Territorial Nexus and the Parliament
1. Article 245 (2)
of the Constitution of India makes it amply clear that ‘No law made by
Parliament shall be deemed to be invalid on the ground that it would have
extra-territorial operation’. Thus a legislation cannot be questioned on
the ground that it has extra-territorial operation.
2. It is
well-established that the Courts of our country must enforce the law with the
machinery available to them; and they are not entitled to question the
authority of the Legislature in making a law which is extra-territorial[1].
3. Extra-territorial
operation does not invalidate a law. But some nexus with India may still be
necessary in some of the cases such as those involving taxation statutes[2].
Territorial Nexus and the State
Legislature
The Legislature
of a State may make laws for the whole or any part of the State[3]. Now, this leaves it open
to scrutiny whether a particular law is really within the competence of the
State Legislature enacting it. There are plethora of cases that have stated
that the laws which a state is empowered to make must be for the purpose of
that State[4].
Thus, the
Doctrine of Territorial Nexus has been applied to the States as well. There are
two conditions that have been laid down in this respect[5]:
1. The
Connection (nexus) must be real and not illusory.
2. The liability
sought to be imposed must be pertinent to that connection.
If the above two
conditions are satisfied, any further examination of the sufficiency of Nexus
cannot be a matter of consideration before the courts[6].
In various cases
relating to taxation statutes, the courts have time and again stated that it is
not necessary that the sale or purchase should take place within the
Territorial Limits of the State. Broadly speaking local activities of buying or
selling carried in the State in relation to local goods would be sufficient
basis to sustain the taxing power of the State, provided of course, such
activities ultimately result in concluded sale or purchase to be taxed[7].
There is also a
Presumption of Constitutionality that the Legislature is presumed not to
have exceeded its constitutional powers and a construction consistent with
those powers is to be put upon the laws enacted by the Legislature.
Extra-Territorial
Operation
It is
well-established that the Parliament is empowered to make laws with respect to
aspects or causes that occur, arise or exist, or maybe expected to do so,
within the territory of India and also with respect to extra-territorial
aspects or causes that have an impact or nexus with India.
“Such laws
would fall within the meaning, purport and ambit of grant of powers of
Parliament to make laws ‘for the whole or any part of the territory of India’
and they may not be invalidated on the ground that they require extra
territorial operation. Any laws enacted by the Parliament with respect to extra
territorial aspects or causes that have no nexus with India would be ultra
vires and would be laws made for a foreign territory.”[8]
This clearly
indicates that as long as the law enacted by the Parliament has a nexus with
India, even if such laws require extra territorial operation, the laws so
enacted cannot be said to constitutionally invalid. It is only when the ‘laws
enacted by the Parliament with respect to extra territorial aspects or causes
that have no nexus with India’ that such laws ‘would be ultra vires.[9]
What is an acceptable
Nexus is again a subjective question. Professor Michael Lang in his book ‘Introduction
to the Law of Double Taxation Conventions’ says that “in International
law practice, there are no significant limits on the tax sovereignty of states.
In designing the domestic personal tax law, the national legislator can even
tax situations when, for example, only a "genuine link" exists. It is
only when neither the person nor the transaction has any connection with the
taxing state that tax cannot be levied”.
In granting the
Parliament the powers to legislate ‘for’ India, and consequently also
with respect to extra-territorial aspects or causes, the framers of our
Constitution certainly intended that there be limits as to the manner in which,
and the extent to which, the organs of the State, including the Parliament, may
take cognizance of extra-territorial aspects or causes, and exert the State
powers (which are the powers of the collective) on such aspects or causes[10].
Doctrine of
Public Trust requires that all legislation by the Parliament with respect to
extra-territorial aspects or causes be imbued with the purpose of protecting
the interests of, the welfare of and the security of India, along with Article
51[11],
a Directive Principle of State Policy, though not enforceable in a court of
law, nevertheless fundamental to governance, lends unambiguous support to
the conclusion that Parliament may not enact laws with respect to
extra-territorial aspects or causes, wherein such aspects or causes have no
nexus whatsoever with India.
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[1]
British Columbia Electric Railway Co. Ltd. v. King, AIR 1946 PC 180.
[2]
Electronics Corporation of India Ltd. v. Commissioner of Income Tax, AIR
1989 SC 1707.
[3]
Article 245 (1) of the Constitution of India.
[4]
State of Bombay v. United Motors (India) Ltd., AIR 1953 SC 252.
[5]
State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699.
[6]
Khyerbari Tea Co. v. State of Assam, AIR 1964 SC 925.
[7]
Poppatlal Shah v. State of Madras, AIR 1953 SC 274.
[8]
GVK Industries Ltd v. ITO, (2011) 4 SCC 36.
[9]
Metro & Metro , Agra vs Assessee, I.T.A. No. : 393/Agra/2012.
[10]
Constituent Assembly Debates, Official Report, 1948-49,
page 601 (Lok Sabha Secretariat, New Delhi)
[11]
Article 51 – The State shall endeavour to
(a) promote international
peace and security;
(b) maintain just and
honourable relations between nations;
(c) foster respect for
international law and treaty obligations in the dealings of organized peoples
with one another; and
(d) Encourage settlement of
international disputes by arbitration.
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