The Government of India Act, 1935 established the principle of the extra-territorial application of the law in India. The British Parliament passed this Act in order to give the provinces of British India a great deal of autonomy. The Act of 1935 referred to the Indian territories vested in His Majesty the King, Emperor of India, at the time. The idea is later debated in the Indian Constitution after independence.
In A.H. Wadia vs Commissioner Of Income-Tax, it was held that a question of extraterritoriality of enactment can never be posed against a supreme legislative authority on the basis of challenging its validity. The legislation may be in violation of international law, may not be recognized by foreign courts, or may pose practical challenges in implementing it, but these are policy problems that are not covered by domestic tribunals.
The theory of territorial nexus, a principle developed to explain the applicability of one country’s law to another, aims to establish a genuine connection between the country that makes the law and the countries in whose jurisdiction the law is to be enforced or run. The general rule about the execution of laws is “extra territorium jus dicenti impune non-paretur,” which means that a State can only legislate on its subjects and that such laws can only be enforced within its borders. The rise in global business transactions and commercial transactions between parties from one jurisdiction and those from another jurisdiction, where individuals and companies operate on a global scale, has increased the importance of extra-territorial application of national laws. As a consequence, if the criteria of real and necessary relation is met, laws are granted extra-territorial operation.
By carefully considering the principle of territorial nexus, the United States followed the practice of extra-territorial application of law. The United States Constitution does not prohibit Congress or states from enacting laws that apply outside the country. There is a clear assumption in American law that unless Congress expressly indicates otherwise or there is proof of a contrary intent, the law is only valid within the State’s territorial jurisdiction. A state law that seeks to apply outside of the United States of America must first obtain Parliamentary approval.
The seminal decision in GVK Industries Ltd. v. ITO elucidates the principle of territorial nexus and offers an extraordinary explanation of Article 245(2) of the Constitution. This doctrine is significant because it establishes that Indian law can be applied outside of Indian territory. The importance of this doctrine can be seen in areas such as international transactions, contracts, and crimes, which necessitate extra-territorial application of law in order to protect the nation’s interests, welfare, and security. This theory can be applied to a variety of cross-border issues, including income tax laws, antitrust laws, human rights laws, bankruptcy, terrorism, and issues arising from the operation of corrupt practices. Furthermore, cross-border economic, business, social, and political organizations, while ostensibly operating in one territory, may have an impact on or in another.
The Doctrine’s Most Important Features are:
- It is well-founded that the Parliament has the authority to enact laws relating to aspects or causes that occur, emerge, or exist, or are likely to do so, within India’s territory, as well as extra-territorial aspects or causes that have an effect or Nexus with India.A business registered in England was a partner in a corporation in India in Wallace v. Income-tax Commissioner, Bombay. The Indian income-tax authorities wanted to tax the company’s entire profit. The privy council used the Doctrine of Territorial Nexus to safeguard the legitimacy of the levy fee.
- The Territorial Nexus Doctrine has also been extended to Nations. The courts have repeatedly claimed in cases involving taxation laws that the selling or purchase does not have to take place within the State’s Territorial Limits.
- It means that the item to which the law applies does not have to be physically located within the state’s borders, but must have a sufficient territorial relation to the state.
- A state can tax an individual, property, object, or transaction not only if it is located within its borders, but also if it has a sufficient and real territorial link with it. Whether there is a sufficient relation is a factual issue that will be decided by the courts in each case.
- The taxation of non-residents in India is governed by the Territorial Nexus Doctrine.
DOCTRINE OF TERRITORIAL NEXUS AND ITS DEVELOPMENT IN INDIA
The decision in Governor-General in Council v. Raleigh Investment Co. Ltd established the concept of sufficient and real nexus. The main problem was how a law worked, not whether the law, as written, applied to elements or causes that were outside British India’s territory and had no effect on it. “In our opinion, the degree, if any, of extra-territorial action which is to be found in the impugned provisions is within the legislative powers granted to the Indian Legislature by the Constitution Act,” the Privy Council writes.
The doctrine of territorial nexus can be traced back to Article 245(1) of the Constitution. The powers bestowed on the Parliament by this provision apply to “the entire, or any part of the territory of India” and include the right to make laws in this regard. The legislative powers of state legislatures are discussed in the second part of Clause (1) of Article 245. The term “for” connects the subject “the entire or some part of the territory of India” with the phrase that gives the Parliament legislative powers.
