Secondment Reimbursements Taxable as FTS | HC

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Secondment Reimbursements Taxable as FTS

Case Details: Commissioner of Income-tax (International Taxation)-1 vs. Ernst and Young U.S. LLP [2026] 187 taxmann.com 711 (Delhi)

Judiciary and Counsel Details

  • V. Kameswar Rao & Vinod Kumar, JJ.
  • Puneet Rai, SSC, Ashvini Kr., Rishabh Nangia & Gibran, JSCs for the Appellant. 
  • S. Ganesh, Sr. Adv. & Ms Ananya Kapoor, Adv. for the Respondent.

Facts of the Case

The assessee was a US-based member of the EY network. It entered into secondment agreements with EY India entities, under which its personnel were deputed to work in India. The assessee received certain amounts towards cost-to-cost reimbursement of the salary of seconded employees. The assessee claimed that the said amount was not taxable in India as it was a cost-to-cost reimbursement. However, the Assessing Officer (AO) opined that the secondees continued to be employees of the US entity who made available technical knowledge and expertise to the Indian entities. Thus, he treated the reimbursements as Fees for Technical Services (FTS).
The matter reached the Delhi High Court.

High Court Held

The High Court held that the AO had thoroughly examined the scope of services rendered and found that the secondees were deputed to India to impart and implement the EY Group’s culture, processes, policies, and standards within the Indian entities. Once such processes and policies were absorbed, the Indian entities could independently apply them in the future. The Court held that the secondees had made available technical knowledge, skill, and experience to the Indian entities and, therefore, the ‘make available’ condition stood satisfied.

Further, the secondees never ceased to be employees of EY US. The Indian entities had no authority to terminate their employment and could only end the secondment arrangement, enabling the secondees to rejoin EY US. The deputation agreements preserved the employment lien of the secondees with EY US, which retained overarching control over them throughout the assignment.

Additionally, Indian entities had the right to undertake legal or disciplinary action against misconduct, fraud, willful negligence, or any illegal action by any international assignee, and to terminate secondment before the agreed period, thereby relieving them from Indian entities to enable them to join the assessor. Accordingly, the Court held that the secondment arrangement was like a deputation, through which the secondees made their technical expertise and know-how available to the Indian entities.

Consequently, the payments received by the assessee from EY India entities towards secondment of employees were taxable in India as FTS under section 9(1)(vii) and Article 12 of the India–USA DTAA, as the services satisfied the ‘make available’ condition under Article 12(4)(b) of the DTAA.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied