Permanent Establishment ('PE') in India under Article 5(1) and 5(2)(i) of the Tax Treaty based on the following erroneous conclusions: a. That the Appellant had always a fixed place of business at its disposal throughout the year in the Hotel premises of its Customer in India, including the chambers of Managing Director; b. Its expatriates were continually present in India and are actually operating the Hotels belonging to the owners in each and every manner; c. The Appellant provides Central Reservation System (CRS) which constitutes place of business; and d. The assistance in recruitment of General Manager by the Hotel Owners / Customers and this oversight tantamount to deputation and that the Appellant also has a lien on such employment. 1.2 The Appellant prays that it operates entirely and renders various oversight and consultancy services from....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3.3 The Appellant prays that the conclusion of the AO / DRP in the re-characterization of the services / consultancy income streams under Strategic Oversight Services Agreement to 'Royalty' under the Act and the Tax Treaty and alternative taxation on gross basis be held to be void and un-warranted and as there is no Article in the Tax Treaty taxing 'Fees for Technical Services' in Source Country, it be held that the Appellant is not taxable in India. Ground No. 4 - Mistakes in calculation of income attributable and taxation of the alleged PE of the Appellant in India 4.1 On the facts and in the circumstances of the case and in law and without prejudice to the earlier grounds of appeal, the AO erred in computing the taxable income of the alleged PE in India at gross income (i.e. Rs. 8,51,41,569) instead of the business profits to be attributed at 25% at Rs. 2,12,85,392 (Rs. 8,51,41,569 * 25%) as concluded in the assessment order. 4.2 The AO erred in denying credit for TDS of Rs 87,99,091 while computing the demand payable by the Appellant. 4.3 The AO erred in levying of consequential charging of interest under Section 234B of the Act which is even otherwi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Act'). 3. The Assessee has entered into two Strategic Oversight Services Agreements ('SOSA') both dated 4 September 2008 with Asian Hotels Limited, India ('AHL') - one for AHL's Delhi Hotel and one for AHL's Mumbai Hotel. 4. The Assessee has provided to AHL strategic oversight services with respect to its Hotels in the form of assistance in formulating strategic plans, policies, processes, guidelines and parameters from time to time with respect to various aspects of hotel operations such as branding, marketing development, day-to-day onsite operations and other facets / parameters and received consultancy fees. 5. For the Financial Year ('FY') 2008-09 relevant to Assessment Year ('AY') 2009-10, the Assessee has received income of Rs. 8,51,41,569 on which taxes have been withheld at source by AHL aggregating to Rs. 87,99,091. 6. In the return of income filed on 29 September 2009, the Assessee claimed refund of Rs. 87,99,091 on the contention that its income from the services to AHL were not taxable in India under the Tax Treaty. This is because there is no specific Article on 'fees for technical services' under the Tax Treaty which could tax such income o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Establishment means a fixed place of business in which the business is carried out and in the case of assessee they did not have any fixed place of business, but were present intermittently for execution of the contracts and not stayed more than nine months in any particular year. He also argued that as per Article 5(2)(i), in the case of consultancy services by enterprise, an aggregate period of more than 9 months will only be considered as PE and since the assessee is in the business of consultancy services and not stayed for more than nine months, no Permanent Establishment can be attributed. 10. He also brought us to Article 7, where the taxability of the business profits is discussed as under: "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,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, Article 7 of the Treaty would not apply to such receipts. 12. The ld. AR has filed the Tax Residency Certificate of the assessee at page No. 9 of the paper book which reads as under: "TAX RESIDENCE CERTIFICATE The Ministry of Finance hereby certifies that, pursuant to the Agreement between The Government of the United Arab Emirates and the Government of the INDIA for Avoidance of Double Taxation and the Prevention of Fiscal evasion with respect to Taxes on Income and on Capital HYATT INTERNATIONAL - SOUTH WEST ASIA LIMITED. - LICENCE No: CL 0501 is qualified to enjoy the benefit of the mentioned Agreement as a resident in the United Arab Emirates. This certificate is valid from the date hereof and continuing for a period of one year. Issued in Dubai on THURSDAY the 29 / 01 / 2009 without any responsibility whatsoever on the Ministry of Finance." Sd/- Khalid Ali-Al-Bustoni Executive Director for Revenue and Budget 13. The ld. AR argued that FTS is chargeable in India in normal circumstances, but as per DTAA with UAE, owing to Article 7(7), FTS is not chargeable. He also argued that the profits of the enterprise of the contracting State shall be taxable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rector Revenue Management * Guidance on strategic planning, setting up pricing and distribution strategies * Guidance to hotels in their forecast process 6 Kamal Atal Internal Auditor * Guidance on internal controls with regard to Internal Audit of the Hotels. 