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A dispute has arisen over whether revenue earned by an Internet service provider qualifies for deduction under Section 80-IA of the Income Tax Act.

At the centre of the dispute is a Rs 100 million deduction claim sought by the Videsh Sanchar Nigam, till recently the sole Internet service provider in the country.

T O D A Y

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Section 80-IA says that any enterprise that starts providing telecommunication services, whether basic or cellular, at any time after March 31, 1995, but before March 31, 2000, can enjoy a tax holiday with effect from assessment year 1996-97.

Now most of the argument rests around fitting Internet services into this definition.

VSNL is of the view that profit earned from Net services qualifies for the income tax benefit.

But the government's accounting arm, the Comptroller and Auditor General of India, claims that revenue from Internet services do not qualify for deduction.

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 102.8 million by having availed of deduction under Section 80-IA on the revenue earned by it from Internet services.

The dispute has led to doubts among a section of the ISP industry. Some are of the view that there is no such deduction allowed by the government but there are others who feel that with VSNL having claimed such a benefit they too could avail of it.

"As far as we are concerned, there is no such benefit announced by the central government. Nevertheless, we would be more than happy if the government clarifies its position in this regard," said an officer of a company that proposes to become a national ISP.

- Compiled from the Indian media

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