The Supreme Court has agreed to hear EY’s challenge to a Delhi High Court ruling that treated payments made by its Indian entities to its US arm for employees deputed to India as fees for technical services rather than salary reimbursements.
A bench of Justices J.B. Pardiwala and K. Vinod Chandran issued notice to the Income Tax Department and sought its response to EY’s challenge against the High Court’s June 18, 2026 judgment.
The matter is scheduled to be heard next on December 1.
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Dispute Centres on Overseas Employee Secondment
The case concerns employee secondment arrangements under which employees are temporarily transferred from an overseas company to work for an Indian group entity.
The central issue is whether payments made by the Indian entity to the overseas company merely reimburse employee-related costs or constitute consideration for technical services taxable in India.
The dispute covers assessment years 2018-19 to 2022-23 and involves employees deputed by Ernst & Young U.S. LLP to its Indian entities under an arrangement dating to October 2017.
The employees remained on EY US’s rolls, retained certain employment benefits in the United States and were expected to return after completing their assignments in India.
EY India reimbursed EY US for costs associated with these employees.
Tax Department Added ₹50.99 Crore to Taxable Income
The Income Tax Department argued that the payments were not simply salary reimbursements but consideration for technical knowledge, skills and expertise made available to the Indian entities.
For assessment year 2019-20, the assessing officer passed an order on July 27, 2022, adding about ₹50.99 crore to EY US’s taxable income.
Similar disputes arose for other assessment years.
EY US maintained that the payments only covered employee-related costs and did not represent income from technical services.
On June 20, 2023, the Income Tax Appellate Tribunal ruled in EY’s favour on the secondment issue, holding that the payments were cost-to-cost reimbursements and did not qualify as fees for technical services under the India-US tax treaty.
The tribunal later decided similar disputes involving other assessment years.
Delhi High Court Ruled in Favour of Tax Department
The Income Tax Department challenged the tribunal’s rulings before the Delhi High Court.
In its June 18, 2026 judgment, the High Court found that EY US had retained significant links with the deputed employees, who remained on its rolls while working in India.
The court also considered the nature of the employees’ work, including training and the transfer of technical knowledge and expertise.
It ruled in favour of the tax department on the principal secondment issue and held that the payments qualified as fees for technical services.
The High Court also examined payments received by EY US from Indian clients for services performed in the United States. It found that the tribunal had not sufficiently examined the nature of those services and sent several related issues back for fresh consideration.
EY filed its appeal before the Supreme Court on September 15, 2026. The final ruling could have implications for multinational companies that use employee secondment arrangements in India, including consulting, technology and global capability centre operations.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
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