In this case, the appellant, engaged in rendering consultancy services in the hotel sector, was a company incorporated in Dubai, and a tax resident of the UAE as per Article 4 of the Agreement between India and UAE for the Avoidance of Double Taxation DTAA. The issue related to taxing the hotel related services rendered by the appellant on the ground that the appellant has a Permanent Establishment (PE) in India in the form of a place of business under Article 5(1) of the DTAA.

A 2-Judge Bench of the Supreme Court held, “The question of what constitutes a “place of business” under Article 5(1) of the DTAA is no longer res integra. In Formula One World Championship Limited v. Commissioner of Income Tax, International Taxation-3, Delhi & Anr. [(2017) 15 SCC 602], this Court unequivocally held that for a Permanent Establishment (PE) to exist, two essential conditions must be satisfied: (i)the place must be “at the disposal” of the enterprise, and (ii)the business of the enterprise must be carried on through that place. The Court further held that a PE must demonstrate the three core attributes of: stability, productivity, and a degree of independence. Among these, the “disposal test” is pivotal, meaning thereby the enterprise must have a right to use the premises in such a way that enables it to carry on its business activities.

This test is to be applied contextually, taking into account the commercial and operational realities of the arrangement.” The Supreme Court held that the appellant had a fixed place PE in India within the meaning of Article 5(1) of the DTAA, and that income received was attributable to such PE and therefore taxable in India.