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2016 (5) TMI 25 - AT - Income TaxTDS u/s 195 - disallowance under section 40(a)(i) of the Act in respect of payment to non-resident for the purpose of testing charges - Held that:- In the instant case, it is a fact that the export contracts are concluded in India and the assessee's products are sent outside India under these contracts. Further the manufacturing activity of the assessee is also located in India. The source of income is created at the moment when the export contracts are concluded in India. Even though the importer of the assessee’s products is situated outside India, he is only the source of the monies received and he cannot be regarded as a source of income. In order to fall within the second exception provided in Section 9(1)(vii)(b) of the Act, the source of the income, and not the receipt should be situated outside India and this condition is not satisfied in the present case. The assessee’s case does not even fall under the first exception, since in order to get the benefit of the first exception it is not sufficient for the assessee to prove that the technical services were not utilised for its business activities of production in India, but it is further necessary for the assessee to show that the technical services were utilised in a business carried on outside India. The meaning of the term source of income in section 9(1)(vi)/(vii) of the Act has been a subject matter of dispute since over some time. It is not the payer of income but the location of the manufacturing activity and concluding of the export contract from India that will determine the source of income. Further the assessee needs to specifically demonstrate that the technical services were utilised in a business carried on outside India in order to fall under the exception. Under the above facts and circumstances, the Hon’ble Delhi High Court in the above case has held that the assessee’s case does not fall within the second exception provided in Section 9(1)(vii)(b) of the Act. Accordingly, respectfully following the decision of the Hon’ble Delhi High Court in the case of CIT v. Havells India Ltd. (2011 (5) TMI 530 - ITAT DELHI ), we hold that the FTS paid to KEMA Netherlands and CESI, Italy, TDS is, therefore, deductible under section 195 of the Act and the Assessing Officer has rightly invoked provisions of section 40(a)(i) of the Act and made disallowance. - Decided against assessee
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