DOCTRINE OF TERRITORIAL NEXUS: CRITICAL ANALYSIS

INTRODUCTION

The Government of India Act 1935 brought Extra Territorial operations laws in India. It was created by British Leaders so that they can earn and accumulate those huge funds for British region.

This Extra Territorial Operation Laws and Government of India Act 1935 led Britishers to earn huge profits in Indian Territories. Extra Territorial Operations Laws were in a debate over the Constitution of India after India got Independence in 1947.

The Indian Constitution of India is formly created on concept of federalism, and it acknowledge it and grants the authorization in 2 forms that are in reference to particular regions of India as well as to respective subject matter.

PART XI of The Constitution of India i.e RELATIONS BETWEEN THE UNION AND THE STATES and it’s sub CHAPTER 1 states LEGISLATIVE RELATIONS and it’s provides many constitutional provisions from Article 245 to Article 255.?(Universal's, 2022)

According to Article 245 (1), it clearly states that Parliament may make laws for the whole or any part of the territory of India and the Legislature of State may make laws for the whole or any part of the State.? Article 245 (2) states that on the grounds of extra-territorial operation, no law made by the Parliament shall be declared invalid. ?(Universal's, 2022)

The Doctrine of Territorial Nexus was firstly demonstrated by the privy council in 1948 in the case of Wallace Vs Income Tax Commissioner[1].

In this case, Privy Council states that the company was organized in England, but it also runs in India. It is also founded that the company made huge profits using sleeping partner. Therefore, the income tax department imposed taxes on the respondent.

However, the respondent was unhappy and decided to file a case. The Privy Council held that Tax is invalid because of this doctrine and the profits are created in India therefore territorial nexus will be applied.

Accordingly, due to extra territorial functioning, sometimes State Laws are considered to be void. Hence, in that cases Doctrine of Territorial Nexus is to be used so that it becomes valid if there is sufficient link between object & State.

This was arised by the state government of India from explanation laid down by the Supreme Court of India for the state’s Extra Territorial operations.

This doctrine is applicable in that state but will only be applicable to extra territorial operations if there is a connection between object & state.

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THEORY OF TERRITORIAL NEXUS

Territory or Territorial refers to a place, area, location region or territory. Nexus refers to objects, persons or events. Hence, Doctrine of Territorial Nexus is applied for Extra Territorial Operations between the States.

There must be connection between the object and the State to prove Extra Territorial Operation within the particular State. Every State Legislature have powers to make particular laws in their boundaries.

Extra Territorial Jurisdiction can be done by applying this Doctrine by the state legislature as this doctrine is an exception.

The Doctrine of Territorial Nexus was firstly demonstrated by the privy council in 1948 in the case of Wallace Vs Income Tax Commissioner[2].

In this case, Privy Council states that the company was organized in England, but it also runs in India. It is also founded that the company made huge profits using sleeping partner. Therefore, the income tax department imposed taxes on the respondent.

However, the respondent was unhappy and decided to file a case. The Privy Council held that Tax is invalid because of this doctrine and the profits are created in India therefore territorial nexus will be applied.

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SALIENT FEATURES OF THIS DOCTRINE

1.????? Article 245 states that Parliament of India as well as State Legislatures has powers to make laws in respect of territories or Extra Territorial operations. (Universal's, 2022)

2.????? The Doctrine of Territorial Nexus is applicable in the state but will only be applicable to extra territorial operations if there is a connection between the object and the state.

3.????? This doctrine is usually applied in the cases of taxation.

4.????? The State puts taxes on person or objects in the state territory. But this doctrine can levy taxes from Extra Territorial Operations only if there is sufficient connection between the object and the state.

5.????? The Doctrine of territorial Nexus governs the taxation of foreigners.

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TERRITORIAL NEXUS UNDER INDIAN CONSTITUTION

Article 245 of the Constitution of India states that:-

A245(1): - Parliament may make laws for the whole or any part of the territory of India and the Legislature of State may make laws for the whole or any part of the State. (Universal's, 2022)

A245(2): - On the grounds of extra-territorial operation, no law made by the Parliament shall be declared invalid. (Universal's, 2022)

The general principle underlying the sovereignty of States is that laws made by one State cannot have operation in another State. A law which has extra territorial operation cannot directly be enforced in another State but such a law is not invalid and saved by article 245(2) of the Constitution. (Universal's, 2022)

But this does not mean that law having extra territorial operation can be enacted which has no nexus at all with India. Unless such contingency exists, the Parliament shall be incompetent to make law having extra territorial operation. (Universal's, 2022)

Article 246 of the Indian Constitution states that:-

A246(1): - Parliament has the exclusive power to make laws with respect to any of the matters enumerated in the List I in the Seventh Schedule i.e. Union List. (Universal's, 2022)

