THE DOCTRINE OF TERRITORIAL NEXUS

ABSTRACT

To keep a country’s democratic status power of making rules should not be given to a single legislative body. In India, as we follow Federalism the governing power of the whole territory is completely distributed between the Central government and the different State governments. Both governments make laws depending on the territorial jurisdiction and the Subject matters that are mentioned in the Constitution. As all the general rule has certain exceptions there is also an exception in law making. The Doctrine of Territorial Nexus empowered both the Parliament as well as the State Governments to make laws that exceeded their territorial boundary. But for making those laws valid there needs to be a legitimate nexus between the specific legislation and the object. If there is no nexus the law will become invalid.

Keywords

Constitution, Judiciary, Legislative Bodies, Territorial Jurisdiction

INTRODUCTION

India is a democratic country that follows the principle of federalism. In Federalism, power is not concentrated in the hands of a single governing entity. There is a complete division of power between the Central government and different State governments. Federalism ensures that the strength of the state is divided between both governments. Schedule VII of the Constitution mentions different lists that divide the power of the Central and State governments based on various subjects. In a federal structure, no government is subordinate to others both governments work in coordination with each other. The Parliament and the State Legislature have the power to make their laws. The Parliament can make laws for the whole Indian territory and the State has the power to make laws only within its territory. Under certain circumstances, both the Parliament as well as the State Legislative bodies can exceed their territorial limitation.

In this article, the author is going to discuss that doctrine in great detail.

HISTORICAL BACKGROUND

The inception of the doctrine of territorial nexus can be found in history to The Government of India Act, of 1935 which provided a great deal of autonomy to the British Indian provinces. Through this act, extra-territorial application of the law was started in India. After independence, this doctrine of territorial nexus is dealt with in the Constitution of India.[1]

The meaning of the word Territorial Nexus

The word territory means any area or place. The word nexus refers to people, things, events. If we combine two words, then Territorial Nexus means that any government, whether Parliament or State legislature, applies any law with an extra-territorial work area. Certain conditions need to be fulfilled before implementing such laws that exceed territorial transgression. Those are-

There has to be a direct nexus between the subject matter and the law made by legislative bodies.
The state must have legitimate authority to make such extra-territorial operations.

The Constitution of India provides two types of jurisdictions in the distribution of Legislative powers.

Territorial Jurisdiction
Subject matter Jurisdiction

CONSTITUTIONAL PROVISION OF TERRITORIAL JURISDICTION

Article 245[2] of the Indian Constitution exclusively deals with the territorial division of the law-making power of the Union and the States.

Article 245(1)[3] states that-

As per the provisions of the Constitution the Parliament can make laws for the whole or any part of the territory of India and the state legislature can make laws for the whole or any part of the state.

Article 245(2)[4] states that-

Any law made by Parliament will not become invalid on the ground that the law exceeds the territorial jurisdiction. That means it takes effect outside the territory of India.

FEATURES OF THE DOCTRINE OF TERRITORIAL NEXUS

India’s parliament has the authority to pass laws within the territorial boundary of India as well as extra territoriality on the condition that the subject matter would be in direct nexus with Indian laws.
This doctrine applies to states in matters of taxation.
This doctrine governs the taxation of non-Indian citizens.
This philosophy is mainly based on the principle that there should be a direct nexus between the State and the objects.[5]

In the case of A.H. Wadia v. Income Tax Commissioner[6], the Bombay Supreme Court held: “In the case of a sovereign Legislature question of extra-territoriality of an enactment 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 recognized 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.”

THEORY OF TERRITORIAL NEXUS

As we have already discussed, Article 245 of the Indian constitution defines the degree to which legislative powers are delegated to parliament and state legislatures to enact legislation regarding the territory. Indian Parliament has jurisdiction over the entire country or any part of it. The parliament can also enact laws for extraterritorial activities if the legislation has a strong enough link to India. These laws cannot be declared unconstitutional. Extraterritorial laws are enacted by the parliament to conduct activities outside of India’s borders.[7]

In Wallace v. Income Tax Commissioner, Bombay[8]a company that was enlisted in England was a partner in an Indian firm. The company used to make huge profits from the Indian firm. The Income Tax authorities sought to heavily tax the entire income made by the company. In this case, the Privy Council applied the doctrine of territorial nexus and held that imposing taxes is valid. The Judgment further clarified that as the company was deriving a major part of the profit for a year that is sufficient to justify that there is a territorial connection of the company with India and the company is liable to tax on the income whatever it has received throughout the year from the Indian firm.

