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"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 profits and gains from export of computer software outside India"

From the above Explanation, it can be seen that people are encouraged for on-site development of software. The combined reading of Explanation 2(iii) and Explanation 3 as narrated above, would show that the expenses incurred b y the assessee in foreign soils for on-site development, is nothing but export turnover. On the other hand, "technical services" would mean advises given to third party and an y expenditure incurred on it. The circular No. 564 dated 5.7.99 b y the C.B.D.T in respect of deduction u/s 80 HHC of IT Act is more relevant. Paras No. 5 & 6 of the said Circular reads as under:

6 The Government's policy on tax incentive to software export is reflected in the provisions of section 80 HHE introduced in 1991. Under this provision, technical services provided outside India, for the development or production of computer software, are included for the purpose of the tax incentive.
7 Similarl y, for the purpose of section 10A or 10B, as long as a unit in the EPZ/EOU/STP itself produces computer programmes and export them, it should not matter whether the programme is actuall y written within the premises of the unit. It is, accordingl y clarified that, where a unit in the EPZ/EOU/STP develops software sur place, that is, at the client's site abroad, such unit should not be denied the tax holiday under Section 10A or 10B on the ground that it was prepared on site, as long as the software is a product of the unit, i.e., it is produced b y the unit.

15 From the above it can be seen that the expenditure incurred at client's site abroad is eligible for deduction u/s 10A and 10B. The memorandum explaining the provisions of Finance Bill, 2001 (248 ITR (St) 35 had well explained Clause 39. It is mentioned as under:

"It is proposed to insert an Explanation after sub-sec (1) of the said sec so as to clarify 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.
The bill also clarifies that export of computer software shall include development of software at the client's site which would also be eligible for the benefit under these provisions. The development of software can be compared to bridge construction where various stages are involved.
These are all well explained in the decision of Bangalore Bench in the case of Infos ys Technoligies Ltd (page 21 to 38 of paper book). The list of case laws supporting the assessee's contentions are listed as under: