Ernst & Young (EY) has approached the Supreme Court against a Delhi High Court ruling that treats cross-border employee-secondment reimbursements as taxable Fees for Technical Services (FTS). The case now waits for a Supreme Court bench assignment.
The dispute traces back to a Delhi High Court judgment delivered by a Division Bench on 18 June 2026 in the CIT vs Ernst and Young U.S. LLP batch of appeals covering assessment years 2018-19 to 2022-23. The court set aside earlier ITAT orders and ruled in favour of the Income Tax Department on the secondment reimbursement issue.
At the core of the ruling is the “make available” test under Article 12 of the India-US Double Taxation Avoidance Agreement. Under EY’s arrangement, EY US seconded employees to EY India entities under a deputation agreement, with EY US raising cost-to-cost invoices for salary reimbursement without any markup. The Income Tax Department argued, and the court agreed, that the secondees continued to have an employment lien with EY US and transferred technical knowledge, skill and experience to EY India.
The court observed that EY India entities “had no power to terminate the relationship between the seconded employees and EY US.” Because the seconded personnel were deputed to implement EY Group policies and standards, and Indian entity employees could then apply those processes independently, the “make available” test stood satisfied.
EY has told the Supreme Court that the payments are only salary repayments and should not be recharacterised as FTS. The firm is expected to lean on ITAT’s earlier reasoning that secondees became employees of EY India for operational purposes and that cost-to-cost invoicing has no income element.
