Dr. O.K. Narayanan, Vice President. - These are two appeals filed by the assessee and the revenue. These cross appeals relate to the assessment year 2003-04. The appeals are directed against the order of the CIT(A)-IV at Bangalore dated 28-1-2008 and arise out of the assessment completed under section 143(3) of the Income-tax Act, 1961.

2. The assessee, M/s. SAP Labs India Pvt. Ltd., is a wholly owned subsidiary of a German Company, SAP AG. SAP AG develops software products under the brand name of SAP. The software products are sold world wide. SAP AG has established development centers throughout the world for developing the necessary software. The assessee in the present case is one of such development centers established by SAP AG in India as 100 per cent Export Oriented Unit (EOU). The assessee has obtained the EOU status under the software technology parks [STP] Scheme of the Government of India. The principal business carried on by the assessee in India is providing software development and related services to its associate concern SAP AG. In order to deliver the above-mentioned services, the assessee has entered into an R & D agreement with SAP AG. As per the agreement,