Doctrine of Territorial Nexus

This article has been written by VASUDHA SINHA of ICFAI Law School, Dehradun. It has been written by her in course of her internship at Legal Soch Foundation.

The doctrine of territorial nexus allows the effect of law out the territorial limits of a nation. It is based on the concept described in Article 245 of the constitution of India that determines how legislative powers are divided or we can say that it tells us about territorial jurisdiction of Parliament and state legislature.

Now let study it in detail:-

To understand the concept of `territorial Jurisdiction` first of all it is important to understand Article 245.and Article-246.

Article 245:- article 245 states that (1) 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

(2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra territorial operation.

Article-245(2):-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.

Article 246:- 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).

Key points:-

• And in case of conflict between central law and state law on a subject listed in the concurrent list, the central law prevails over the state.

• Along with all this Parliament also 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.

• Here, what we observed that some way or the other parliament have more powers than state legislature because parliament have more jurisdiction to make laws and it is applicable to whole of the nation whereas, laws made by state legislature are not applicable outside the state.

Now, in ARTICLE 245, it is being written that the state legislature may make laws for whole or any part of the state. This leaves it open to scrutiny whether a particular law is really within the competence of the state legislature enacting it or not? So for that situation “Doctrine of Territorial Nexus” came which is an application of extra-territorial Jurisdiction, which could be considered as exception to the limited power of state to make laws inside the territorial jurisdiction of state.

Doctrine of Territorial Nexus

This doctrine states that if it is established that there is sufficient nexus `connection `‘between the object and the laws enacted by the state legislature than it will also have an effect outside the territorial limits of the state.

But for this two essentials are being required:

• 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.

This doctrine plays an important role in several cases of the taxation law as it has been held there 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. Lets understand this with an example: `A` is a businessman who lives in Delhi, and he is having a business related to textile in Uttar Pradesh. `A` stays in Delhi only and kept managing business things online and remaining things are being done by his staffs who were there. Now Uttar Pradesh government came up with some taxation law in textile industry and charging `A` for giving the same tax. Here, “A” denies to give the same tax as he says that Uttar Pradesh government doesn’t have jurisdiction to charge me as I am in Delhi. But in this situation he have to give the said tax as because there is nexus between state legislature and object. The reason behind the imposing of, tax on `A` is the business which is being run by him, it is in the territorial jurisdiction of Uttar Pradesh government , so government have rights over that business . So, `A` is liable to pay the tax. This is what explained in the “Doctrine of Territorial Nexus”.

LEADING CASES:

• In Wallace v. Income-tax commissioner: In this case, following the appeal of Indian income tax- authorities, the Doctrine of territorial Nexus was applied by the Privy Council to levy tax on the Britain-based company, which has also carried out its business in India through its partner firm. 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 that 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 Co. Ltd v. State of Bihar, AIR 1958 SC 451: in this case the state of Bihar, for the purpose of levying sales tax, passed a sales tax Act. It stated that if products or goods were found, made and manufactured in the state and the sale happened within the state or outside, then, the sales tax may be levied. The court examined and found enough territorial nexus and allowed the act to be passed by affirming its validity. “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 v. Sm. Charusila Das: in this case, for the protection and conservation of the properties of Hindu religious trusts. The Bihar legislature enacted the Bihar Religious Trusts Act in 1950. The Act included all trusts along with a part of their assets located in Bihar. Here, the question arose, whether the Act extended to trust properties which are located outside Bihar’s Borders. It was decided that this Act passed by the state will also apply to trust properties located outside of Bihar’s Territory, on the condition that the trust is located within the state’s borders and there is an appropriate and adequate ground for this to be applied outside the territorial area as there is sufficient nexus between the object and territory.