The Doctrine of Territorial Nexus on State Legislature

According to Article 245(1)[9] of the Indian Constitution, the state legislature has the power to enact laws within the boundaries of the state. Sometimes, for the state, the legislature passes certain laws that surpass the territorial boundary of that state. For a state to make any law that transcends state boundary two conditions must be fulfilled. Those are-

There should be a legitimate nexus between the State legislation and the objectives it wants to achieve.
The liability that will be imposed must be related to that connection.

These two elements are necessary to prove whether the nexus is genuine or not. If the state can prove that there is a legitimate nexus between the item and the legislation issued by the State Legislature, that legislation will have an impact beyond the state borders.

The legislation passed by the State Legislature should not go beyond the constitutional competence.

In the case of State of Bombay v. R. M. D. C,[10]therespondent a non-resident of Bombay conducted a prize competition for a Crossword puzzle through a newspaper that was printed and published in Bangalore. This paper has wide publication in Bombay too. The respondent conducted the prize competition through this newspaper in Bombay. The Bombay state imposed a tax on the respondent for conducting business in the state through the competition. The respondent challenged the matter in the Supreme Court that the State has no right to levy taxes as the venue of the competition is outside the territorial jurisdiction of the state.

The Court held that there is sufficient nexus between state taxation and the person sought to be charged. As the respondent company has earned revenue from the state of Bombay through application fees of the competition that creates a reasonable nexus between the State and the subject matter. As a result, the state is authorized to impose a tax on the individual.

Tata Iron and Steel Company v. State of Bihar[11]

In this case, the appellant company was registered in Bombay. The company’s good-producing factory was in Bihar and selling and other works used to happen from West Bengal. The state of Bihar under Bihar Sales Tax, 1947 imposed tax on the goods that are being manufactured in Bihar and goods that are accommodated in Bihar at the time of sale. On the contrary, the appellant company argued that though the products are manufactured in Bihar, the business is happening outside the state. So, they are not liable to pay tax for that.

The court held that nexus theory does not impose a tax but it creates circumstances in which tax may be imposed on particular matters. In this case, the Court found that there is a nexus between the statute made by the Bihar Government and the object. As the goods were present at the date of the agreement in the taxing state and it was ready for sale that is sufficient to create a nexus between the object and the law. As both the conditions were fulfilled Doctrine of Territorial Nexus can be applied in this case.

State of Bihar v Charusila dasi[12]

The state of Bihar to protect the properties of Hindu religious trusts passed a legislation named The Bihar Religious Trusts Act in 1950. The act was applied to all the trusts situated within the territorial boundaries of Bihar. In the present case, the respondent has several properties in Bihar and Calcutta. Now, the question before the Court was whether the Act passed by the State of Bihar could be extended beyond the territorial limits of the state.

The Hon’ble Supreme Court of India in this case held that as the management body of the trust is situated in Bihar as a result all the properties under this trust will be taxed under the said legislation. As there was a direct nexus between the object and the legislation and the relation between the trusts and other properties is real and not illusionary the act passed by Bihar would affect the properties situated outside the territorial boundary of the State.

EXTRA-TERRITORIAL OPERATION

Parliament has the power to make laws within the territory of India and also concerning extra-territorial aspects that have a direct impact or nexus with India. This depicts that even if any law has extra-territorial operation if the law is in direct nexus with India, it cannot be invalidated on the grounds of extra-territorial operation. To declare a law invalid because it has extra-territorial operation it needs to be proved that that specific law has no direct nexus with India.

The doctrine of Public Trust in India stipulates that all legislation made by parliament in case of extra-territorial aspects should aim towards the law that will protect the Indians and secure their interests.[13]

In Sondur Gopal v Sondur Rajani[14] the case was related to judicial separation and the Husband questioned the suit’s maintainability under Indian Laws as both the parties became citizens of other countries. But later the wife renounced her citizenship in another country as a result she became domiciled in India again.

The Court, in this case, held that as both the parties were Indian-domiciled and Sections of the Hindu Marriage Act apply to all the Hindus who are residing outside the country or have acquired some other country’s citizenship the Hindu Marriage Act would apply to them.

CONDITIONS TO INVOKE THE DOCTRINE OF TERRITORIAL NEXUS

States can only enforce laws within their territorial boundaries. So, the doctrine of territorial legislation is an exception to the general rule. To get such powers certain conditions need to be fulfilled. Those are-

The nexus between the subject matter and the legislation must be real and not illusionary.
The liability that the State is imposing should be directly related to that connection.

If the states can fulfill both conditions, they can implement laws that have extra-territorial jurisdictions.[15]

SUBJECT MATTER JURISDICTION

The legislative powers between the Central government and State Government are also divided on subject matters. Schedule VII of the Indian Constitution provides three different lists that divide the power of the government based on different subject matters. Article 246[16] of the Indian Constitution states that-

List I is known as the Central List There are 97 subject matters in the list Parliament has the explicit authority to make laws on the subject matters that are mentioned in this list.
List II is known as the State List There are 66 subject matters present in the list State can only make laws on these subject matters that are mentioned in this list.
List III is known as the Concurrent List 47 subject matters are present in the list and both the Central government and the State governments have the power to make laws on the subjects that are mentioned in this list.