A246(2): - Parliament and the Legislature of any State also have power to make laws with respect to any of the matters enumerated in the List III in the Seventh Schedule i.e. Concurrent List. (Universal's, 2022)

A246(3): - Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in the List II in the Seventh Schedule i.e. State List. (Universal's, 2022)

A246(4): - Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List. (Universal's, 2022)

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TERRITORIAL NEXUS AND STATE LEGISLATION

According to A245(1) of the Constitution of India, the State Legislature may make laws for the whole or part of the State. However, if the law is maded Extra Territorial boundaries i.e. outside the jurisdiction of the State, then if there is connection between the object and the State, then the Doctrine of Territorial nexus is applicable.

The Apex Court of India stated 2 grounds to find connection of Nexus for Extra Territorial be applicable as Doctrine of Territorial Nexus: - (Universal's, 2022)

1.????? Legitimacy of Nexus

2.????? Liability related to Territory connection.

Both of these above mentioned conditions are enough to state whether the Nexus is legitimate or not.

Hence, Parliament has power to make laws related to territory or Extra territorial operation and that laws will only be valid if there is legitimate territorial Nexus found.

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EXTRA TERRITORIAL OPERATIONS

Article 245 clearly states that Parliament can make laws for the whole or part of territory of India and no law made by Parliament shall be deemed to be invalid on the grounds of Extra Territorial operations. (Universal's, 2022)

The laws which are created by Parliament shall not be questionable on there validity. This is so because if the Parliament enacts any law which does not have any connection with Indian territory will be turn out to be law made for a foreign land.

Parliament enacts a law with respect to extra territorial operations shall be enacted for the purpose of security of India and safeguarding the welfare of India. This is stated by the Doctrine of public trust.

This means that no law shall be made for the extra territorial operations if there is no connection of such law with Indian Legislation.

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ROLE OF DOCTRINE OF TERRITORIAL NEXUS IN THE LEGISLATION OF INDIA (CASE LAWS)

1.????? State of Bihar Vs Charusila Dasi[3]

Fact:- The Bihar State Board of Religious Trust sent a notice to the petitioner Smt. Charusila Dasi asking her to furnish a return in respect of Trust known as Shrimati Charusila Trust. The petitioner moved to the court to quash the proceedings taken against her by the Board on the ground that no territorial nexus existed between Trust properties situated outside Bihar and the power of the Board to ask for return of these Trust properties.

Issue:- Whether territorial nexus exists between Smt. Charusila Trust and notice issued under Bihar Hindu Religious Trust Act by Bihar State of Religious Trust.

Decision:- The court held that a State Legislature has the power to legislate with respect to charitable and religious trusts situated within its territory even though any part of the Trust property, whether small or large, may be situated in another State. The court held that Bihar Hindu Religious Trust Act could affect the Trust property situated within the territory of Bihar. Thus Supreme Court of India held that action of Bihar State Board would not be struck down on the ground of extra territorial operation.

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2.????? State of Bombay Vs R.M.D.C.[4]

In this case, the respondent, non resident of Bombay, conducted a puzzle competition through newspaper of Bangalore. This newspaper was also been published in Bombay too. Fees are collected in Bombay. Many people from Bombay bought the tickets.

The Bombay State Government put tax over the amount earned by the respondents. This case was gone before the Apex court of India and issue raised that whether tax can be imposed on person living outside the State of Bombay. It was held that there was territorial nexus, and the Bombay State Legislature has the authority to impose taxes on respondent.

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3.????? Tata Iron & Steel Co. Ltd. Vs State of Bihar[5]

In this case, the appellant company had there registered office in Bombay. The main factory working is in Bihar and the sales office is in West Bengal. The State under Bihar Sales Tax Act 1947 imposed a Tax on goods which are manufactured in Bihar and goods which actually accomodated in Bihar at the time of sale. The company contended that though goods are manufactured in Bihar but sold, delivered and consumed outside the State.

Supreme Court held that the nexus theory does not impose a tax but it only indicates circumstances in which a tax imposed by a legislature may be enforced in a particular case. In a sale of goods, the goods must as a matter of necessity plays an important part.

The court held that the presence of the goods at the date of the agreement for sale in the taxing state or the production or manufacturing of goods in that state, the property wherein eventually passed as a result of the sale wherever that might have taken place constituted a sufficient nexus between the taxing state and sale.

