"Virtual Presence" - Is it the new norm?
Recently, the Madras HC, in Verizon Communications Singapore Pte. Ltd. [TS-577-HC-2013(MAD)], has ruled that payment for “International Private Lease Circuit” (IPLC) is taxable in India as royalty. HC held that payment is taxable as royalty for the use of equipment/use of process under IT Act as well as under Singapore DTAA. In a first of it's kind ruling, the HC has considered the presence of assessee's equipment, its rights and responsibilities as its "virtual presence" which operates through its equipment placed in customer's premises. HC has further remarked that in the 'virtual world', physical presence of an entity in a country has become insignificant.
The ruling brings alive the debate of whether the age old tax principles are still applicable in today's virtual world and if yes, to what extent? Will the ruling have an impact on other industries which also operate in the virtual world ? Does the Madras HC judgment dilute the favourable Delhi HC ruling in Asia Sat?