The Supreme Court reached this conclusion by referencing the constitutional scheme, which contains many instances of the term “for the entire or some part of the territory of India” in Articles 249, 250, and 253. When the same words or phrases are used in various sections of the Constitution, the same definition should be ascribed unless the context demands otherwise, according to the well-established concept of legislative and constitutional interpretation.
The Constitution mandates that all state organs safeguard India’s rights, health, and stability. It entrusts the law-making role to Parliament, as the supreme authority, with the same goal in mind. As a result, the Supreme Court ruled that extra-territorial aspects or causes should be considered within the legislative competence of the Parliament if they have a link to India.
State of Bombay vs RMD. Chamarbaugwala
Although the Respondent did not live in Bombay, he ran competitions with cash prizes through a newspaper printed and distributed in Bangalore that had a large circulation in Bombay. Many of the competition’s important events, such as filling out forms and paying entry fees, took place in Bombay. The state government tried to tax the respondent because he was doing business in the state.
The Supreme Court was asked to decide if the respondent, the competition organizer, who was based outside of Bombay, could be validly taxed under the Act.
Decision-It was determined that there was an adequate Territorial Nexus to allow the Bombay Legislature to tax the respondent since all of the activities that the competitor would normally be required to engage in took place primarily within Bombay.
Tata Iron And Steel Company vs. Bihar State
In order to levy sales tax, the state of Bihar passed a Sales Tax Act.
If the products were made, found, and manufactured in the state, the sales tax may be levied if the sale took place within the state or outside. The court found enough territorial nexus and affirmed the Act’s validity
The facts and circumstances in each case will decide if there is a Nexus between the Law and the object sought to be taxed. It was pointed out that evaluating the sufficiency of the Territorial relation required consideration of two factors: the connection must be genuine and not fictitious, and the liability sought to be applied must be applicable to that connection.
The State Of Bihar & Others vs Sm. Charusila Das
The Bihar Hindu Religious Trusts Act, 1950, was enacted by the Bihar legislature to protect and conserve the properties of Hindu religious trusts. The Act included all trusts with a portion of their assets located in Bihar.
The problem was whether the Act extended to trust properties located outside of Bihar’s borders. Is it possible for the Bihar legislature to pass a law regulating such a trust that is based in Bihar and other trust assets that are based outside of Bihar?
It was decided that the act passed by the state of Bihar will apply to property located outside of Bihar’s territorial limits, provided that the trust is located within the state’s borders and there is an appropriate Nexus.
Shrikant Bhalchandra Karulkar v. the State of Gujarat
In this case, the legislative competence to make laws of extra-territorial application was examined in light of the provisions of Articles 245 and 246 of the Indian Constitution.
The court held that a law passed by a state legislature can’t be considered extra-territorial as long as it extends to people who live in that state’s jurisdiction, as well as all activities and acts that take place there.
It can be concluded that the legislative powers have been split between the federal government and the states. Federalism is a complicated process, despite the fact that the very reason a federal state is created is to distribute authority between the union and the center. The constitution splits their authority so that they can preserve their independence from the executive and legislative branches.
The territorial arrangement of our constitution creates a dual polity between the union and the states. Parliament has the authority to pass laws for any or all parts of India, as well as to enact laws for extra-territorial operations. A state legislature, on the other hand, is inept at enacting rules for extra-territorial activities. However, there is one exception that requires the state legislature to pass laws for extra-territorial purposes if the object and the state have a sufficient relation. It implies that the object is situated outside of the state’s territorial limits but has a territorial relation to the state. Territorial nexus has a wide application and can be used outside of India’s borders. The doctrine of territorial nexus requires the force of law to extend beyond a nation’s borders.
- State of Bombay v RMDS 1957 AIR 699 SCR 874.
- Tata iron and steel company v state of Bihar1958 AIR 452 SCR 1355
- The state of Bihar v Sm.Charusila Das1959 AIR 1002
- Shrikant Balachandra Karulkar v state of Gujarat(1994) 5 SCC 459
- G.V.K. Industries Limited And v Income-Tax Officer And Anr 1997 228 ITR 564 AP
- A.H. Wadia vs Commissioner Of Income (1949) 51 BOMLR 287
By – Uthra