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3. The assessee is engaged in computer software exports, domestic sales and providing technical services in and outside India and so also in manufacturing and sale of fuel injection pumps. For the assessment years in question, the assessee claimed deduction under Section 80HHE. The return of income was processed under Section 143(1) of the Act and an intimation was sent to the assessee. Subsequently, the case was selected for scrutiny by issue of notice under Section 148 of the Act, as the case was subject to under assessment by reason of assessee claiming excess deduction under Section 80HHE by including certain ineligible incomes such as, service income. The Assessing Officer, while computing the deduction excluded 90% of the amount of service income from profits of the business which was generated from the services rendered in India by the assessee. The Appellate Authority reversed the order of the Assessing officer vide order dated 09.09.2004 for the assessment years 1999-2000 and 2001-2002 and vide an order dated 13.10.2005, for the assessment year 2002-2003. The relevant observations made by the Assessing officer in the order dated 22.01.2004 for the assessment year 1999- 2000, read thus:-

6. We have heard learned counsel for the parties on the question of law reformulated by us. Mr.Aravind, learned counsel for the revenue, at the out set, invited our attention to the judgment of the Supreme Court in COMMISSIONER OF INCOME TAX -vs- K.RAVINDRANATHAN NAIR (2007) 295 ITR 228 (SC) to contend that Clause (d) of the Explanation appended to Section 80HHE state that 90% of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature have to be excluded from the business profits. These receipts have no nexus with export and hence according to Mr.Aravind, the service income also would constitute independent income having no nexus with export, and therefore, liable to be excluded. He submitted that "profit of the business" has to be arrived at as per Section 28 to 44D of the Act and to be adjusted by reducing the income included in the profits of business having no nexus and is independent of the exports. He further submitted that the service income received by the assessee is for the services rendered in India and have no bearing on export activity and, therefore, would constitute independent income. He, then, submitted the provisions of Section 80HHE provides for benefit only for the income derived from the activity contemplated by the Section namely export of computer software and rendering of technical services outside India. The income from services rendered in India cannot be treated as has been derived from the above activities. Next, he submitted the category of incomes referred to in the explanation are incomes having no nexus with exports as held by the Supreme Court in Ravindranathan Nair's case and by the Division Bench of this Court in COMMISSIONER OF INCOME TAX -vs- MOTOR INDUSTRIES CO. LTD. (for short 'MICO') in 2011 331 ITR 79 (Karn). He submitted that the contention of the assessee that the service income does not fall within the catagory of 'income' referred to in Explanation (d), and therefore, cannot be excluded deserves to be rejected. After inviting our attention to the expression/word 'derived' in Sub-section(1) of Section 80HHE, he submitted that it is only first degree of income derived from the activities referred to as eligible business are alone liable for deduction and since the service income is beyond the first degree, it has formed a part of the business profits, and deserves to be reduced by 90% as per Explanation (d).

18. In the present case, the income in question is the 'service income', which the assessee earned by rendering services to Robert Bosch GmbH, a German Company. The assessee rendered services to this Company in India like attending to Bosch personnel delegated to India, exchange of technical and economic information between the said Company and the Licensees.

19. There is no dispute that the assesee is engaged in the export and domestic sale of computer software, provision of technical services in and outside India and manufacture and sale of fuel injection pumps. This being so, the question is whether 'service income' would also fall in the category of receipts by way of brokerage, commission, interest, rent, charges or any other receipts of similar nature included in such profits. In other words, whether the 'service income' could be treated as receipt of a similar nature.

20. It is true that the Supreme Court in Ravindranathan Nair (supra) observed that the receipts constitute independent income having no nexus with the export would require to be reduced from business profits under Clause (baa) of the explanation appended to Section 80HHC of the Act. At this stage, it is necessary to notice that clause (d) of the explanation does not refer to export turnover. Sub-Section(1) of Section 80HHE of the Act contemplates deduction to the extent of profits derived by the assessee from the export out of India on computer software or its transmission from India to a place outside India by any means or providing technical services outside India in connection with the development or production of computer software to which this section applies. The formula in sub-Section(3) of Section 80HHE of the Act has been provided by Parliament, for the purpose of sub-Section (1) to compute the profits derived from the export of India. The profits of business are defined in clause(d) of the Explanation to Section 80HHE of the Act. It is clear from these provisions that the element of export turnover is a facet which has been taken care of by the Legislature in the application of the formula which is referred to in sub-Section (3) of Section 80HHE of the Act. In determining the profits of the business for the purpose of clause(d) of the explanation, the income which are susceptible to a reduction of 90% are those which are specifically prescribed by the Legislature. These are income contemplated by Section 28 of the Act and receipts by way of brokerage, commission, interest, rent, charges or receipts of similar nature included in such profits. Therefore, before a receipt is liable to be included to the extent of 90%, it must be a receipt of a nature similar to brokerage, commission, interest, rent or charges. The income emanating from services rendered, in our opinion, would not be susceptible to a reduction of 90% for simple reason that it would not constitute a receipt of nature similar to brokerage, commission, interest, rent or charges. In short, such a receipt could not be subject to deduction of 90% under sub- clause(1) of clause (d) of the Explanation and therefore, not liable to be reduced to the extent of 90%.