Supreme Court to Examine Whether Employee Secondment Payments Constitute Fees for Technical Services
A significant international tax dispute involving Ernst & Young US LLP (EY US) has reached the Supreme Court of India. EY US has challenged a recent judgment of the Delhi High Court concerning the taxability in India of amounts received by the US entity in relation to employees seconded to its Indian group entities. The dispute primarily concerns whether such payments represent mere reimbursement of employment costs or constitute Fees for Technical Services (FTS) taxable in India under the India–US Double Taxation Avoidance Agreement (DTAA).
The matter relates to five assessment years, namely AY 2018-19 to AY 2022-23. The Delhi High Court delivered its judgment on June 18, 2026, ruling in favour of the Income Tax Department on the secondment issue. EY US has now approached the Supreme Court against that decision.
Background of the Dispute
EY US had seconded certain employees to EY entities in India for specified periods. During their assignments, the employees were involved in activities including implementation of group policies and processes, training of personnel and maintaining quality standards within the Indian entities.
The central question was whether the amounts paid by the Indian entities to EY US represented cost-to-cost reimbursement of salaries and related employee expenses, or whether the payments were consideration for technical services provided by the US entity.
The Income Tax Department treated the secondment-related receipts as Fees for Technical Services under Article 12 of the India–US DTAA. According to the Revenue, the seconded personnel transferred technical knowledge, expertise, experience and skills to the Indian entities. The Department therefore argued that the treaty’s “make available” requirement was satisfied.
ITAT Had Earlier Ruled in Favour of EY US
The Income Tax Appellate Tribunal (ITAT) had earlier accepted EY US’s contention that the payments were essentially reimbursements of employee costs. The Tribunal also considered the seconded personnel to have become employees of the Indian entities during their assignment.
Another important factor considered by the Tribunal was that the salary income of the seconded employees had already been subjected to Indian taxation, with the Indian entities discharging their tax-deduction obligations under Section 192 of the Income Tax Act.
According to EY US, the Indian entities bore the ultimate salary and employment costs, while EY US merely made payments for administrative convenience and subsequently received reimbursement of the exact amounts without any markup.
Delhi High Court Takes a Different View
The Delhi High Court, however, disagreed with the Tribunal’s conclusion on the secondment issue.
The Court examined the nature of the functions performed by the seconded employees and observed that their role included transferring technical knowledge, skills, experience and processes to the Indian entities. Since the Indian entities could subsequently utilise the acquired knowledge and processes without requiring the continued involvement of the US personnel, the Court considered the “make available” test to have been fulfilled.
Consequently, the receipts connected with the secondment were held to fall within the scope of taxable Fees for Technical Services under the India–US DTAA.
The High Court also considered the principle emerging from earlier secondment litigation, including the Centrica India Offshore decision, in evaluating whether the arrangement resulted in the provision of technical services by the overseas entity.
EY US Approaches the Supreme Court
EY US has now challenged the Delhi High Court judgment before the Supreme Court. The appeal raises important questions concerning the taxation of cross-border employee secondment arrangements and the interpretation of Article 12 of the India–US DTAA.
At the heart of the controversy is the distinction between a genuine reimbursement of employment costs and consideration paid for technical or consultancy services. The Supreme Court’s eventual determination could have wider implications for multinational groups that regularly transfer employees between overseas parent entities and Indian subsidiaries or affiliates.
Wider Tax Implications
The case is particularly relevant for multinational corporations operating through international secondment arrangements. The tax treatment of such arrangements may depend not merely on how payments are described in inter-company agreements or invoices, but also on the actual nature of the employees’ functions, the employment relationship, the obligations of the Indian entity and whether technical knowledge or expertise is effectively made available.
The Supreme Court’s decision will therefore be closely watched by taxpayers, multinational groups, tax professionals and the Income Tax Department.
For the moment, the Delhi High Court’s ruling represents the Revenue’s prevailing position on the issue, while EY US’s challenge before the Supreme Court keeps the controversy open for final adjudication. The outcome may provide important guidance on the taxation of employee secondment payments under India’s international tax framework.
Case: Commissioner of Income Tax v. Ernst & Young U.S. LLP
Delhi High Court: ITA Nos. 423/2025, 424/2025, 715/2025, 753/2025 & 760/2025
Judgment Date: 18 June 2026
Issue: Taxability of employee secondment payments as Fees for Technical Services under the India–US DTAA
Present Status: Challenged by EY US before the Supreme Court.