Secondment of Employees & FTS under India-USA DTAA: Delhi High Court Upholds Make Available Test in EY US Case

 Ernst & Young U.S. LLP (ITA 423, 424, 715, 753 & 760 of 2025)

Introduction

On June 18, 2026, the Delhi High Court delivered a landmark ruling in Commissioner of Income Tax (International Taxation)-1 v. Ernst & Young U.S. LLP, fundamentally reshaping the tax treatment of cross-border employee secondment arrangements under the India-USA Double Taxation Avoidance Agreement (DTAA). The Division Bench of Justice V. Kameswar Rao and Justice Vinod Kumar set aside all ITAT orders and held that cost-to-cost reimbursements for seconded employees constitute Fees for Technical Services (FTS) under Article 12 of the DTAA.

Facts of the Case

EY US deputed its employees to three Indian EY entities for fixed tenures of two to three years under a Deputation Agreement. The Indian entities reimbursed EY US on a pure cost-to-cost basis—no markup or service fee was charged. EY US claimed that these reimbursements were not taxable as FTS since the secondees had become employees of the Indian entities. The Assessing Officer (AO) and Dispute Resolution Panel (DRP) rejected this contention, but the ITAT ruled in favour of EY US. The Revenue appealed to the Delhi High Court.

Key Findings of the Delhi High Court

1. Continued Employment Lien with EY US

The Court found that the secondees never ceased to be employees of EY US. Their lien on employment with EY US continued throughout the deputation period, and they retained social security and other benefits through EY US. Critically, the Indian entities could only relieve the secondees from their Indian assignment but could not terminate their employment relationship with EY US.

2. Substance Over Form

The Court rejected the ITAT's approach that mere cost-to-cost reimbursement without markup negates the FTS character. The label "reimbursement" and absence of markup are not determinative; the substance of the arrangement is the provision of technical services through personnel.

3. "Make Available" Test Satisfied

Applying Article 12(4)(b) of the India-USA DTAA, the Court held that the "make available" test was satisfied. The secondees came to India to implement EY Group policies, impart training, and transfer technical knowledge, experience, skill, know-how, and processes. The Indian entities were enabled to apply these techniques independently in the future, thereby receiving an enduring benefit.

4. Reliance on Binding Precedent

The Court held that the ITAT orders were per incuriam for ignoring the binding coordinate bench decision in CIT v. Centrica India Offshore Pvt. Ltd.. The facts were squarely similar—secondees retained lien with the overseas employer, continued to enjoy social security benefits, and the foreign entity retained the substantive employment relationship.

Conclusion

The Delhi High Court answered all questions of law in favour of the Revenue, setting aside the ITAT orders. On the separate issue of professional services receipts from the USA, the Court remanded the matter to ITAT for fresh adjudication. This ruling has significant implications for multinational enterprises relying on cross-border employee secondment arrangements in India.