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Explanation: For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India."

9. Sub-section (1) of Section 80HHE consists of two parts.

The first part, which is clause (i) of sub-section (1), deals with a situation where an Indian Company or a person resident in India is engaged in the business of export out of India of computer software or its transmission from India to a place outside India.

The second part, which is clause (ii), deals with a situation where an Indian Company or a person resident in India provides technical services outside India in connection with the development or production of computer software. The explanation to the provision was inserted with effect from 1st April 2001 by the Finance Act of 2001. The explanation evidently is clarificatory in nature since it is prefaced by the words "for the removal of doubts ...". The explanation was intended to clarify that the profits or gains which may be derived from onsite development of computer software outside India, including services for development of software, shall be deemed to be profits and gains derived from the export of computer software outside India. The deeming fiction under the explanation, qualifies the scope and ambit of clause (i) which deals with the export out of India of computer software. Consequently, where an assessee is engaged in the on-site development of computer software outside India, or in the provision of services for the development of software, that would be deemed to be the export of computer software for the purposes of the provision. The fact that the explanation is clarificatory, is elucidated in a circular issued by the Central Board of Direct Taxes on 12th February 2004.1