ARTICLE 245-DOCTRINE OF TERRITORIAL NEXUS

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Article 245, clause 1 states, ‘Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India and the Legislature of a State may make laws for the whole or any part of the State

Clause 2, states, ‘a law made by Parliament cannot be held invalid on the ground that it has an extra-territorial operation.’.

The above-mentioned statement implies that State law cannot have extra-territorial jurisdiction. Thus, the Doctrine of Territorial Nexus originates from the Apex Court’s interpretation of this particular provision in context with the extra-territorial operation of a law made by the state government in India.

Explanation: The Doctrine of Territorial Nexus states, that laws that are made by a particular State Legislature are only applicable in that particular State and not outside the territorial boundary of that State, except in scenarios where there is a sufficient nexus between that State and the object. The significance of this can be determined by the Supreme Court’s observation wherein it has stated that ‘Territorial nexus doctrine, thus, plays an important part in the assessment of tax. Tax is levied on one transaction where the operations which may give rise to income make take place partly in one territory and partly in another. The question which would fall for consideration is as to whether the income that arises out of the said transaction would be required to be apportioned to each of the territories or not.

Income arising out of operation in more than one jurisdiction would have territorial nexus with each of the jurisdiction on an actual basis. If that be so, it may not be correct to contend that the entire income “accrues or arises” in each of the jurisdiction.”

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Judicial Pronouncements:

  1. In A.H. Wadia vs Income Tax Commissioner, Bombay, 1947:

 The Apex Court held, that in the case of a sovereign Legislature question of extraterritoriality of enactment can never be raised in the municipal court as a ground for challenging its validity. Further, the Court stated that legislation may offend the rules of international law, and there are chances that they may not be recognised by foreign courts also, or there might be practical obstacles in enforcing them, but these questions are of policy and domestic tribunals should not be concerned and affected by them. 

  1. GVK Industries Limited vs. Income Tax Officer, 2011: 

In this case, it was questioned as to whether the Parliament is authorized to enact laws in respect of extra-territorial aspects or in causes that have no nexus with India, and furthermore, if such laws are bereft of any benefit to India?

The Supreme Court held that ‘The clue of the answer to this question also lies in the word for used in article 245(1). The Court derived the responsibility of the Parliament with the help of the word for used in article 245(1) and stated that Parliament of India is to act as the Parliament of India and of no other territory, nation or people.’ The Court derived two related limitations in this regard, which are as follows:

  • The Parliament may only apply its power for the benefit of the Country as per the necessity and the laws framed by the Parliament may strengthen the welfare of the people in other territories too but the benefit to or of India will remain the central and primary purpose.

  • It is also stated that the laws enacted by the Parliament with respect to extra-territorial aspects or causes that do not have any, or maybe expected to not have nexus with India, defy the first condition. The Constitutional Bench headed by Sudershan Reddy J, denied the answer of question logically and stated that the Legislature’s powers to frame laws pursuant to clause (1) of Article 245 may not extend to those extra-territorial aspects or causes that have no impact on or nexus with India.

 

The Doctrine of Territorial nexus can be invoked under the following circumstances-

  • Whether a particular state has an extra-territorial operation.

  • If there is a territorial nexus between the subject- matter of the Act and the state making the law.

  • It states that the object to which the law is applicable need not be physically located within the territorial boundaries of the state, but there must be a sufficient territorial connection with the state.

  • A state may levy a tax on a person, property, object or transaction not only when it is situated within its territorial limits, but also when it has a sufficient and real territorial connection with it.

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Judicial Pronouncements:

  1. State of Bombay vs RMDC:

Facts of the case: The respondent was not residing in Bombay (Mumbai) but he conducted competitions with prize money through a newspaper printed and published from Bangalore (Bengaluru) having a wide circulation in Bombay.

All the essential activities like filling up of the forms, entry fees etc. for the competition took place in Bombay.

The State Government sought to levy a tax on the respondent for carrying on business in the State.

Issue: The question for decision before the Supreme Court was if the respondent, the organizer of the competition, who was outside the state of Bombay, could be validly taxed under the Act.

Judgment: The Supreme Court held that as most of the activities which the competitor is ordinarily expected to undertake took place in Bombay. Thus, it was sufficient to show that there was an existence of territorial nexus and based on this the State Government had the authority to levy a tax on the respondent. 

  1. State of Bihar vs Charusila Dasi:

Facts of the case- The Bihar legislature enacted the Bihar Hindu Religious Trusts Act,1950, for the protection and preservation of properties pertaining to the Hindu religious trusts. The Act was made applicable to all trusts any part of which was situated in the state of Bihar.

The Respondent created a trust deed of her properties of several houses and land in Bihar and Calcutta. The trust is situated in Bihar.

The issue-the main question for decision was whether the Act applies to trust properties which are situated outside the state of Bihar. Can the legislature of Bihar make a law with respect to such a trust situated in Bihar and other properties appertaining to such trust which is situated outside Bihar?

Judgement: The Supreme Court after applying the doctrine of territorial nexus stated that the Act had the scope of affecting the trust property situated outside Bihar, but appertaining to a trust situated in Bihar where the trustees functioned. It further stated that the Act aims to provide for the better administration of Hindu religious trusts in the state of Bihar. Therefore, the trust is situated in Bihar, enables the State to exercise its legislative power over it and also over its trustees or their servants and agents who must be in Bihar to administer the trust.

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Conclusion: The Doctrine Territorial Nexus does not debar a State law from having an extra-territorial jurisdiction. It simply lays down that if a State wants to extend its laws beyond its boundary then it will have to satisfy the Court that there is a sufficient nexus between the subject matter concerned and the state making the law.