The Supreme Court issued notice on an appeal submitted by Ernst & Young U.S. LLP contesting a ruling of the Delhi High Court carrying that payments obtained towards employees deputed (seconded) to Indian entities were taxed as Fees for Technical Services (FTS).
A bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran considered to analyze whether salary reimbursements to EY US can be taxed as FTS when the deputed employees function under the regulation of Indian entities and tax has earlier been deducted from their salaries.
The dispute emerged after the Income Tax Department deemed payments obtained by EY US from its Indian entities for the costs of deputed employees as taxable FTS. The tax demand has been carried forward by the dispute resolution panel.
The Income Tax Appellate Tribunal (ITAT) provided relief to EY US. It mentioned that the payments were reimbursements of salary expenses without any profit component and could not be considered as FTS.
Subsequently, the Delhi High Court set aside the ITAT rulings in favour of EY US regarding the secondment dispute. The Court held that the arrangement facilitated the transfer of technical knowledge and specialised skills to the Indian entities, thereby satisfying the “make available” test under the India-US Double Taxation Avoidance Agreement (DTAA).
The High Court stated, “The services rendered by the assessee herein include technical services which would satisfy the ‘make available’ test, for the reason that there is a transfer of skill/knowledge.”
EY US has contested this determination before the Supreme Court. It questions whether reimbursements for employees’ salaries can be deemed as consideration for technical services when the employees operate under the regulation of the Indian entities.
The dispute concerning the secondment of employees relates to a total of five assessment years, spanning from 2018-19 to 2022-23.
Read Also: Delhi ITAT: Cost-to-Cost Reimbursement for Seconded Employees Not Taxable as FTS
Furthermore, in four appeals brought before it, the Delhi High Court remanded the matters which concerned payments for professional services rendered from the US to Indian clients back to the ITAT for fresh consideration.
| Case Title | Ernst & Young U.S. LLP vs. Commissioner of Income Tax |
| Case No. | 36320/2026 |
| For Petitioner | Mr Percy Pardiwala, Mr Nishant Thakkar, Ms Jasmin Amalsadvala, Mr Nikhil Ranjan, and Mr Ranjan Nikhil Dharnidhar |
| Supreme Court | Read Order |
