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Informist, Thursday, Jun. 18, 2026

 

NEW DELHI – The Delhi High Court Thursday held that cost-to-cost reimbursement on account of the secondment of employees would be taxable as fees for technical service under the Income Tax Act, 1961, as well as the India-USA Double Taxation Avoidance Agreement. It set aside the Income Tax Appellate Tribunal's order against treating cost-to-cost reimbursements of INR 2.06 billion received by Ernst and Young US LLP. as fees for technical service.

 

A secondment is a temporary arrangement where an employee is transferred from the current role to another position, department, or host organisation for a fixed period. The employee retains the original employment contract and returns to the home role once the secondment ends.

 

The high court said that it was clear that the secondees were working at Ernst and Young's Indian entities, during the period of assignment. On such assignment, the secondees continued to maintain their lien with the assessee, said the court. In fact the secondees were entitled to all available benefits, including social security from their employer Ernst and Young, it said. This makes the assignment of the secondees, akin to a deputation from Ernst and Young to the Indian entities, to enable the secondees to use the former's expertise of technical knowledge and make available the same to the Indian entities, for the Indian entities to then use the same for their working in future, it said.

 

The Indian entities of Ernst and Young could not have terminated the services of the secondees, and only has the right to undertake legal or disciplinary action against misconduct, fraud, willful negligence or any illegal action of any international assignee and terminate the secondment, prior to the agreed period and relieve them from their place to enable them to join Ernst and Young, said the court. This goes to show that the secondees never ceased to be the employees of Ernst and Young US and that the company retains an overarching control over them, said the court.

 

The high court said the appellate tribunal had erred in appreciating the application of "make available" clause, in the case of Ernst and Young, which is necessary for holding INR 509.94 million received as fees for technical service as per the India-US agreement. The "make available" requirement in the agreement dictates that technical or consultancy services are only taxable as fees for technical services if they empower the recipient to apply the technical knowledge, skill, or process independently. The secondees in the present case continue to be employees of the overseas entity Ernst and Young and satisfy the "make available" test as they transfer techniques and skills required for the operation of business, said the high court.

 

However, the high court remanded the case back to the appellate tribunal on the issue of taxability of receipts to Ernst and Young from professional services, application of "make available" clause in the agreement in the remaining cases. It also asked the appellate tribunal to examine the issue of whether Ernst and Young fell within the meaning of Article 12(5)(e) of the agreement, regarding the exception of no taxation on professional services rendered by an independent individual.

 

Ernst and Young is a limited liability partnership firm, incorporated under the laws of the US and is engaged in the business of providing professional services in the field of assurance, tax, transaction and business advisory services, to its clients across the globe, including India. The high court was hearing the issue of whether the payments received by Ernst and Young on account of secondment of its employees from assessment years 2018-19 to 2022-23 would be taxable as fees for technical services under the India-US agreement.  End

 

Reported by Surya Tripathi

Edited by Avishek Dutta

 

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