SC Issues Notice on EY US Plea Challenging Taxability of Salary Reimbursements

ERNST And Young U.S. LLP Vs CIT (Supreme Court of India)

Summary: The Supreme Court of India, in ERNST And Young U.S. LLP Vs CIT, issued notice returnable on 1 December 2026 and permitted dasti service in addition. The supplied Supreme Court order contains these procedural directions alone. It records no determination of the tax issues and grants no express stay. The detailed reasons reproduced with it belong to the related Delhi High Court proceedings, in which the Revenue challenged ITAT relief concerning employee-secondment receipts and receipts for services rendered to Indian clients in and from the United States.

The High Court material concerns ITA Nos. 423/2025, 424/2025, 715/2025, 753/2025 and 760/2025, covering AYs 2018–19 to 2022–23. EY US, a US limited liability partnership providing assurance, tax, transaction and business advisory services, deputed personnel to EY GBS (India) Pvt. Ltd., EY Global Delivery Services India LLP and Ernst & Young LLP. The disputes arose under Section 9(1)(vii) of the Income-tax Act, 1961 and Articles 12(4)(b), 12(5)(e) and 15 of the India-USA DTAA. The Assessing Officers treated secondment receipts and specified service receipts as taxable fees for technical/included services; the DRP sustained the additions, while the ITAT granted relief. A separate 21-day delay-condonation order appearing at the start of the supplied High Court material allowed the application.

For secondment receipts, the supplied issue table records ₹24,05,12,955 for AY 2018–19, ₹50,99,38,561 for AY 2019–20, ₹68,02,25,664 for AY 2020–21, ₹49,02,46,630 for AY 2021–22 and ₹13,94,26,424 for AY 2022–23. For the separate US-rendered services, it records ₹3,72,22,932, ₹29,89,50,386, ₹30,73,50,907 and ₹97,78,94,279 for AYs 2018–19, 2020–21, 2021–22 and 2022–23 respectively. The source contains discrepancies: its opening narrative gives ₹18,28,95,723 as AY 2021–22 secondment receipts and ₹3,82,22,932 as AY 2018–19 service receipts, while later portions give the different figures above; some appeal references also alternate between 2024 and 2025. These figures are not reconciled in the supplied text.

The Revenue submitted that the secondees retained their employment lien with EY US, returned after assignments of approximately two to three years, continued to receive overseas social-security benefits, and transferred technical knowledge, experience and skills to the Indian entities. It relied on Centrica India Offshore (P) Limited v. CIT to argue that cost-to-cost recovery without a mark-up did not determine the character of the receipts. On the separate service receipts, it contested the ITAT’s application of the professional-services exclusion and its finding that the “make available” condition was absent. It also argued that the treaty relief could not be enlarged through domestic definitions in Sections 194J and 44AA and that Article 15 did not cover the services rendered from outside India.

EY US relied on the deputation agreement, including provisions placing assignees under the Indian entities’ exclusive control, supervision and disciplinary authority, allocating salary and other costs to those entities, and describing EY US payments as administrative accommodation recoverable at actual cost without mark-up. It maintained that the assignees became employees of the Indian entities, which deducted tax under Section 192, and that taxing the reimbursements again would be unwarranted. It invoked Boeing, AT&T Communication Services, A.P. Moller Maersk and Industrial Engineering Projects, and relied on K. Ravindranathan Nair to oppose interference with ITAT findings of fact without an appropriate perversity challenge. It also objected to the Revenue’s reliance, for the first time before the High Court, on general IRS website material about social-security consequences. For US-rendered services, it relied on Bio-Rad Laboratories, RELX Inc. and AECOM Technical Services Inc., argued that Article 15(2) was inclusive, and disputed any requirement that every professional belong to a statutory governing body.

On secondment, the High Court examined the agreement and the AO/DRP findings concerning overseas payroll, social-security benefits, employment lien, return to EY US and the distinction between ending an Indian assignment and severing the underlying US employment. It held that EY US retained overarching control and that the secondees remained its employees. The Court also considered the scope-of-work and engagement-letter evidence, including implementation of EY group policies and quality standards, organisational change management, software implementation, technical infrastructure, data conversion and training responsibilities. Applying the enduring-capability test discussed in CIT v. De Beers India Minerals Pvt. Ltd., it held that the arrangement made technical knowledge and skills available for future use by the Indian entities. The Court considered Centrica applicable, held that the absence of a mark-up and deduction of tax on employees’ salaries did not displace the character of EY US’s receipts, and characterised the ITAT orders as per incuriam and perverse for failing to address the binding precedent and relevant evidence.

The High Court distinguished Bio-Rad’s long-running management-support arrangement, RELX’s database-access arrangement and AECOM’s software/cross-charge circumstances from the training and skill transfer it found here. It also distinguished Boeing and AT&T on the employment and service facts, noted the pending High Court appeal against the AT&T ruling, and found Industrial Engineering Projects inapplicable because it concerned reimbursement of entertainment and travel expenses rather than FTS. Its reproduced Centrica discussion addressed continuing overseas employment, “soft intellectual property”, reimbursement labels and diversion of income by overriding title. The Court rejected the attempt to protect the ITAT conclusions through K. Ravindranathan Nair in view of the questions framed and its analysis.