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4.????? ?G.V.K. Industries Vs Income Tax Officer[6]

Issue-?A question arose whether the Parliament was empowered to enact laws in respect of extra-territorial aspects or causes that have no nexus with India, and furthermore, if such laws are bereft (Without) of any benefit to India. Decision-?A particularly understanding of the words used could lead to a strict territorial nexus requirement wherein Parliament may only make laws with respect to objects alternately, in terms of the words we have used “aspects and causes” that occur, arise or exist or may be expected to occur, arise or exist, solely within the territory of India, notwithstanding the fact that many extraterritorial objects or provocations may have an impact or nexus with India.

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5.????? A.H. Wadia Vs Income Tax Commissioner, Bombay[7]

The Apex Court of India held that in the case of a sovereign legislature question of extra-territoriality can never be raised in the municipal court as a ground for challenging its validity. The legislation may offend the rules of international law, may not be recognised by foreign courts, or there may be practical difficulties in enforcing them but these are questions of policy with which the domestic tribunals are concerned.

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6.????? Jindal Stainless Limited Vs State Of Haryana[8]

Jindal Ltd imports the raw materials for production purposes and exports the financial goods to other states and situated in Haryana State.

The Haryana Local Development Act, 2000 provides for levy and collection of entry tax, tax levied on the entry of goods in the states for the consumption or use therein.

The Petitioner challenged the constitutional validity of the Haryana Local Area Development Act, 2000 before a Division Bench of the Supreme Court which was further referred to a higher bench.

The court held that state legislature are free to exercise their taxing powers without the need of declaring and showing that taxes imposed by them are for the benefit of concerned traders or manufacturers but such taxes must be non- discriminatory in nature.?

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SITUATIONS IN WHICH DOCTRINE OF TERRITORIAL NEXUS CAN BE INVOKED

1.????? When there is subject- matter between the Act and the state which is making the law.

2.????? When state has proper Extra-Territorial operation.

It guides that if there is territorial connection then territorial nexus can be invoked and State may put taxes on object, person which can be within territorial jurisdiction or extra territorial jurisdiction if there is proper connection between the nexus.

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CONCLUSION

The Doctrine of Territorial Nexus is stated in Article 245 of Constitution of India which guides that if there is a connection b/w the object and the law then state laws may have Extra- Territorial Nexus.

The Government of India Act 1935 brought Extra Territorial operations laws in India. It was created by British Leaders so that they can earn and accumulate those huge funds for British region.

This Extra Territorial Operation Laws and Government of India Act 1935 led Britishers to earn huge profits in Indian Territories. Extra Territorial Operations Laws were in a debate over the Constitution of India after India got Independence in 1947.

The Indian Constitution of India is formly created on concept of federalism, and it acknowledge it and grants the authorization in 2 forms that are in reference to particular regions of India as well as to respective subject matter.

PART XI of The Constitution of India i.e RELATIONS BETWEEN THE UNION AND THE STATES and it’s sub CHAPTER 1 states LEGISLATIVE RELATIONS and it’s provides many constitutional provisions from Article 245 to Article 255.?(Universal's, 2022)

According to Article 245 (1), it clearly states that Parliament may make laws for the whole or any part of the territory of India and the Legislature of State may make laws for the whole or any part of the State.? Article 245 (2) states that on the grounds of extra-territorial operation, no law made by the Parliament shall be declared invalid. ?(Universal's, 2022)

This Doctrine plays a crutial role in assessment of Taxes which was also discussed by the Apex Court of India. 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.

States puts taxes on person or 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.

The Apex Court of India stated 2 grounds to find connection of Nexus for Extra Territorial be applicable as Doctrine of Territorial Nexus: - (Universal's, 2022)

1.????? Legitimacy of Nexus

2.????? Liability related to Territory connection.

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 legitimate territorial nexus exist between the state and subject of matter.

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[1] Wallace Bros.? vs. Commissioner of Income Tax (22.03.1943 – BOMBAY HIGH COURT) : 1943 11 ITR 559? Bom

[2] Wallace Bros.? vs. Commissioner of Income Tax (22.03.1943 – BOMBAY HIGH COURT) : 1943 11 ITR 559? Bom

[3] State of Bihar vs Charusila Dasi (15.04.1959 - SUPREME COURT) : 1959 AIR 1002

[4] State of Bombay vs R.M.D.C. ?(09.04.1957 - SUPREME COURT) : 1957 AIR 699

[5] Tata Iron & Steel Co. vs State of Bihar (19.02.1958 - SUPREME COURT) : 1958 AIR 452

[6] G.V.K. Industries vs. Income Tax Officer (01.03.2011 – SUPREME COURT) : CIVIL APPEAL NO. 7796 OF 1997

[7] A.H. Wadia? vs. Commissioner of Income Tax? (24.11.1948 - FEDERAL COURT) : MANU/FE/0004/1948

[8]Jindal Stainless Limited vs. State of Haryana (11.11.2016 – SUPREME COURT) : CIVIL APPEAL NO. 3453/2002