CONCLUSION

With the change in the society law also needs to update itself with the varying nature of the society so that it can fulfil its purposes. Territorial jurisdiction regarding lawmaking is very necessary as it restricts one legislative body’s usurpation of the other. But in case a legislative body can prove that the extra-territorial operation of the law is necessary and there is a complete nexus between the subject matter and the specific statutes in that situation Doctrine of Territorial Nexus can be applied. The judiciary has played a great role in the formation of this doctrine from time to time by giving different landmark Judgments.

As this doctrine is not a general rule but rather an exception the doctrine should be used with caution and legitimate nexus should be checked before implementing it.

REFERENCES

Slideshare, https://www.slideshare.net/slideshow/doctrine-of-territorial-nexus/256751422 (last visited Oct. 14, 2024)
INDIA CONST. art. 245, cl. 1, 2.
INDIA CONST. art. 245, cl. 1.
INDIA CONST. art. 245, cl. 2.
Legally Flawless, https://legallyflawless.in/doctrine-of-territorial-nexus-and-extra-territorial-operations/ (last visited Oct. 14, 2024)
A.H. Wadia v. commissioner of income tax, AIR (1949) 51 BOMLR 287
Suryansh Singh, Doctrine of Territorial Nexus, IPLEADERS (Oct. 14, 2024, 8:29 PM) https://blog.ipleaders.in/doctrine-of-territorial-nexus/
Wallace Brothers And Co. Ltd. vs The Commissioner Of Income-Tax AIR (1948)50 BOMLR482
INDIA CONST. art. 245, cl. 1.
The State Of Bombay vs R. M. D. Chamarbaugwala AIR 1957 SUPREME COURT 699
The Tata Iron & Steel Co., Ltd vs The State Of Bihar AIR 1958 SUPREME COURT 452
The State Of Bihar & Others vs Sm. Charusila Dasi AIR 1959 SUPREME COURT 1002
Legally Flawless, https://legallyflawless.in/doctrine-of-territorial-nexus-and-extra-territorial-operations/ (last visited Oct. 14, 2024)
Sondur Gopal vs Sondur Rajini AIR 2013 SUPREME COURT 2678
Gargi Gouri, Explained: Doctrine of Territorial Nexus, JURIS CENTRE (Oct. 14, 2024, 8:52 PM), https://juriscentre.com/2021/06/18/explained-doctrine-of-territorial-nexus/
INDIA CONST. art. 246, cl. 1,2, 3.

[1] Slideshare, https://www.slideshare.net/slideshow/doctrine-of-territorial-nexus/256751422 (last visited Oct. 14, 2024)

[2] INDIA CONST. art. 245, cl. 1, 2.

[3] INDIA CONST. art. 245, cl. 1.

[4] INDIA CONST. art. 245, cl. 2.

[5] Legally Flawless, https://legallyflawless.in/doctrine-of-territorial-nexus-and-extra-territorial-operations/ (last visited Oct. 14, 2024)

[6] A.H. Wadia v. Commissioner of income tax, AIR (1949) 51 BOMLR 287

[7] Suryansh Singh, Doctrine of Territorial Nexus, IPLEADERS (Oct. 14, 2024, 8:29 PM) https://blog.ipleaders.in/doctrine-of-territorial-nexus/

[8] Wallace Brothers And Co. Ltd. vs The Commissioner Of Income-Tax AIR (1948)50 BOM LR 482

[9]INDIA CONST. art. 245, cl. 1.

[10] The State Of Bombay vs R. M. D. Chamarbaugwala AIR 1957 SUPREME COURT 699

[11] The Tata Iron & Steel Co., Ltd vs The State Of Bihar AIR 1958 SUPREME COURT 452

[12] The State Of Bihar & Others vs Sm. Charusila Dasi AIR 1959 SUPREME COURT 1002

[13] Legally Flawless, https://legallyflawless.in/doctrine-of-territorial-nexus-and-extra-territorial-operations/ (last visited Oct. 14, 2024)

[14] Sondur Gopal vs Sondur Rajini AIR 2013 SUPREME COURT 2678

[15] Gargi Gouri, Explained: Doctrine of Territorial Nexus, JURIS CENTRE (Oct. 14, 2024, 8:52 PM), https://juriscentre.com/2021/06/18/explained-doctrine-of-territorial-nexus/

[16]INDIA CONST. art. 246, cl. 1,2, 3.

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