13th Jul 2021

Author: PAVITRA POTTALA, 3RD YEAR, MAHARASHTRA NATIONAL LAW UNIVERSITY AURANGABAD.

ABSTRACT

The Indian Constitution is founded on the notion of federalism, and it recognizes the allocation of powers in two ways: first, according to area, and second, according to the subject matter at hand. Part XI – The Union’s and States’ Relationships The Distribution of Legislative Power is discussed in Chapter I- Legislative Relations of the Indian Constitution, which is addressed by constitutional provisions from Article 245 to 255. Article 245 refers to laws enacted by parliaments and legislatures of states with territorial authority. “Article 245 is the fountain source of legislative power.”[1] Article 246 talks about the jurisdiction of law made by parliament and legislative states regarding subject-matter concerned.

According to Article 245(1), the Indian parliament can make laws for any part of India’s territory or the entire country, and the state legislature can make laws for any part of the state or the entire state. “A law made by parliament shall not be invalid for the reason that it has extraterritorial operations,” according to Article 245(2).

Article 245 of the Indian Constitution establishes the doctrine of territorial nexus, which stipulates that if there is a territorial nexus or relationship between the subject matter and the enacting law, state laws might have extra-territorial nexus. In the case of Wallace v. Income Tax Commissioner, Bombay, in 1948, the privy council established the doctrine of territorial nexus for the first time.

State laws are often regarded to be void if they have extraterritorial operations, but if the doctrine of territorial Nexus is used, it is valid if there is adequate nexus between the object and the state.

Key Words – Federalism, Territorial, Nexus, Legislature of state, parliament, Distribution of power.

 

SIGNIFICANCE OF THE STUDY

This Research aims at clarification its reader with the basics of The Constitution of India. More precisely what actually is the Doctrine of territorial Nexus. The concept of Jurisdiction of Supreme Court i.e. the original jurisdiction, the appellate jurisdiction and the advisory jurisdiction is covered under this paper. This is done to explain the Jurisdiction of the Supreme Court mentioned under various Articles of the Constitution of India.

The topic upon which the research is themed on, is the fundamental of the Constitution of India, thus it is important for a learner of the act to be well aware of the articles and its application. This Article covers the application of the same and tries to elucidate the topic for best of reader’s comprehension.As knowing the jurisdiction of the Court is a basic and one of the most vital parts of litigation, one as a professional must be enlightened with the concepts and uses of the provision of the law.

 

INTRODUCTION

The extra territorial operational laws are evolved in India through Government of India Act 1935, this notion was created to collect a large amount of profit for British provinces, hence it was created by the British parliament. By applying Extra Territorial operation laws the business of British India widely spread in Extra- Territorial Boundaries and this Act of 1935 was applied to India for huge profit of British India.

After Independence, discussion about Extra Territorial operation was made in constitution. Indian Constitution follows principle of federalism and made division of legislative power into two categories first with respect to territory and second with respect to subject matter concerned and as per Article 245 of the Indian Constitution Parliament can make laws for  any part of territory of India and for whole, legislature of state can make laws for whole or any part of state and also states that the law made, the act of parliament shall not be declared unlawful solely because of extra-territorial operations, although there is no mention of the states’ extraterritorial operations.

Hence Doctrine of Territorial Nexus is originated by the state government of India from interpretation of Apex court for the state’s Extra-territorial operations. The doctrine of territorial nexus states that a law passed by a state legislature applies exclusively within that state and is not applicable in extra-territorial operations unless there is a sufficient link between the object and the state.

Supreme Court made a significant observation and states that in assessment of tax the doctrine of territorial Nexus plays very important role. Tax is imposed when there is transaction of between one state to another state and because of this partly income arises in both the states.

 

THEORY OF TERRITORIAL NEXUS

The meaning of territorial in this doctrine of territorial nexus is simply that it is related to territory, region, or location, and the meaning of nexus is that it is related to persons, objects, or events. And doctrine of Territorial Nexus is an application for Extra-Territorial Operation between the states

For Extra-Territorial actions between states, there must be sufficient Nexus between the item and the state. Within the territorial jurisdiction its state legislature has the jurisdiction to make the laws. The Doctrine of Territorial Nexus is exception and by applying this doctrine the state legislature can make laws subject to Extra- Territorial Jurisdiction.