14. The ld. AR reiterated his arguments about the taxability of the income earned in India and the submissions were given before the Revenue Authorities at page Nos. 79, 80, 81 & 82 of the paper book as under: "The Additional Director of Income tax, Range I, (International Taxation) Room No. 404, 4th Floor, Drum Shaped Building, I.P Estate, New Delhi- 110 002 25 August 2011 Dear Sir, Hyatt International South West Asia Limited('the Company'/'Hyat Dubai') Permanent Account Number: AACCH2598H Assessment Year (AY): 2009-2010 Notice issued under Section 142(1) r.w.s 143(3) of the Income-tax Act 1961 ('the Act') We are in receipt of the captioned notice (enclosed as Annexure 1) requiring us to furnish various details/information relating to captioned assessment year. In this regard, we would like to invite your attention to our previous submission dated 17 May 2011 (enclosed as Annexure 2) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Article dealing with 'Fees for technical services' under the Treaty, the receipt of such services constitutes 'business income' taxable only in accordance with Article 7 of the Tax Treaty read with Article 5 thereof. 3) Further, since Hyatt Dubai has no fixed place of business, office or branch in India and the presence of its employees or other personnel has not exceeded 9 months in India within any twelve month period, it does not constitute a Permanent Establishment in India as contemplated under Article 5 of the Treaty and therefore taxability under Article 7 of the Tax Treaty is not attracted 4) Without prejudice to the above, the Income received by Hyatt Dubai should not be taxable as per Article 22 of the Indo UAE Treaty, as income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in Treaty, shall be taxable only in that Contracting State.(i.e. Dubai) Our above contention is upheld by the cases enumerated in Appendix I." 16. He further argued that without prejudice to the above arguments, profits cannot be taxed in the Contracting State as per Article 22 of the Treaty regarding other income, which reads as under: "Article 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erations such as branding, marketing development, day-today onsite operations and other facets / parameters. For details refer our submissions dated 24 June 2011. v.) For the AY 2009-10, we have received income of Rs. 8,51,41,569 on which taxes withheld at source aggregate to Rs. 87,99,091. vi.) In our return of income filed on 29 September 2009, we had claimed refund of Rs. 87,99,091 as the income from the said services were not taxable in India as there is no specific Article on 'fees for technical services' under the Tax Treaty which can tax such income in India. vii.) During the financial year 2008-09 relevant to AY 2009-10, various personnel / employees of our company travelled to India and they stay in India for the purpose of rendering services aggregates to 158 days (kindly see revised working submitted to you vide our letter dated 15 December 2011). viii.) We had vide our submissions dated 17 May 201 land 15 December 2011 explained that the stay of our employees in India did not exceed 9 months in any twelve months period as stipulated under Article 5(2)(i) of the Tax Treaty and in absence of any specific Article in the Tax Treaty on 'Fees for Te....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a distinct place with a certain degree of permanence; c) The carrying on of the business of the foreign enterprise through this fixed place of business. This means usually that persons who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the foreign enterprise in the State in which the fixed place is situated. iv.) As per Paragraph 4 of the OECD MC, the term 'place of business' covers any premises, facilities or installations used for carrying on the business of the enterprise whether or not they are used exclusively for that purpose. A place of business may also exist where no premises are available or required for carrying on the business of the enterprise and it simply has a certain amount of space at its disposal. Again the place of business may be situated in the business facilities of another enterprise. This may be the case, for instance, where the foreign enterprise has, at its constant disposal, certain premises or a part thereof owned by the other enterprise. v.) In this regard, it is pertinent to note the following example cited in the OECD commentary, which suggest that regular presence of employees in the Other Contra....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rule can be said to have come into existence. x.) In Motorola Inc. v. DCIT (2005) 95 ITD 269 (Del SB) pp 401, the Special Bench of the Delhi Tribunal held that merely demonstrating that certain space is available to the non-resident is not enough and for a PE the non-resident must have a place / premises at its disposal as a matter of right. Reliance is also placed on the decision of Galileo International Inc. V. DCIT[2009] 116 ITD 1 (Del) which upheld similar principle. xi.) The Supreme Court in the case of Morgan Stanley and Co. (2007) 292 ITR 416 (SC) has held that the following two conditions need to be satisfied in order to create a fixed base PE: - Existence of a fixed place of business; and - Carrying out of business from such fixed place of business xii.) There have been several other judicial precedents supporting the above principles / proposition initially laid down by the OECD. xiii.) We submit that under the agreement, we have no right to use the premise of AHL and no premises of AHL are at our disposal. Thus, the location test as outlined in (a) above is not fulfilled. xiv.) Further, the term 'fixed' in the expression 'fixed place of business' postu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e business of AHL and we only render strategic oversight services as may be required to AHL under the agreement and this cannot be construed that we are carrying out any business in India. xxi.) In view of above, we submit that we do not constitute PE under Article 5(1) of the Tax Treaty and our constitution of PE in India, if any, needs to be evaluated under Article 5(2)(i) of the Tax