Source-based taxation of technical service fees requires withholding despite third-party foreign grant payments discharging contractual liability.

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....Technical know-how consideration payable by an Indian resident to a non-resident for use in its Indian business is chargeable to tax in India under source-based taxation of fees for technical services, including under the applicable treaty. Release of funds by a foreign grant administrator after certification of contractual claims merely discharges the resident's contractual liability; it does not change the resident payer's identity or the consideration's character. The location from which funds are remitted is not determinative. Tax deduction at source is therefore required, and non-deduction results in disallowance under Section 40(a)(i).....