THE DOCTRINE OF TERRETORIAL NEXUS

5.2-Constitutional Law-II

Submitted by:-

Uditanshu Misra

UID:- SM0117057

3rd year & 5th semester

Submitted to- Mr. Saheb Chowdhury

National Law University and Judicial Academy, Assam

Table of Contents
TABLE OF CASES .................................................................................................................. iii
INTRODUCTION ......................................................................................................................1
DOCTRINE OF TERRITORIAL NEXUS AND ITS OPERATION ...........................................4
RELEVANT CASE LAWS.........................................................................................................8
CONCLUSION ......................................................................................................................... 12
BIBLIOGRAPHY ..................................................................................................................... iv

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 TABLE OF CASES

1. E.R. Samuel v. State of Punjab AIR 1966 Him Pra 59

2. Raj Shipping v. State of Maharashtra WRIT PETITION

NO.8940 OF 2018

3. Shrikant Bhalchandra Karulkar v. State of AIR1994 5 SCC 459

Gujrat

4. State of Bihar v. Smt. Charusila Dasi AIR 1959 SC 1002

5. State of Maharashtra v. R.M.D. 1957 AIR 699, 1957

Chamarbaugwala SCR 874

6. Tata Iron and Steel Company v. State of AIR 1958 SC 482

Bihar
7. Wallace v. Income Tax Commissioner AIR 1948 PC 118

8. British Columbia Electric Railway Co. Ltd. AIR 1946 PC 180

v. King
9. Electronics Corporation of India Ltd. v. AIR 1989 SC 1707
Commissioner of Income Tax,
10. State of Bombay v. United Motors (India) AIR 1953 SC 252.
Ltd.,
11. State of Bombay v. R.M.D.
Chamarbaugwala AIR 1957 SC 699
12. Khyerbari Tea Co. v. State of Assam AIR 1964 SC 925
13. Poppatlal Shah v. State of Madras AIR 1953 SC 274
14. GVK Industries Ltd v. ITO (2011) 4 SCC 36
15. Metro & Metro , Agra v. Assessee, I.T.A. No. : 393/Agra/2012.

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 CHAPTER -1

INTRODUCTION
Territorial nexus has been stated in Article 245 of the Indian Constitution that determinesthe
division of legislative powers.
"Article 245 provides, inter alia, that (subject to the provisions of the Constitution).
(i) Laws may be framed by parliament for the whole or any part of the territory of India and
(ii) The legislature of a State may frame laws for the whole or any part of the State.1
(b) Therefore, the limits of legislative power of the States and the Union with regards to
geographical or territorial angle are set out by Article 245.Article 246 is also important from the
viewpoint of subject matter of legislation. Article 246 reads as under:
"246(1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to
make laws with respect to any of the matters enumerated in List 1 of the Seventh Schedule (in
this Constitution, referred to as the "Union List"). (2) Notwithstanding anything in clause (3),
Parliament, and subject to clause (1), the Legislature of any State also, shall have power to make
laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this
Constitution, referred to as the "Concurrent List"). (3) Subject to clauses (1) and (2), the
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 List II in the Seventh Schedule (in this Constitution,
referred to as the "State List").
(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"2.
— PART XI of Indian Constitution, RELATIONS BETWEEN THE UNION AND THE
STATES, LEGISLATIVE RELATIONS, Distribution of Legislative Powers Article 245. 3
Article 245-Extent of laws made by parliament and by the legislatures of states-
1) In consonance with the provisions of the constitution, Parliament may frame laws for the
entire or any particular part of the territorial area of India, and the legislature of a state may
frame laws taking into consideration the whole or any part of the state.
1
THE CONSTITUTION OF INDIA, Article 245.
2
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THE CONSTITUTION OF INDIA, Article 246.
3
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2) Any law framed by the parliament shall not be deemed to be invalid on the premise that it
would consist of extra-territorial operation.

‘Subject to the provisions of this constitution’, this basically means that the power executed by
the parliament to frame laws for the entire or any particular part of the territorial area of India
will be read keeping in mind the other provisions of the Constitution. In simpler terms, this
power cannot be considered as absolute. Other provisions such as, fundamental rights,
distribution of powers and other provisions of the constitution have to be judged by the courts.
Aim(s)
The aim of the research project is to understand the meaning and applicability of Doctrine of
Territorial Nexus and how does this doctrine operate taking into consideration, the various case
laws.