Treaty only - see paragraph 2.2 below. xxii.) Without prejudice to our above submission, our case cannot be covered under Article 5(1) of the Tax Treaty due to specific coverage under Article 5(2)(i) of the Tax Treaty. This is due to the well settled principle that a specific provision prevails over general provisions. We place reliance on the decision of High Court of Uttarakhand in M/s BKI/HAM (2011) 15 taxmann.com 102 which has upheld this principle in the context of PE. In this decision the High Court has held that "Article 5(3) of the Treaty provides that in order to constitute a permanent establishment such site or project should continue for a period of more than six months in order to constitute a permanent establishment Since a categorical finding of fact has been given by the appellat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ursuant to which our coverage under aforesaid Sub-Articles of Article 5 is not warranted due to specific coverage of our case under Article 5(2)(i) of the Tax Treaty. v.) Article 5(2)(i) of the Tax Treaty is reproduced as under: Article 5(2) The term "permanent establishment" includes especially: "(i) the furnishing of services including consultancy services by an enterprise of a Contracting State through employees or other personnel in the other Contracting State, provided 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" vi.) As submitted earlier, during the financial year 2008- 09, our employees have travelled to India for rendering services to AHL and number of calendar days of services (part / full days and more than one project at a time) during the year aggregate to 158 days. Refer submissions vide our letter dated 15 December 2011. vii.) As per paragraph 42.39 of the OECD MC, the number of days for Service PE is as per Calendar days regardless of the number of individuals performing such services during that day. This principle has also been upheld by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eged PE as per Article 7 of the India- UAE tax treaty, in India could only be of proportionate losses from the aggregate losses incurred by us. We reserve the right to submit the working of apportionment of revenue, losses, etc., on financial year basis with respect to work done outside India and work done in India (by the alleged PE) in later stages of the proceedings." 21. He also argued that even as per disposition test or location test, the assessee has got no fixed place which can be geographically determined to have executed work from that fixed place. He also argued that power of disposition test could not be satisfied if the customer of an enterprise were to make available certain premises to the enterprise for use by the latter in accomplishing and planning etc. or performing specific work there. He took us to the order of the Assessing Officer at page 4, 5 & 6, which read as under: "Fixed place of business- The submissions of the ld. AR OECD commentary: Fixed place of business The term "Place of business" covers any premises, facilities or installations used for carrying on the business of the enterprise whether or not they are used exclusively for that purpose. A ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee is carrying on activities related to the business of the former company and the office that is at his disposal at the headquarters of the other company will constitute a permanent establishment of his employer, provided that the office is at his disposal for a sufficiently long period of time so as to constituted a "fixed place of business"(see paragraphs 6 to 6.3) and that the activities that are performed there go beyond the activities referred to in paragraph 4 of the Article. 10. As can be seen from the above, the company always has a fixed place of business at its disposal throughout the year in Hotel premises, including the chambers of MD, and other expatriates who were continually present. Fixed placed of business were available and at the disposal of the assessee, throughout the year as is evident from details of stay of these expatriates. Though the assessee purposefully restricted the stay of employees below specified period, yet it is clear that the premises/place were available to the assessee for entire duration from which it had carried out its activities for performing its obligation under the strategic oversight agreements. A number of judicial precedents o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tific 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 of quarries or exploitation of petroleum or other natural resources." Reference may be made to the agreements as under:- In furtherance of the oversight and strategic planning services to be provided for the benefit of the Hotel pursuant to this Section 3. Strategic Provider shall provide to the Owner and the Hotel employees, exclusive use in the operation to the Hotel, the proprietary, written knowledge, skills, experience, operational and management information and associated technologies related to the operation of international, luxury full service hotels which Strategic Services Provider, and their affiliates have developed and accumulated over time as operators and managers of similar luxury, full service hotels throughout the world ( collectively, "know- How" ), subject to the provisions of Article IV. below. Owner hereby confirms, acknowledges and agrees that the Know-How and any expertise arising there from or relating thereto shall be used only in connection with the Hotel and shall be prov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....one of contention is whether it was at the disposal of the assessee and the permanency of such place. The assessee contended that - i. During the F.Y. 2008-09 relevant to A.Y. 2009-10, various personnel/employees of our company travelled to India and they stay in India for the purpose of rendering services aggregates to 158 days; /Para-vii of submission to the AO, PB-95) ii. The stay of our employees in India did not exceed 9 months in any twelve months period as stipulated under Article 5(2)(i) of the DTAA /Para-viii of submission to the AO, PB-95) iii. Under the agreement, we have no right to use the premises of AHL and no premises of AHL are at our disposal. /Para-xii of submission to the AO, PB-98) iv. During the F.Y .2008-09, our employees are have travelled to India for rendering services to AFIL and number of days of service (part/full days and more than one project at a time) during the year aggregate to 158 days and this cannot be construed to satisfy the degree of permanency test for constituting Fixed Place PE under Article 5(1) of the DTAA. /Para-xix of submission to the AO, PB-99)" 26. The claim of the assessee that it didn't have a place at its '....
