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

While the international telecom carrier feels that profit earned from Internet services qualifies for benefit under the section, the Comptroller and Auditor General of India (CAG) is of the opinion that revenue from such services does not qualify for the deduction.

The CAG's comments have been conveyed to the VSNL management, which, in turn, says its tax consultants have advised that the profit earned from Internet services is a deductible item.

The CAG says the company has understated its provision for taxation by Rs 10.28 crore by having availed itelf of deduction under the section on the revnue earned by it from Internet services.

The dispute between the two sides has led to doubtsamong a section of the ISP industry. While some hold that there is no such deduction allowed by the Government, others feel that with VSNL having claimed such a benefit, they too can avail themselves of it.

"As far as we are concerned, there is no such benefit announced by the Government. Nevertheless, we would be more than happy if the Government clarifies its position in this regard," said a source at a firm set to jump on to 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 the assessment year 1996-97. Where do Internet services fit into this definition needs to be seen," said another source at an ISP.

At least about 40 ISPs have obtained licenses, and there are several others who arefinalising plans for a foray into this industry. The Government itself has gone on record that it will provide all help to the industry to facilitate its growth.

VSNL itself, hitherto a monopoly, has lined up major plans for its growth, and is not perturbed by the entry of private players. The company has set itself a target of 1,80,000 Internet accounts by March this year, and expects a significant part of its revenues to come through this business in the years to come.