Objectives
To under the Doctrine of Territorial and research about its evolution with changing times;
To understand the relevant provisions of law associated with the doctrine; and
To understand how the judiciary has interpreted this doctrine, with relevant case laws and
commentaries.
Scope and Limitations
The Scope of the research paper is limited to understand the Doctrine of Territorial Nexus. The
researcher also taken into consideration, various provisions of the Constitution while making this
project.

Literature Review
V N Shukla: Constitution of India (Eastern Book Company, 2018 Edition).

The book has a compilation of every relevant provision of the constitution and each of it is
discussed in a detailed manner. The book also has interesting constitutional debates that are a
delight for any constitutional law scholar. The book helped the researcher in finding case laws,
relevant to the topic of the paper as well as helped the researcher understand the relevant
provisions of the constitution related to the doctrine of territorial nexus. Apart from this book,
the researcher has also resorted to several online sources to make this paper.

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Research Methodology

Doctrinal method was opted in order to conduct the research for the topic. Several books and
online sources were referred while making this paper.

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 CHAPTER-2

DOCTRINE OF TERRITORIAL NEXUS AND ITS OPERATION

2.1. Territorial Nexus and the Parliament

1. Article 245 (2) of the Constitution of India makes it amply clear that ‘No law made by
Parliament shall be deemed to be invalid on the ground that it would have extra-territorial
operation’. Thus, a legislation having extra territorial nexus forms no ground for questioning.

2.It is well settled that the courts of our country have to ensure the enforcement of the law with
the given set of machinery; and they do not have the authority to question the powers of the
Legislature in framing a law which is extra-territorial in nature.4

3. Extra-territorial operation does not provide invalidity to a law. But some rational nexus in
India would still be mandatory in some of the instances such as those which involve statutes
related to taxation.5

2.2. Territorial Nexus and the State Legislature

The State Legislature may frame laws for the entire or any particular part of the State6. Now,
this scrutinizes the situation that whether a particular law when framed, lies within the
competence of the Legislature of a State to enact it. There are plethoras of cases that have stated
that the laws which a state is empowered to make must be for the purpose of that State7.

Therefore, the Doctrine of Territorial Nexus is applicable to the States also. In this regard, there
are two conditions that have been laid 8:

1. The Connection (nexus) must not be illusory and rather be real in nature.

2. It must have a pertinent connection with the liability that is sought to be imposed.

4
British Columbia Electric Railway Co. Ltd. v. King, AIR 1946 PC 180 (India).
5
Electronics Corporation of India Ltd. v. Commissioner of Income Tax, AIR 1989 SC 1707 (India).
6
THE CONSTITUTION OF INDIA, Article 245 (1).
7
State of Bombay v. United Motors (India) Ltd., AIR 1953 SC 252 (India).
8
State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699 (India).

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If the two conditions stated above are fulfilled, any further test of the sufficiency of
Nexus cannot be considered before the courts9.

In various tax statutes cases, the courts have repeatedly stated that there is no need for the sale or
purchase to take place within the State's territorial limits. If one has to state in a descriptive
manner, local activities of sale or purchase carried in the State in relation to local goods would
form sufficient criteria to be sustainable to the State’s taxation power, provided of course, such
activities eventually, result in concluded sale or purchase being taxed10.

There is also a Constitutionality, presumptive in its very nature that the Legislature is presumed
to not have exceeded its powers pertaining to the constitution and a construction that remains co
with those powers consistently is to be put upon the laws enacted by the Legislature.

2.3. Extra-Territorial Operation

It is well settled that the Parliament possesses the authority to frame laws with respect to areas or
reasons that arise, exist or occur or maybe is expected to do so, within the territory of India
and also in regards of extra-territorial aspects or reasons that have an impact or form a nexus
with India.

