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7.2 At the time of hearing, learned Counsel for assessee submitted that since the appeal of assessee for asst. yrs. 1994-95, 1995-96 and 1996-97 has been decided by the Tribunal in ITA Nos. 794 and 795/Bang/1998 by order dt. 31st March, 2005, the same may be followed for this year also.

7.3 Learned Departmental Representative on the other hand strongly supported the appellate order. He submitted that though detailed arguments were placed before the Tribunal for earlier years, the same have not been considered, which may be considered now. He submitted that the difference in 80HHE(1)(i) and 80HHE(1)(ii) is not of the type of services rendered by the assessee. The difference in both the clauses is of the location at which services are rendered. Clause (i) is regarding the export of computer software developed in India, whereas, Clause (ii) refers to the technical services rendered outside India. Phrase 'technical services' in Clause (ii) includes development of software. Development of software is service technical in nature and hence is a technical service. CBDT Circular No. 3 of 2004, dt. 12th Feb., 2004 [(2004) 187 CTR (St) 2] says that Explanation to Sub-section (1) is clarificatory in nature. Explanation is applicable from 1st April, 1991 i.e. the date on which Section 80HHE came into force. This means that, legislature always intended and drafted the section for giving benefit of deduction for the onsite development of software. This drafting is clear as 'technical services' mentioned in Clause (ii) includes software development, as Clause (i) could not have been interpreted to include onsite software development. Further, intention of providing benefit to onsite development of software income by including it in 'technical service can be gathered from the circular issued in 1994. Circular No. 694 dt. 23rd Nov., 1994 seeks to issue clarification on disputes between the IT Department and software exporters. Paras 5, 6 and 7 of the circular refer to the dispute of onsite development of software. Para 6 of the circular clearly mentions that tax incentives to onsite development of software are included in Section 80HHE. (At that time Explanation to the Section (1) was not introduced). Therefore, this inclusion has to be taken to be incorporated in the Clause (ii) of Section 80HHE(1) on technical services. Even otherwise, deduction under Section 80HHE is an incentive for bringing foreign exchange in India. Expenditure in foreign exchange outside India would reduce the amount of foreign exchange brought into India. Legislature could never have intended to grant the deduction on foreign exchange not brought in India. Therefore to interpret that technical services do not include software development would amount to defeating the purpose of the deduction on receipt of foreign exchange.

We have gone through the arguments of the counsel for the appellant company as well as those of the learned Departmental Representative. We have also perused the relevant portions of law and gone into the facts of the case. As already stated, deduction under Section 80HHE is available in respect of profits derived from export of computer software or by the provision of technical services outside India. The amount of deduction available under Section 80HHE is to be computed on the basis of formula prescribed under Sub-section (3). The formula is as follows:

On a careful consideration of the facts and law, we are inclined to agree with the learned Counsel for the appellant company when he states that the appellant company during the years was not involved in the rendering of technical services. From a perusal of the relevant documents before us, we notice that the appellant is involved in developing software. These software are provided through the computer programmes, developed by them.

The Software Technology Parks of India has accepted the software export figures of the appellant company which clearly indicates that the company was involved in software development. The software development agreement, the sample of which is referred to in pp. 19 to 34 of the paper book filed by the appellant also indicates that the company is involved in creation of computer programmes as per the specification agreed to with the customers. We are also of the opinion that having initially agreed that the company was involved in software development activity, the CIT(A) incorrectly went on to conclude that the appellant was involved in rendering of technical services. The example of construction of bridge and various activities thereunder and the similarities of processes of the appellant company with the said example, has not been disputed by the learned Counsel for the Department. All go to demonstrate the fact that the appellant was involved in computer software development. That the appellant was involved in the creation of computer software and export thereof, has been accepted by the AO himself while agreeing to the claim of exemption under Section 10A of the Act.

The counsel for the Department apart from arguing on the technical side of the matter was not able to bring to our attention any specific instances of the company being involved in rendering of technical services in an advisory or consultancy capacity for the software created by a third party; the role of appellant company being limited to provision of expert knowledge. In other words, the counsel for the Department was not able to bring to our knowledge any specific instances of payment received by the company from the rendering of advisory or consultancy services. Further we notice that the appellant company had only marketing offices outside India. The annual report for example for the year ending 31st March, 1994 the extracts of which were brought to our attention clearly indicates that the company had only marketing offices outside India. The approvals from RBI and other regulatory authorities also indicate that the company had only marketing offices outside India. Looking at the overall picture, based on the facts of the case law, evidence adduced and the discussions, we hold that where a person is involved in computer programme, creation, he should be regarded as being engaged in the development of computer software so as to fall within Section 80HHE(1)(i). Such a person should not be held as engaged in the business of rendering technical services covered by Section 80HHE(1)(ii). We accordingly hold that the appellant company was not involved in the business of providing technical services outside India in connection with the development of computer software. We therefore direct that in computing the figures of export turnover and total turnover relevant for the application of the formula in Sub-section 3 of the Section 80HHE, no exclusion be made of any expenditure incurred in foreign currency other than those already done by the appellant company. In the result, this ground of appeal by the appellant company for all the years stands allowed. We are fortified in our conclusion, by the observations of the Supreme Court in Bajaj Tempo Ltd. v. CIT , that provisions that have been incorporated to provide an incentive have to be construed liberally and in a manner so as to promote the object and not frustrate it. This leaves us with individual issues for the respective years which we shall now take up.