The Commissioner of Income Tax (Int. Taxation) v. Ernst & Young U.S. LLP Delhi High Court | Judgment dated 18 June 2026

CASE AT A GLANCE

• Court: Delhi High Court
• Judgment Date: 18 June 2026
• Parties: The CIT (Int. Taxation) v. Ernst & Young U.S. LLP
• Appeals: ITA Nos. 753/2025, 423/2025, 715/2025, 424/2025, 760/2025

BACKGROUND & FACTS

• EY US (assessee), a US limited liability partnership, provides assurance, tax, transaction and advisory services globally, including to Indian group entities.
• EY US seconded its employees to EY India entities pursuant to deputation agreements. Salary and related costs were reimbursed by EY India entities on a cost-to-cost basis (without markup).
• The Assessing Officer treated such reimbursements as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income-tax Act and Article 12 of the India–USA DTAA.
• The ITAT held in favour of the assessee. Revenue has appealed to the Delhi High Court.

KEY ISSUES (QUESTIONS OF LAW)

1. Secondment Reimbursements
   Whether the cost-to-cost reimbursements received by EY US for seconded employees from Indian group entities constitute FTS under Section 9(1)(vii) of the Act read with Article 12(4)(b) of the India–USA DTAA (i.e., do the services "make available" technical knowledge, experience, skill, know-how or processes)?
2. Professional Services from USA
   Whether the professional services rendered by EY US to Indian establishments are taxable as FTS under Article 12, or excluded due to Article 12(5)(e) read with Article 15 (Independent Personal Services) of the DTAA?

LITIGATION JOURNEY

1. Assessment Orders (AO): Reimbursements treated as FTS; additions made across AYs 2018-19 to 2022-23.
2. DRP Directions: Upheld AO's view that seconded employees impart technical know-how and satisfy "make available" test.
3. ITAT Orders: Held reimbursements not taxable as FTS; accepted assessee's contentions.
4. Revenue Appeals: Revenue challenged ITAT orders before the Delhi High Court (5 appeals).
5. High Court Judgment: Judgment delivered on 18 June 2026.

COURT'S DECISION

1. On Secondment Reimbursements
   The High Court held that the ITAT erred in law. The reimbursements received by EY US for seconded employees are taxable as Fees for Technical Services under Article 12 of the India–USA DTAA.

• Appeals allowed on this issue.
• ITAT orders set aside for all relevant assessment years.

2. On Professional Services from USA
   The Court did not give a final finding. The issue of applicability of Article 12(5)(e) read with Article 15 (Independent Personal Services) and the "make available" test is remanded back to the ITAT for fresh examination in accordance with law.

• Appeals allowed for statistical purposes on this issue.

DECISION FLOW (Secondment Issue)
EY US seconded employees to EY India entities → Reimbursements on cost-to-cost basis → Employees impart technical knowledge & expertise → Services satisfy "make available" test under Article 12(4)(b) of the DTAA → Reimbursements are FTS taxable in India

IMPACT & KEY TAKEAWAYS

• Substance Over Form: Legal character of secondment depends on substance, not merely contractual labels.
• Make Available Test: Transfer of technical knowledge, experience or skills to the recipient triggers FTS taxation.
• Cost-to-Cost Is Not Determinative: Reimbursement without markup does not, by itself, take it outside FTS scope.
• Documentation Matters: Robust secondment agreements, role delineation and functional analysis are critical.
• Remand for Further Examination: Professional services issue remitted to ITAT—facts and treaty provisions to be re-examined.

BOTTOM LINE
The decision reinforces that cross-border secondment arrangements can result in FTS taxation in India if the services make available technical knowledge, experience, skill, know-how or processes.