The separate professional-services issue required a differentiated examination of actual services rather than the consultants’ qualifications alone. For AY 2020–21, EY US had claimed treaty exemption for receipts of ₹1,03,63,94,946, but the AO taxed only ₹29,89,50,386. Within the personnel-category subtotal of ₹36,46,27,627, deductions of ₹5,62,07,006 for services governed by identified professional bodies and ₹94,70,235 for engineering/independent scientific activities left ₹29,89,50,386. The Court observed that the AO had already allowed relief for qualifying professional services. The ITAT had neither adequately addressed the AO’s engagement-letter and training findings nor compared the services exempted with those retained as taxable. Its reliance on an inclusive definition of professional services and the personnel’s qualifications did not resolve the nature and scope of the residual services. Similar reasoning affected AYs 2018–19, 2021–22 and 2022–23.

The High Court therefore set aside the impugned ITAT orders in all five appeals, answered question (A) in each appeal in favour of the Revenue, and also answered the additional “make available” question in the AY 2019–20 appeal for the Revenue, allowing ITA 423/2025. For the separate receipts from Indian clients for services rendered in and from the USA, it remanded the relevant questions in ITA Nos. 753/2025, 715/2025, 424/2025 and 760/2025 to the ITAT for fresh consideration of the entire record and a reasoned order. Accordingly, the supplied materials establish a High Court ruling against EY US on secondment and a limited remand on the separate service-receipts issue, followed by the Supreme Court’s notice order; they do not establish a Supreme Court endorsement, reversal or merits ruling.

Cases Discussed

• Aecom Technical Services Inc. v. ITO — 174 taxmann.com 1173 (Delhi High Court). Distinguished from the training and skill transfer found in the present arrangement.
• CIT v. RELX Inc. — 160 taxmann.com 1090 (Delhi High Court). Distinguished as concerning database access and copyright-related questions.
• Centrica India Offshore Pvt. Ltd. — Special Leave to Appeal (C) No. 22295/2014, order dated 10.10.2024, as recorded in paragraph 68 (Supreme Court of India). The High Court recorded that it had been informed of the Supreme Court disposition; the stated date requires editorial verification.
• CIT v. Bio-Rad Laboratories (Singapore) Pte. Ltd. — (2023) 459 ITR 5 (Delhi High Court). Distinguished on the duration and nature of the management-support arrangement.
• P.C.I.T. v. Boeing Limited — 2022:DHC:4188-DB (Delhi High Court). Relied on by EY US; distinguished on the finding about the real employer and the nature of the services.
• C.C., C.E. & S.T.-Bangalore v. Northern Operating Systems Pvt. Ltd. — 2022-TIOL-48-SC-ST-LB (Supreme Court of India). Cited in the reproduced DRP directions regarding the substance of secondment arrangements.
• AT & T Communication Services India Pvt. Limited — ITA No. 354/Del/2017, order dated 31.10.2018 (ITAT Delhi). The High Court distinguished the ruling and noted that the challenge in ITA 915/2019 was pending. The source gives inconsistent cause-title particulars.
• DIT (International Taxation) v. A.P. Moller Maersk AS — (2017) 392 ITR 186 (Supreme Court of India). Invoked by EY US for its cost-to-cost reimbursement argument.
• Centrica India Offshore (P) Limited v. CIT — 2014:DHC:2172-DB (Delhi High Court). Applied to continuing overseas employment, secondment receipts, reimbursement labels and the make-available test.
• E-Funds IT Solution Inc. (Delhi High Court; referred to as “E-Funds” in the reproduced Centrica extract). Discussed within the quoted precedent concerning stewardship, deputation and the nature of employees’ activities; complete citation is absent from the supplied text.
• CIT v. De Beers India Minerals Pvt. Ltd. — (2012) 346 ITR 467 (Karnataka High Court). Quoted on transfer of technical capability enabling independent future use.
• Vodafone International Holdings B.V. v. Union of India — (2012) (Supreme Court of India). Cited in the reproduced DRP directions on the substance and form of transactions; no reporter citation is supplied.
• Intertek Testing Services India Pvt. Ltd., In re — (2008) 220 CTR (AAR) 540 (Authority for Advance Rulings). Cited within the reproduced Centrica judgment on the breadth of technical services.
• Morgan Stanley (Supreme Court of India; paragraph 15 reproduced through Centrica). The quoted passage addresses continuing employment lien and service permanent establishment; the supplied text does not give the full cause title or citation.
• In re: AT and S India (P) Ltd. — MANU/AR/0016/2006 (Authority for Advance Rulings). Discussed within Centrica on reimbursement labels and Section 195 withholding.
• K. Ravindranathan Nair v. CIT — (2001) 247 ITR 178 (Supreme Court of India). Invoked by EY US to resist interference with findings of fact; held inapplicable in light of the questions and analysis.
• CIT v. Industrial Engineering Projects (P) Ltd. — [1993] 202 ITR 1014 (Delhi High Court). Distinguished because it concerned entertainment and travel reimbursements rather than FTS.
• Continental Construction Ltd. v. CIT — 195 ITR 117, as reproduced in the supplied extract (Supreme Court of India). Cited within Centrica on technical services; the reporter reference requires verification.
• CIT v. Panipat Woollen & General Mills Co. Ltd. — 103 ITR 66 (Supreme Court of India). Cited in the reproduced DRP directions for examining the substance of an agreement.

Read HC Judgment in this case: CIT Vs ERNST & Young U.S. LLP (Delhi High Court)

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

1. Issue notice, returnable on 01.12.2026.

2. Dasti service, in addition, is permitted.