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2012 (10) TMI 237 - AT - Income TaxDisallowance u/s 40(a)(i) - Income accruing or arising in India - Fees paid for Technical Services to Non- Resident - The assessee contended that Disallowance u/s 40(a)(i) is permissible as the Income is not chargeable to tax under the Act and tax ought not to have been deducted at source. As no income was chargeable u/s 9(1)(i) as no operations of the non resident are carried out in India and no part of his income is attributable to any Indian operation and India has DTAA with France, the assessee is entitled to opt for the provisions of the said Treaty which are beneficial.As decided in case of [Carborandum Company Versus Commissioner of Income-Tax, 1977 (4) TMI 2 - SUPREME COURT] That if all operations are carried out in the taxable territories, the profit & gain of the business deemed to accrue or arise in the taxable territories shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in the taxable territories. Held that:- Article 26(3) of Indo-US DTAA seeks to provide against discrimination and says that deduction should be allowed on the same condition as if the payment is made to a resident. Thus this clause in DTAA neutralizes the rigour of the provisions of section 40(a)(i). - The payment in question by assessee attracts the provisions of the Indo-US DTAA, and will not be taxable in India as it is a payment for included services within the meaning of Article 12(4) of the said DTAA and the recipient does not have a permanent establishment in India - in favour of assessee.
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