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This article is written by Suryansh Singh, a 3rd-year law student from Indore Institute of law. This article mainly discusses the concept of doctrine of territorial nexus.

Introduction

The term federalism means the division of powers between the centre and state. It is a very complex mechanism though it is the very purpose for which a federal state is formed includes the distribution of powers between the union and the centre. Their power is partitioned by the constitution so that they should their independence over the executive and legislative authority. As our constitution is of federal structure it establishes dual polity between the union and state. They are conferred with the sovereign powers which are to be used in a manner directed by the Constitution. Our   constitution is of is the supreme law of the land provides the basic meaning of federalism that is the division of powers.

Territorial nexus

Under article 245 of the Indian constitution, it has been stated that:

  1. Parliament has jurisdiction to make laws for extraterritorial operations or laws for the whole or any part of the country.
  2. The state legislature has the jurisdiction to make laws for the whole or any part of the state.

Thus it can be said that both the union and the state have their own territorial jurisdiction to make laws.

Under article 246 it has been stated,

  1. Parliament has the explicit power to make laws for the subject matters enumerated in the union list (list I of the 7th schedule)
  2. The state has the power to make laws for the subject matter enumerated in the state list(list II of the 7th schedule)
  3. Both the state and the union have the power to make laws for the subject matter enumerated in the concurrent list(list III of the 7th schedule)

Under article 245(2) of the Indian constitution, if any law is made by the parliament regarding the extraterritorial operations, no questions can be raised on its validity. Thus the validity of a legislation can’t be questioned. In this case, a court is bound to enforce the laws made with regards to extra-territorial operations. This legislation can’t be invalidated.

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Legislative relation between the centre and state

The legislative powers are distributed in two ways which are provisioned by the constitution.

  • Distribution of legislative powers in respect of the territory
  • With respect to the subject matters of the list under 7th schedule

Distribution of the legislative powers with respect to the  territory

As enshrined under article 245(1) of the Indian constitution parliament can make laws for the whole or any part of the territory of India. Parliament also has extra-territorial jurisdiction for which it can make laws and these laws can’t be invalidated on the grounds that they have no effect outside India.

In the case of A.H. Wadia v. Income Tax Commissioner it was held that a question of extraterritoriality of enactment can never be raised against a supreme legislative authority on the grounds of questioning its validity. It may not comply with the rules of international law or while enforcing it practical difficulties may arise but they are subjected to questions of policy which is the concern of the national or domestic tribunal.

Theory of territorial nexus

In order to give effect to the laws made by a state for extraterritorial purpose, a nexus between the object and state must be shown. The state legislature has the jurisdiction to make laws within its territorial jurisdiction. Territorial nexus is one such exception which allows the state to make laws for extraterritorial operations if it shows that there exists a nexus between the object and the state.

In the instant case, a company which was registered and incorporated in   also which also carried out its business in India through a sleeping partner. The firm made a staggering profit in that accounting year. The income tax authorities sought to levy a tax upon the company of the respondent. The income tax authority was challenged by the respondent, but it was held by the privy council that there existed the doctrine of territorial nexus and held the tax valid. It is said that the major part of that income was extracted from British India was the sufficient ground to establish a territorial nexus.

Territorial Nexus and the State Legislature

Our Constitution confers the power upon the state to make laws within its territorial jurisdiction

Now a question on whether a law falls under the ambit of the state legislature enacting it.

The state legislature is empowered to make laws for its own purpose. The doctrine of territorial nexus is only applicable when the following conditions are fulfilled. Those conditions are as follows;

  1. The nexus must be legitimate.
  2. The liability shall be related to the territorial connection.

These conditions are sufficient enough to show that the nexus was legitimate and the court would not question its validity. In several cases of the taxation law it has been held that the territorial limits of a state would not hamper the sale and purchase of the goods. Buying and selling of goods would be a reasonable ground to sustain the taxing power of the state.

What do you mean by Extra-Territorial Operations?

Parliament is conferred with the power to make laws within its territorial jurisdiction and also for extra-territorial purpose that has a legitimate nexus with India. Legislation or laws regarding this matter come under the ambit of the parliament as it has the power to do so. These laws can’t be questioned on its validity. If the parliament enacts any law which doesn’t establish any nexus with India will turn out to be ultra vires and would be considered as the laws made for a foreign land.

This can be concluded that if any law passed by the parliament has a real connection with India can’t be deemed to held as invalid or unconstitutional. If such laws enacted by parliament establishes no nexus with India would be ultra vires.

