At the centre of the dispute is a Rs 10-crore deduction claim sought by Videsh Sanchar Nigam (VSNL), till recently the sole Internet-service provider in the country.

While the international telecom carrier is of the view that profit earned from Net services qualifies for the I-T benefit, the Government's accounting arm, the Comptroller and Auditor General of India (CAG), is of the opinion that revenue from such services do not qualify for deduction under this section. The comments of the CAG have been conveyed to the VSNL management, which in turn has said that its tax consultants have advised it that the profit earned from Internet services is a deductible item. CAG has held that the company has understated its provision for taxation by Rs 10.28 crore by having availed of deduction under Section 80 IA on the revnue earned by it fromInternet services.

The dispute between the two sides has led to doubts among a section of the ISP industry. While some are of the view that there is no such deduction allowed by the Government, there are others who feel that with VSNL having claimed such a benefit they too could avail of a similar benefit. "As far as we are concerned, there is no such benefit announced by the Centre.

Nevertheless, we would be more than happy if the Government clarifies its position in this regard", said a source with a firm, which is set to join the Internet bandwagon in a big way.

"The act says that the tax holiday in case of enterprises providing telecommunication services will be applicable to any undertaking which starts providing telecom services (whether basic or cellular) at any time after March 31, 1995 but before March 31, 2000 shall be eligible for tax holiday under Section 80 IA with effect from assessment year 1996-97. Now where do Internet services fit into this definition needs to be seen", said anothersource at an service provider.