“Such laws would fall within the meaning, purport and ambit of grant of powers of Parliament to
make laws ‘for the whole or any part of the territory of India’ and they may not be invalidated on
the ground that they require extra territorial operation. Any law enacted by the Parliament with
respect to extra territorial aspects or causes that have no nexus with India would be ultra
vires and would be laws made for a foreign territory.” 11

This gives a clear indication that as far as the law that the Parliament enacts, forms a nexus with
India, even if such laws has extra territorial operation as its requirement, such law cannot be

9
Khyerbari Tea Co. v. State of Assam, AIR 1964 SC 925 (India).
10
Poppatlal Shah v. State of Madras, AIR 1953 SC 274 (India).
11
GVK Industries Ltd v. ITO, (2011) 4 SCC 36 (India).

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constitutionally invalid. It is only when the ‘laws enacted by the Parliament with respect to extra
territorial aspects or causes that have no nexus with India’ that such laws ‘would be ultra vires’12.

Another question that may be deemed to be subjective is that What could be an acceptable nexus.
In his book ‘Introduction to the Law of Double Taxation Conventions’, Micheal Lang states that
“in International law practice, there are no significant limits on the tax sovereignty of states. In
designing the domestic personal tax law, the national legislator can even tax situations when, for
example, only a "genuine link" exists. It is only when neither the person nor the transaction has
any connection with the taxing state that tax cannot be levied”. 13

By granting the Parliament the powers of legislation ‘for’ India, and as a result also with respect
to extra-territorial causes or aspects, the framers of our Constitution certainly had an intention to
impose limits on the extent to which, and the manner in which, the the State organs, including
the Parliament, may take cognizance of extra-territorial aspects or causes, and State powers are
exerted by it (which are the powers of the collective) on such causes or aspects14.

Doctrine of Public Trust asks for a requirement that all the legislations by the Parliament in
regards to extra-territorial causes or aspects be stained with the motive of protecting the interests
of, the security and welfare of India, Directive Principle of State Policy specifically Article 51,
fundamental to governance, though not enforceable by law. It supports and leads to the
conclusion that Parliament may not enact laws with respect to extra-territorial aspects or causes,
wherein such aspects or causes do not form a rational nexus whatsoever with India.

2.4. Doctrine of territorial nexus in Indian legislation

Article 245-The extent of laws framed by the parliament and by the State legislatures.

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

12
Metro & Metro , Agra v. Assessee, I.T.A. No. : 393/Agra/2012 (India).
13
MICHEAL LANG, INTRODUCTION TO THE LAW OF DOUBLE TAXATION CONVENTIONS,(IBFD Publications, 2nd ed.)
14
CONSTITUENT ASSEMBLY DEBATES, OFFICIAL REPORT, 1948-49, PAGE 601 (LOK SABHA
(SECRETARIAT, NEW DELHI).

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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. 15

Subject to the provisions of this constitution, means that the authority that the parliament enjoys
to frame laws for the entire or any particular part of the territory of India will be considered in
consonance with other constitutional provisions.

In other words, this authority is not absolute in nature. Other provisions like the fundamental
rights, distribution of powers, and other provisions of the constitution as judged by the courts
have to be given due consideration. “Extra- territorial operation” – Laws made and operated
outside the territorial limits of India. State laws are said to be void if it has extra- territorial
operation i.e., takes effect outside the state. However, this general rule also has an exception. A
state law of extraterritorial operation will be valid if there is sufficient nexus between the object
and the state. This got clarity by the case State of Bombay vs. R.M.D.C. 16

The Doctrine of Territorial nexus can be invoked under the following circumstances-

• Whether a state possesses extra-territorial operation.

• If there is a territorial nexus between the subject- matter of the Act and the state making the
law.

This means that the item to which the law applies must not be situated directly within the state's
territorial boundaries, but must have a clear territorial relation with the state. A state may levy a
tax on an individual, estate, item or transaction not only if it is within its territorial boundaries,
but also if it has an appropriate and real territorial relation to it.