In this case, “Wallace Bros and Co. Ltd v. The Commissioner Of Income”[2] privy council observe that, the company was incorporated and registered in England, although it also operates in India. This company made a lot of money using Sleeping Partner in that accounting year; therefore the income tax authorities imposed a tax on respondent. However, respondent contested the income tax authority. Privy Council held that Tax is valid because of doctrine of territorial Nexus and huge part of profit is madethrough India hence doctrine of Territorial Nexus is applicable.

SILENT FEATURES OF DOCTRINE OF TERRITORIAL NEXUS

  1. It is established that parliament of India has powers to make laws concerning territory, Extra-Territory or causes that effects nexus of India.
  2. The Doctrine of Territorial Nexus is applied to states and also in many cases related to taxation laws.
  3. This doctrine states the importance of sufficient territorial Nexus between the states and objects.
  4. States imposes taxes on person, things and objects within its territory but due to Doctrine of Territorial Nexus states can levy taxes from Extra- territory under ground of legitimate sufficient Nexus.
  5.  The taxation from non-citizen of India governed by this doctrine.

TERRITORIAL NEXUS AND STATE LEGISLATION

According to Article 245(1) of the Indian constitution, the state legislature has the authority to make laws within its jurisdiction. But if law made by state legislature goes Extra – Territorial boundaries then, when there is a sufficient nexus between the object and the state, the Territorial Nexus Doctrine applies.

To determine essential sufficiency Of Nexus for Extra-territorial operation Supreme Court stated two grounds for the applicability of doctrine of territorial nexus

  1. “Legitimacy of  Nexus
  2. Liability related to Territory connection.”[3]

These two conditions are sufficient to determine whether the Nexus is legitimate or not therefore parliament has the power to make laws related to territory or Extra- territory and that laws will held valid only if there is legitimate territorial Nexus Exist.

In this case, SondurGopal v. SondurRajini[4] Court observed that, the laws which are made by state that laws do not have operation in other state as per general rule. The law which have Extra- Territorial operation do not have direct imposition on other state but It is not null and void because of the Territorial Nexus doctrine and Article 245(2) of the Indian Constitution.           

EXTRA TERRITORIAL OPERATIONS

Parliament has the power to make laws for the whole or any part of the territory and also can make laws for the extra territory where legitimate Nexus exist. The laws regarding extra territorial can made by parliament because it has the power to made laws in this matter. The validity of laws regarding the Extra- Territorial matters is not questionable because parliament made it only when there is existence of legitimate Nexus. But if in case parliament made any law that does not have nexus with India then it would amount to ultra vires.

THE ROLE OF TERRITORIAL NEXUS IN INDIAN LEGISLATION

  1. State of Bihar v.CharusilaDasi[5]

In this case legislature of Bihar passed the “Bihar Hindu Religious Trusts Act 1950” and its objective is to give protection to the properties which are related to Hindu religious trusts. And this Act is applicable to all the trusts which come under the territory of Bihar. Respondent had properties and made several trust deed for her properties which are situated in Bihar and Calcutta, and trust was in the territory of Bihar.

Then some questions were raised regarding the scope of this Act. Issue raised is whether this Act applies to trust which is outside the Bihar, then Court held that, this Act applies to the Whole Bihar and this Trust is not Illusory it exist in real and there is legitimate nexus between the trust and workers hence it is applicable.

 

  1. State of Bombay v.R.M.D.C.[6]

In this case respondent is the resident of Bangalore and respondent is conducting the competition with prize money through newspaper by printing about competition in the newspaper and then it is widely spread in Bombay and many of people take participation in this competition, form filing and registration happened in Bombay. State government of Bombay took levy taxes. Issue raised in this case is whether it is valid to sought levy tax from respondent because organiser is from outsider of Bombay.

Court held that in this case, all the activities of the competition took place in Bombay partly and there sufficient Nexus developed hence state of Bombay can validly impose tax on the Respondent.

  1. Tata Iron & Steel Co.Ltd. v. State of Bihar[7]

In this case issue raised that if the goods were produces, found and manufacture in the state then sale is concluded whether in the state or outside of the state and in this present scenario court held that Nexus between the legislation and object depends on the circumstance of the case and facts present in the case and in this case there is legitimate establishment of Territorial Nexus, hence the sales Tax Act is valid.

  1. G.V.K. Industries v. Income Tax Officer[8]

In this case issue raised that, to enact the laws regarding the extra-territorial matter which have no legitimate nexus with India and there is no profit to India, whether parliament has right to enact this kind of laws or not. Court discussed about this issue and derived to the answer after analysing the Article 245(1) of Indian Constitution. In the Article 245(1) there is word used “for” and by analysing this word court concluded answer to this issue. Parliament of India means it should Act only as a parliament of India not as a people of Indian or Territory of India or as a Nation – stated by court.