X X X X Extracts X X X X
X X X X Extracts X X X X
....age of dutiable goods). Again the place of business may be situated in the business facilities of another enterprise. This may be the case for instance where the foreign enterprise has at its constant disposal certain premises or a part thereof owned by the other enterprise. At the same time, it is also clarified that the mere presence of an enterprise at a particular location does not necessarily mean that the location is at the disposal of that enterprise." (Emphasis supplied) 27. The Hon'ble Supreme Court further explained that the term "Place" should be understood and interpreted in the context as well as through the lens of the object and purpose of Art-5 of OECD/UN MC rather than as per characterization from a purely legal (both common & civil) perspective. This is a reiteration of what Hon'ble Supreme Court had observed in the case of Azadi Bachao Andolan. In that case it was held that the principles adopted in interpretation of treaties are not the same as those in interpretation of a statutory legislation. 28. While commenting on the interpretation of a treaty imported into a municipal law, Francis Bennion observes: "With indirect enactment, instead of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f "Disposal". It highlighted the differences of opinions/approach in the method of interpretation of the concept as adopted by OECD - a Liberal Subsidiary Approach (i.e. PE should be treated like subsidiaries) as against a more Stricter and legalistic approach by the Canadian and Indian Courts as well as the differences in the approach by the Indian Courts itself (i.e. Ericsson and another competing enterprise). The Hon'ble Supreme Court went on to build on and expand the concept as explained by Vogel i.e. "intensity of control" over the 'place' as the deciding factor for 'at the disposal' issue. It was recognized that this 'intensity of control' varies from activity to activity and depends upon the 'business activity' carried on by the enterprise from such place. As per Vogel "The degree of control depends on the type of business activity that the taxpayer carries on. It is therefore not necessary that the taxpayer is able to exclude others from entering or using POB." This approach and methodology was confirmed by Hon'ble Supreme Court when it held: "In all, the taxpayer will usually be regarded as controlling the POB only where he can em....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g period will be the decisive factor to create a PE. This expansion is further strengthened by another example provided, where a company engaged in paving a Road will constitute a PE. Following the OECD commentary, the words "through which" must be given broad interpretation in order to cover all business activities which are carried on at a particular location that is "at the disposal" of the enterprise for the purpose of performing such activities. The painter example does not offer any reference regarding the permission of the painter to enter a building, thus lacking of sufficient control over his assumed place of business. In that context it seems, that the mere performance of the business activity may constitute a PE according to the commentary, as long as an enterprise is exercising its business activity for a sufficiently long period of time. (P.244) The above observations show that the power to effectively control a location and the permanence of the business activities are interconnected issues. If an enterprise is able to exert a significant level of control over the place, the duration of an activity is less important in order to create a PE. In other words, if th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s from the operation of the hotel shall not be deemed to give owner any rights or obligations with respect to the operation or management of the hotel other than as expressly set forth in this agreement, [p. 19] 33. As evident from the above, the agreement not only provides the assessee with an unrestricted right to access the hotel premises but also the complete control over such premises. This clearly establishes the fact that the hotel premises were at the disposal of the assessee in view of the length and duration of their use by the assessee and the less invasive activities being carried on there from. It can't be denied that the assessee had certain amount of physical space at its disposal in the form of hotel premises. 