Supreme Court agrees to examine EY US plea in tax dispute

New Delhi: The Supreme Court on Monday agreed to examine whether cost-to-cost reimbursements arising from secondment of employees by a US company to its Indian subsidiary are taxable as fees for technical services (FTS) under the Income-tax Act, 1961 and the India-US Double Taxation Avoidance Agreement (DTAA).

A bench led by Justice PS Narsimha sought a response from the income tax department on appeals filed by Ernst & Young US LLP challenging a Delhi High Court order issued in June, which treated cost-to-cost reimbursements amounting to Rs 24.06 crore received by Ernst & Young US LLP as fees for technical services and therefore taxable. The HC had also ruled that the services rendered by the US company satisfy the "make available" test under the DTAA.

E&Y told the SC the Income Tax Appellate Tribunal (ITAT) had clearly held that the seconded personnel were employees of the EY India entities.


The ITAT had also held that the amounts paid by the EY India entities to EY US were taxed as salary in the hands of the seconded employees and that the payments made by the EY India entities to EY US were merely cost-to-cost reimbursements of amounts paid by EY US for and on behalf of the EY India entities, it said.

According to the firm, the amounts having already been taxed in the hands of the seconded employees employed in India cannot be subject to double taxation again through the assessee company, EY US.

Setting aside the ITAT's order that had declined to treat cost-to-cost reimbursements of ₹24.06 crore received by Ernst & Young US (assessee) as FTS, the HC had said the tribunal had not given any cogent reasoning for deviating from the decision taken by the assessing officer (AO) and dispute resolution panel.

It accepted the stand of the department that the AO had rightly made additions on account of payments received by the assessee from the EY India entities since the services rendered by the assessee to the EY India entities were covered by Article 12(4)(b) of the DTAA and, therefore, were deemed taxable as FTS.