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Informist, Wednesday, Jan. 14, 2026

 

NEW DELHI – The Delhi High Court Wednesday set aside an income tax department order directing Ernst & Young LLP. to withhold tax at 5.25% for a proposed payment of INR 17.50 billion to UK-based Ernst & Young (EMEIA) Services Ltd. The court asked the income tax department to pass a fresh order, on an application filed by Ernst & Young seeking "nil withholding certificate", in view of its  conclusions in two weeks. 

 

"...in the absence of personnel physically performing services in India, there can be no rendering of services within India(by Ernst & Young (EMEIA)) and as such there can be no virtual service permanent establishment as contended by the revenue, more so, when such a concept is not contemplated by the DTAA (India-UK Double Taxation Avoidance Agreement) or the domestic Act," said the high court. It said the income tax department's argument that Article 5(2)(k) of the agreement merely requires furnishing of services through employees or other personnel within the contracting state and does not mandate physical presence "is unmerited".

 

The case has its genesis in the department rejecting petitioner Ernst and Young LLP.'s application for grant of "nil withholding certificate" for the proposed payment to Ernst & Young (EMEIA) Services, holding that it constitutes business income of the latter and is chargeable to tax. The department held that there existed a virtual service permanent establishment of Ernst & Young (EMEIA) Services in India as per Article 5(k) of the India-UK Double Taxation Avoidance Agreement.

 

The petitioner argued that earlier the court had given an order while interpreting a similar treaty provision in the context of the India-Singapore Double Taxation Avoidance Agreement. The provision only contemplates rendering of services by employees present within the contracting country and as such the concept of a virtual service permanent establishment cannot be read into the said provision, the court had ruled, said the petitioner.  End

 

Reported by Surya Tripathi

Edited by Tanima Banerjee

 

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