34. Now coming back to the "temporal" aspect or the "Permanency Test", it may not be out of context to highlight the fact that the temporal aspect of this concept has been largely diluted in view of the decision of Hon'ble Supreme Court in the case of Formula One World Championships (Supra). While elaborating the concept, the Hon'ble Supreme Court held- "41 The High Court was also conscious of the fact that such an access or right to access wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xclusive circuit access - to the team and its personnel or those contracted by it, was for up-to six weeks at a time during the FI Championship season. This nature of activity, i.e. racing and exploitation of all the bundle of rights the FOWC had as CRH, meant that it was a shifting or moving presence: the teams competed in the race in a given place and after its conclusion, moved on to another locale where a similar race is conducted. Now with this kind of activity, although there may not be substantiality in an absolute sense with regard to the time period, both the exclusive nature of the access and the period for which it is accessed, in the opinion of the Court, makes the presence of a kind contemplated under Article 5(1), i.e. it is fixed. In other words, the presence is neither ephemeral or fleeting, or sporadic. The fact that RPC-2011's tenure is of five years, meant that there was a repetition; furthermore, FOWC was entitled even in the event of a termination, to two years' payment of the assured consideration of US$ 40 million (Clause 24 of the RPC). Having regard to the OECD commentary and Klaus Vogel's commentary on the general principles applicable that as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the visits of its employees are "occasional". The visits are mandated by a written contract and have been historically going on at a regular basis year after year. Although the appellant claims that the visits are only for a limited period, the truth is that the employees of the assessee have been visiting the premises of AHL year after year. Thus, the visits of the employees are NOT sporadic or one off affairs and there is a continuity and repetitiveness to it. 38. The issue under consideration by the Hon'ble Bench is the existence of Fixed Place PE under Art- 5(1) and under Art-5(2)(i) of the DTAA involving physical presence beyond mandated periods. The assessee has repeatedly emphasized that ''During the F. Y. 2008-09 relevant to A. Y. 2009-10, various personnel/employees of our company travelled to India and they stay in India for the purpose of rendering services aggregates to 158 days" (Para-vii of submission to the AO, PB-95) and "The stay of our employees in India did not exceed 9 months in any twelve months period as stipulated under Article 5(2)(i) of the DTAA" ('Para-viii of submission to the AO, PB-95). Thus, as can be seen, the assessee's contentions are p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... hotel. Right of Owner to receive financial returns from the operation of the hotel shall not be deemed to give owner any rights or obligations with respect to the operation or management of the hotel other than as expressly set forth in this agreement. iii. Sec-3 HISWA will formulate and establish the overall strategic plans - policies - processes - guidelines and parameters as per Hyatt Operating Standards. iv. Sec-6 Use/Advance own fund by HISWA to be reimbursed later, eligibility of Employees for social benefits of HI group, Tax free reimbursements etc. v. Sec-7 Owner can't unreasonably withheld or delay the appointment of GM & assignment of employees as full time members of Executive Staff Art-VI vi. Repairs & Maintenance of the Hotel [p.25] Art-VII vii. Sec-2 Provision of chain marketing, services, reservation services, gold passport services etc.[p.26-27] The AO in his order, as well as in my oral submissions during the course of hearing, have brought out how, the essence of the agreement between the assessee and AHL and the overwhelming and controlling power it allows to the assessee ensures the assessee achieve the above goal. The agreement allows ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ters of the other company will constitute a permanent establishment of his employer, provided that the office is at his disposal for a sufficiently long period of time so as to constitute a 'fixed place of business'..." 41. The contractual obligations and the nature of activities that the assessee is engaged in clearly necessitate the active involvement of the assessee in the business of AHL and as a natural corollary, the presence of its employees in it. All the above clearly goes on to demonstrate and prove that the assessee had a place of business at the premises of AHL from where it can ensure and control that not only the hotel is run and managed to its satisfaction, but also the other associated processes towards the maintenance of standards and quality as well as the exploitation of its commercial rights are being carried on. The AHL thus, afford a live connection amounting to business connection. For the very same reason, AHL also constitute a permanent establishment of the assessee in India because the assessee virtually projects itself in India, through it. Coupled with this, the fact that the salaries of the employees were paid by the assessee and the employees....
X X X X Extracts X X X X
X X X X Extracts X X X X
....igh quality international, upscale, full service hotel, and Strategic Services Provider desires to provide to Owner the strategic planning services and right to access and use the Know-How to be used solely in relation to the operations of the Hotel. NOW THEREFORE, the parties hereto covenant and agree as follows: ARTICLE I The Site and Design, Construction, Equipping and Furnishing of the Hotel Section 1. The Site. The Hotel is located at Bhikaiji Cama Place, Ring Road, New Delhi110 607, India ("Site"). Attached hereto and made a part hereof as Exhibit 1 is a correct and complete description of the boundaries of the Site. Section 2. Construction, Furnishing and Equipping of the Hotel. Owner has, at its own expense, constructed, furnished and equipped the Hotel, such that the Hotel would be in conformity with the standards consistent with "Hyatt Regency hotels in effect from time to time (collectively, "Hyatt Design Standards"). Section 3. Hotel. Subject to the terms and conditions of the Technical Services Agreement, the Hotel shall consist of: (a) the Site; (b) a hotel building or buildings, completely air conditioned, with (1) areas and facilities in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s are necessary or desirable to meet the Hyatt Design Standards and the Hyatt Operating Standards (as defined below). The items to be supplied by Owner under (3), (4) and, with the exception of spare parts, (5) of subsection (b) above are hereinafter collectively referred to as "Furnishings and Equipment". Upon completion of the Hotel Expansion" (as defined in TSA), the Hotel shall include the Hotel Expansion. 