Two limitations are derived by the court first on is “parliament should enact laws for the welfare of the people and nation and if it exercising its power then only for the purpose of welfare of people.” And second limitation, the Constitutional Bench headed by Sudershan Reddy J logically stated that “parliament should not enact nay law which do not have any proper legitimate Nexus or impact on India.”

  1. A.H. Wadiav.Income tax Commissioner, Bombay[9]

In this case apex court held that, in the matter of issue regarding sovereign legislature’s Extra-Territorial enactment then in this scenario question cannot be raised in the municipal court for challenging its validity. Because there may be issue related to international law or foreign courts or etc. but domestic tribunals have no concerned with such policy.

 

DOCTRINE OF TERRITORIAL NEXUS CAN BE INVOKED IN THE FOLLOWING SITUATIONS:

  1. Doctrine of territorial nexus can be invoked when there is subject- matter between the Act and the state which is making the law.
  2. Doctrine of territorial Nexus can be invoked when state has proper Extra-Territorial operation.

It states that it is not necessary there should object physically located within the territory of the states even if there is sufficient territorial connection then territorial nexus can be invoked and state may impose tax on person, thing and object not only which is in the ambit of its territory but also on extra- territory if there is sufficient territorial nexus is established.

 

CONCLUSION

Doctrine of Territorial Nexus under Article 245 of the Indian Constitution states that if there is a territorial Nexus or connection between the subject matter and enacting law then state laws can have Extra- Territorial Nexus. This Doctrine of Territorial Nexus for the first time introduced by privy council in the case of Wallace v. income tax commissioner, Bombay in 1948.

The principle of federalism is the base of Indian Constitution and Indian constitution accepted distribution of powers in two ways, firstly power is distributed with respect to territory and secondly according to the subject matter concerned. Part XI – Relations between the Union and States, Chapter I- Legislative Relations of the Constitution of India talks about Distribution of Legislative Power and it is covered under constitutional provisions from Article 245 – 255. Article 245 talks about the laws made by parliament and legislature of states subject to territorial jurisdiction. “Article 245 is the fountain source of legislative power.”  Article 246 talks about the jurisdiction of law made by parliament and legislative states regarding subject-matter concerned.

Supreme Court made a significant observation and states that in assessment of tax the doctrine of territorial Nexus plays very important role. Tax is imposed when there is transaction of between one state to another state and because of this partly income arises in both the states.

The doctrine of territorial nexus establishes that the Indian parliament has the authority to enact laws relating to India’s territory, extraterritoriality, or causes that affect the country’s nexus. The Territorial Nexus Doctrine applies to states and is frequently used in taxation matters. This doctrine states the importance of sufficient territorial Nexus between the states and objects. States imposes taxes on person, things and objects within its territory but due to Doctrine of Territorial Nexus states can levy taxes from Extra- territory under ground of legitimate sufficient Nexus. The taxation from non-citizen of India is governed by this doctrine.

To determine essential sufficiency Of Nexus for Extra-territorial operation Supreme Court stated two grounds for the applicability of doctrine of territorial nexus, “Legitimacy of Nexus and Liability related to Territory connection.” These two conditions are sufficient to determine whether the Nexus is legitimate or not therefore parliament has the power to make laws related to territory or Extra- territory and that laws will held valid only if there is legitimate territorial Nexus Exist.

The Aim of doctrine of Nexus is not to debar the state from exercising extra territorial jurisdiction but for this the state have to first determine there is proper or sufficient or legitimate territorial nexus exist between the state and subject of matter.

[1]State of W.B v. Kesoram Industries Ltd. (2004) 10 SCC 201.

[2]Wallace Bros and Co. Ltd v. The Commissioner Of Income (1948) 50 BOMLR 482

[3]State of Bombay v. R.M.D.C. (1957) AIR  699 S.C

[4] Sondur Gopal v. Sondur Rajini (2013) AIR 2678  S.C.

[5] State of Bihar v. Charusila Dasi (1959)AIR 1002 SC

[6] State of Bombay v. R.M.D.C (1957) AIR 699 SC

[7] Tata Iron & Steel Co. Ltd. v. State of Bihar(1958)AIR 452 SC

[8] G.V.K. Industries v. Income Tax Officer  (2011) 4 SCC 36

[9]A.H. Wadia v.Income tax Commissioner, Bombay(1947) 49 BOMLR 633

 

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