Our constitution states that the legislative powers conferred upon the parliament in order to enact laws within the territorial jurisdiction as well as for the   purpose may take the cognizance of the extraterritorial purpose and exercise the state powers or the collective powers Doctrine of public trust states that all the laws enacted by parliament with respect to extraterritorial operations shall be enacted for the purpose of safeguarding the welfare and security of India, which directly concludes that no laws shall be made for the extraterritorial operations if there is no nexus of such law or legislation with India.

The role of territorial nexus in Indian Legislation

As it has been stated before in this article that Article 245 of the Indian constitution states the extent to which the legislative powers are conferred in parliament and the state legislature in order to make laws with respect to the territory. Parliament has the power to make laws for the for which it has the jurisdiction. The jurisdiction of parliament extends to the whole or any part of India. They can also be enacted by the parliament for extraterritorial operations if there is sufficient nexus of the law with India. These laws cannot be questioned or held invalidated. However, all the laws must comply with the provisions of the Indian constitution.

The powers conferred in parliament are not absolute. Laws made by the parliament for Extraterritorial operations are for the purpose of operating outside the geographical limits of India. The state legislature doesn’t have the power to make laws for extraterritorial operations. However, this limitation of the state legislature is subjected to one exception and that is territorial nexus. If it is established that there is sufficient connection with the object and the laws enacted by the state legislature will have an effect outside the territorial limits of the state.

The following circumstances are required in order to invoke the jurisdiction of territorial nexus-

  • If there exist extraterritorial operations in a state
  • If there is legitimate nexus between the object and the state. It should be clear that the object shall be situated outside the territorial limits of the state but it must have a territorial connection with the state.

State of Bombay vs R.M.D. Chamarbaugwala

In the instant case, the respondent who was not a resident of Bombay conducted a prize competition of a crossword puzzle through a newspaper which was printed and published in the Bangalore. This paper was widely published in Bombay to. For this competition depots were established so that the forms and fees can be collected. It attracted a lot of buyers for the ticket of that competition.

The state government then levy take over the respondents company for contesting a prize competition in the state. The respondent challenged   the supreme court and a question was raised whether the tax can be levied upon a person who resides outside the territorial limits of the state. It was held by the supreme court that there was a sufficient territorial nexus and the   legislature has the authority to tax the respondent for the revenue earned by his company through the prize competition.

Tata Iron And Steel Company vs. Bihar State Tax Act

The state of Bihar passed sales tax act for levying a tax in on the sales whether it took place within the territorial limits of the state or outside of that limit, it was also stated that the goods should be manufactured in the state. In the instant case, it was held that there was an established nexus between the object which was to be taxed and the law. These are the two essential elements that constitute the doctrine of territorial nexus.

State of Bihar v. Charusila Dasi

In the instant case, the state of Bihar passed a legislation which dealt with the motive to safeguard the properties relating to the Hindu religious trusts. This act consists of all the trusts within the territorial limits of Bihar. So the respondent Madea trust deed several of her properties in situated in Bihar and Calcutta, and the trust was inside the territorial limits of Bihar. Several questions were raised about the scope of this act.

It was held that the act passed by the state of Bihar could have the effect over the property situated outside the territorial limits of Bihar keeping in mind that the trust must be situated with the limits of the state and there exist the sufficient nexus.

Shrikant Bhalchandra Karulkar v. State of Gujarat

The hon’ble supreme court in this instant case of Shrikant Bhalchandra Karulkar v. State of Gujarat held  that the state legislature is conferred with the power to enact legislation for extra-territorial operations complying with the provisions enshrined under article 245 and 246.The laws made by the state legislature is applicable to a person and his acts within the territorial limits of a state is not considered as extra territorial.

Conclusion

It can be concluded that the legislative powers has been distributed in two folds between the centre and state. Federalism is a very complex mechanism though it is the very purpose for which a federal state is formed includes the distribution of powers between the union and the centre. Their power is partitioned by the constitution so that they should their independence over the executive and legislative authority.

As our constitution is of federal structure it establishes dual polity between the union and state. Parliament has the power to make laws for any or whole part of India as well is conferred with the power to make laws for extra territorial operations.however, a state  legislature is not competent enough to make laws for the extraterritorial operations. However there is one exception which enables the state legislature to make laws for the extra territorial purposes if there exists a sufficient connection between the object and the state. It means that the object shall be located outside the territorial limits of the state and has a territorial connection with the state. The scope of territorial nexus is wide and can be applied outside the territorial limits of India. The doctrine of territorial nexus allows the effect of law out the territorial limits of a nation.

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