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 fill 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 services for the benefit of the Hotel pursuant to this Agreement and (b) mortgages or other encumbrances that provide that this Agreement shall not be subject to forfeitu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and expire at midnight on December 31 of the calendar year that contains the later to occur of (i) the twentieth (20th) anniversary of the date of the Formal Opening of the Hotel or (ii) the twentieth (20th) anniversary of the date this Agreement is taken on record by the Department of Tourism of the Government of India, provided that if either such date shall occur after August 31 of the applicable calendar year, the term and the initial Operating Term shall expire on midnight on December 31 of the calendar year following the calendar year which contains the twentieth (20th) anniversary of the Formal Opening of the Hotel or the twentieth (20th) anniversary of the date of record, as applicable. As used in this Agreement, "Operating Term" shall mean and include the initial operating term as aforesaid and any extension thereof. Section 2. Extension. Provided Service Provider is not in default under the terms of this Agreement and upon the mutual agreement of Owner and Service Provider, subject to the approval of the relevant Indian governmental authorities, the Operating Term, may be extended for one (1) period of ten (10) years. If the term is so extended, the Operating Term a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....greements or entry into marketing/publicity agreements or entry into management agreements or investment by whatever name called with any other person or entity in India in the field of hotel, tourism sector and related businesses. On the Effective Date (and from time to time throughout the Operating Term promptly following Strategic Services Provider's request), Owner shall (i) provide Strategic Services Provider its written irrevocable and unconditional noobjection/consent in the form set forth in Part I of Schedule A to this Agreement or such other form as may be required by Strategic Services Provider (or its holding or subsidiary companies, and any of its and their affiliates or group companies) for this purpose from time to time, and (ii) pass a resolution, in the form set out in Part II of Schedule A to this Agreement, of its directors at a board meeting or by circulation conveying its irrevocable and unconditional noobjection in this regard in favor of Strategic Services Provider, its holding or subsidiary companies, and any of its and their affiliates or group companies, and shall provide a certified copy of such resolution to Strategic Services Provider. ARTICLE III ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Provider, from time to time. Owner hereby consents to the ownership, management, licensing and operation by Strategic Services Provider and its affiliates of other hotels, and to the addition of other hotels to the chain of H.I.-branded hotels, wherever located (including the operation or addition of other hotels or hotel chains that may otherwise be deemed competitive with the Hotel). Section 2. Control of Strategic Planning of the Operation. Subject to the terms of this Agreement, Strategic Services Provider shall have complete control and discretion in formulating and establishing the overall general and strategic plan with regard to all aspects of the operation of the Hotel, including, without limitation, branding, marketing, product development, and day-to-day on-site operations, as more particularly set forth in Section 3 below, and subject always to the last paragraph of Section 3. Nothing herein shall constitute or be construed to be or to create a partnership or joint venture between the Owner and Strategic Services Provider, and the right of Owner to receive financial returns from the operation of the Hotel shall not be deemed to give Owner any rights or obligations....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(ii) use of the Hotel for customary purposes, (iii) charges for rooms and Hotel services, and (iv) all phases of promotion and marketing of the Hotel, including without limitation sales and marketing policies, determination of annual and long-term objectives for occupancy, rates, revenues, clientele structure, sales terms and methods, cash management policies, receipts of payments, collection of income and issuance of receipts for all services and any income from the operation of the Hotel; (e) furnishing the sales and marketing services and centralized reservations services as provided for in Section 2 of Article VII: (f) making available its own and its affiliated companies' personnel for the purpose of reviewing all plans and specifications for future alterations of the premises, and advising with reference to the design of replacement Furnishings and Equipment and the quantities required, and in general for the purpose of addressing operational problems and improving operations; and (g) establishing such other policies and consulting cm the implementation of the same as are necessary, customary and usual in the operation of a hotel in accordance with the Hyatt Oper....