Myself and my wife are permanent residents. But our child will be born in India next month (December).
Can I claim the child as dependent (when filing tax for 2010) and file for ITIN?

In order to be claimed as a dependent in 2010, the child MUST be present in the United States for at least ONE day in 2010. If not, then he/she cannot be claimed as a dependent and CANNOT be issued an ITIN.

Now, if the child is issued a H-4 or L-2 visa and subsequently spends time in the U.S. in 2011, you can then claim him/her as a dependent on your 2011 tax return.

A dependent must be resident of the U.S. In this case, the child must be present in U.S. for any duration during 2010.

Can we invoke the technical explanation to Article 21(2) for resident aliens and consider the child as a dependent and have the same benefits as US residents:- even though the child was not physically present in US?

Negative. The IRS will NOT issue the child an ITIN unless they have proof that the child was physically located in the United States for the tax year in question.

What about temporary absence exception to residency for a child born in India? Can this case not be considered as an exception to the condition that the child must have the same principal residence as the taxpayer for more than half the year? They do list birth or death or temporary absence as causes for exception.

Thanks,
Abhas