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Provider and the General Manager (and other Hotel employees under the supervision and with direction from Service Provider and the General Manager) in connection with the operation of the Hotel, as contemplated in this Agreement. Owner shall not transfer, assign or encumber the rights or the Know-How provided under this Agreement to any of its affiliates or any third party by any means, including, without limitation, sublicensing to an affiliate or a third party, unless such transfer is expressly approved in writing by Strategic Services Provider, in advance. Throughout the Operating Term, Strategic Services Provider shall keep Owner, through the General Manager, apprised of any and all improvements made with respect to the Know-How. These improvements shall be considered an integral part of the Know-How being provided hereunder and are therefore subject to the terms and conditions of this Agreement Strategic Services Provider shall provide to the General Manager, with such improvements to the Know-How free of any additional charge (other than the fees set forth herein). Owner acknowledges and agrees that throughout the Operating Term and upon the termination or expiration of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 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 of any costs and expenses incurred for the benefit of the Hotel operation in accordance with the provisions of this Agreement, (a) whether incurred (i) separately and distinctly from costs and expenses incurred on behalf of other hotels serviced by any member of the H.I. Group, or (ii) in conjunction therewith (including, without limitation, insurance premiums, advertising, business promotion, training and internal auditing programs, social benefits of the H.I. Group for which employees of the Hotel may be eligible, attendance of such employees at meetings and seminars conducted by members of the H.I. Group, and the Chain Marketing Services provided for in accordance with Section 2 of Article VIP, and (b) irrespective of whether such funds shall be paid to any third party or to any member of the H.I. Group or any other hotels operated or serviced by any member of the H.I. Group. If any member of the H.I. Group or any hotel opera....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ipal taxing authority, or any agency or instrumentality thereof, or bank charges or any other charges, and in accordance with the approval of the Reserve Bank of India, if required. In the event that the tax authorities of India, any state, local or municipal taxing authority, or any agency or instrumentality thereof shall impose any income, withholding, business tax, value added or other tax upon such reimbursements of costs and expenses, or deem such reimbursements to be income taxable to Strategic Services Provider (or other member of the H.I. Group), or there shall be imposed upon such reimbursements any bank charges or other charges, then the amount of such reimbursements shall be increased by such amount as shall be necessary such that Strategic Services Provider (or other member of the H.I. Group) shall receive the same amount of reimbursements it would have been entitled to receive had such taxes, bank charges CM- other charges not been applicable or assessed. Owner hereby agrees and shall ensure that the amount of such reimbursements shall be withdrawn from the Operating Bank Accounts of the Hotel, utilizing such United States Dollars or other currency freely convertible i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....odules to Strategic Services Provider upon the expiration or sooner termination of this Agreement, without any lien or charge. ARTICLE IV Infringement of Trademarks and Know-How Owner shall promptly notify H.I. and Strategic Services Provider in writing should Owner become aware of any of the following matters, which may arise at any time during the Operating Term, as well as all particulars related thereto: (a) any infringement or suspected or threatened infringement of the Trademarks or the Know-How, whether by reason of imitation or otherwise; (b) any allegation or complaint made by any third party that the use by Owner of the Trademarks or the Know-How hereunder may cause deception or confusion to the public or otherwise infringe any third party's intellectual property rights; or (c) any other form of charge or claim to which the Trademarks or the Know-How may be subject, provided, however, that Owner shall not make any admissions in respect of such matters other than to Strategic Services Provider, and provided further that Owner shall in every case furnish Strategic Services Provider with all information in its possession relating to such charges or claims....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n current fiscal year, after deducting from such Basic Strategic Fee payment all Basic Strategic Fee payments previously made to Strategic Services Provider during such fiscal year, and (b) Monthly, as a preliminary installment of its Incentive Strategic Fee, an amount equal to seven percent (7%) of the cumulative Gross Operating Profit during the then current fiscal year, after deducting from such Incentive Strategic Fee payment all Incentive Strategic Fee payments previously made to Strategic Services Provider during such fiscal year. For purposes of this Agreement, (i) "Room Revenue" shall mean all revenues and income of any kind derived from the rental of guest rooms and suites of the Hotel including any undistributed service charges relating thereto or arising therefrom) and the proceeds of use and occupancy (business interruption) insurance actually received (after deducting any necessary expenses in connection with the adjustment or collection thereof, (ii) "Revenue" shall mean the sum of Room Revalue and all other revenues and income of any kind derived directly or indirectly from the operation of the Hotel including, without limitation, service charges collected from....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r assessment not been applicable or assessed. Payment of Strategic Fees shall be in accordance with the exchange control regulations then in force. In the event that Strategic Service Provider obtains a nil or reduced withholding order from the Indian Revenue Authorities, the income tax withholding shall be in accordance with the order. If after the Effective Date, any taxes, other than in relation to income taxes, are levied upon the Strategic Fees by India, or any state, local or municipal governmental authorities, or any agency or instrumentality thereof, such taxes shall be borne and paid exclusively by Owner. Each party also agrees to extend all support to the other party in connection with the foregoing and will comply in all respects with such laws, regulations and the orders relating to the foregoing. Section 3. Year-end Adjustment If, for any fiscal year, the Strategic Fees payable to Strategic Services Provider under Section 1 of this Article in accordance with the profit and loss statement certified by the independent public accountant shall be less than the preliminary installments paid in accordance with Section 1 above, Strategic Services Provider shall repay th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rrent liabilities of the Hotel (including, without limitation, Strategic Fees and any payment or reimbursement for out-of-pocket and other expenses incurred by Strategic Services Provider, H.I. or any of their affiliates for the account of the Hotel in accordance with the terms of this Agreement or otherwise), and to assure the uninterrupted and efficient operation of the Hotel pursuant to the Hyatt Operating Standards and the performance by Strategic Services Provider of its obligations hereunder. Section 2. Chain Marketing Services, Reservation Services and Gold Passport Strategic Services Provider shall, in the operation of the Hotel and for the benefit of its guests, provide or cause its affiliates, Hyatt Chain Services Limited ("HCSL") and International Reservations Limited ("IRL") or other affiliates of Strategic Services Provider, to provide the following services outside of India, to the extent appropriate and furnished to other hotels operated by Strategic Services Provider and its affiliates. HCSL shall provide convention, business and sales promotion services (including, without limitation, the maintenance and staffing of H.I.'s home office sales force and regional....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the Hotel shall be increased. Strategic Services Provider shall cause its affiliates, HCSL and IRL, to provide Owner with a copy of the audited annual expenditure statements for Chain Marketing Services and reservation services. The amount to be reimbursed to Strategic Services Provider and/or its affiliates for Chain Marketing Services and reservation services shall be payable in the manner set forth in the last paragraph of Section 6 of Article III of this Agreement. Quoting from the agreement different clauses pertaining to 28 years lease to work from hotel, day-to-day operation etc., they have to management bank account. Thus, the disposal test is satisfied. 46. Regarding temporal test, since the agreement is for 20 years, relying on page No. 178, he argued that the assessee had got PE. The premises were at the disposal of the assessee throughout the period and the employees go occasionally cannot be accepted. He argued that even if section 5.2(i) is also applicable, the employees of the assessee have stayed for more than 9 months, the Revenues had to be taxed in India. It was also argued that as per page No. 6 para 11 of the assessment order, the agreement ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) decision of Uttarakhand High Court in the case of M/S BKI/HAM, iii) decision of Delhi Tribunal in the case of Motorola Inc., iv) Judgement of Supreme court in the case of Morgan Stanley," 52. The case laws relied upon by the assessee have been carefully considered and as the facts in the instant case are different, therefore, ratio of the aforementioned cases does not apply. 53. The ld. DR argued that the reply of the assessee that it does not have a PE in India is not acceptable in view of the scope of activities undertaken by it as per terms of the agreement with the Hotels. The MD and the other key management personnel of the Hotel are employees of the assessee company. They were present at the Hotels in every month of the years for actually managing the day to day operations of the assessee to achieve the stated objective of conforming to International Hyatt Standards. 54. In terms of Article 5(1), a PE is said to exist in the other contracting stage when an enterprise of one of the contracting state has a fixed place of business in India, in that other contracting state, through which business is carried out wholly or partly. 55. Heard the arguments of both the pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al 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 Lines Rotables Vs JDIT 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 carrying on their business. Thus, we find that the assessee has met the twin criterion of existence of a fixed place of business and carrying out of business from such fixed place of business as enunciated of the judgment of Hon'ble Supreme Court in the case of Morgan Stanley & Co. 292 ITR 416 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nected 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 DTAA. Thus, we hold that based on the DTAA 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 consultancy services to the hotel. Further, Section 2 pertaining to the control of strategic planning of the operation indicates that strategic service provider will have complete control and discretion in formulating and establishing the overall general and strategic plan with regard....