15
THE CONSTITUTION OF INDIA, Article 245.
16
State of Bombay vs. R.M.D.C, 1957 AIR 699 (India).

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 CHAPTER-3

RELEVANT CASE LAWS

1. Tata Iron and Steel Company v. State of Bihar17:

Sales Tax Act was passed by the State of Bihar for levy of sales tax the question being that
whether the sale was concluded within the jurisdiction of the state or outside if the goods were to
be produced, found and manufactured within the territory of the state. It was held by the court
that there was optimum territorial nexus and held the Act to be valid. Whether there is sufficient
nexus between the law and the object sought to be taxed will rest upon the facts and
circumstances occurred in regards to a particular case. It was opined that sufficiency of the
territorial connection required the presence of two basic elements-

a) The connection must be real and not illusory

b) The liability sought to be imposed must be pertinent to that connection. 18

2. State of Bihar v. Charusila Dasi19:

Bihar Hindu Religious Trusts Act, 1950, was brought into force by the Bihar legislature for the
preservation and protection of properties belonging to the Hindu religious trusts.

The Act applied to all trusts any part of which was situated in the state of Bihar.

A trust deed of the properties of several houses and land in Bihar and Calcutta was created. The
trust being in Bihar, fall into such territorial jurisdiction.

The primary contention for decision was whether the Act was applicable to the trust properties
which were situated outside the State of Bihar.

The court had to decide whether the trust thus created was a public trust or a private trust.

17
Tata Iron and Steel Company v. State of Bihar, AIR 1958 SC 482 (India).
18
Ibid.
19
State of Bihar v. Charusila Dasi, AIR 1959 SC 1002 (India).

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Can a law be made by the legislature of Bihar regarding the trust situated in Bihar and for the
properties of the trust situated outside Bihar?

Relying upon the doctrine of territorial nexus, it was opined by the Supreme Court that the trust
property could be affected by the Act situated outside Bihar, but belonging to a trust situated in
Bihar where the trustees used to function. The aim of the act is to ensure better administration of
trusts belonging to Hindu Religion in the state of Bihar. The state had legislative powers over the
trust since it was situated in Bihar and also over their servants and agents (trustees) who in order
to administer the trust, must be in Bihar. The requirement is that the relation between the trust
and the property belonging to it must be true and not illusory, and the fact that the religious
institution and the property belonging to it constitute one interconnected whole, because it is
almost impossible to separate one from another.

The doctrine of territorial nexus has been applied by the courts to sales tax legislations, income
tax legislations as well as legislations related to gambling.

3. The State Of Bombay v. R. M. D. Chamarbaugwala20:

Laws laid down by the state would be deemed to be void if it has extra- territorial operation i.e.,
if it is brought into effect outside the state. However, the general rule has an exception too.

There has to be sufficient nexus between the object and the state for a state law having extra-
territorial operation, to be considered valid .

This was given greater clarity by the case State of Bombay vs. R.M.D.C.21 For the Doctrine of
Nexus to be applied the following circumstances have to occur-

 A particular state must have extra-territorial operation

 There has to be a territorial nexus between the subject- matter of the Act and the state
framing the particular law.
The significance of it is that the object to which the law has an application over need not be
physically located within the territorial boundaries of the state, but must have a sufficient
territorial connection with the state. Tax may be levied on a person by the state, property, object

20
The State Of Bombay v. R. M. D. Chamarbaugwala, 1957 AIR 699, 1957 SCR 874 (India).
21
Ibid.

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or transaction not only when it has location within its territorial limits, but also when it has an
optimum and true territorial connection with it.

The respondent did not reside in Bombay yet, through a newspaper printed and published from
Bangalore with a wide circulation in Bombay, he conducted competitions with prize money. All
the necessary activities such as filling out the forms, entrance fees etc. are held for the
competition, in Bombay. The intention of levying the tax on the business of the respondent
situated in the territory was of that of the government. The problem the the Supreme Court's
decision held was that, whether the respondent, the competition organizer, who was not present
in Bombay, could be taxed under the Act and would that amount to valid levying of such tax.

Decision:- It was opined in the judgement that a sufficient territorial nexus was present to make
the Bombay Legislature, tax the respondent as all the activities which the competitor is ordinarily
expected to undertake took place mostly within the territory of Bombay. 22

4. Wallace v. Income – Tax Commissioner23

A company had been incorporated in the United kingdom and had its management and control
exclusively situated abroad. The business in India was carried by one of its members. Major part
of its profit came from India. It was opined that India could levy income tax on the entire income
of the company, and not just the part coming from India, for there existed an optimum territorial
nexus between the company and India for the purpose in question.

5. Shrikant Bhalchandra Karulkar v. State of Gujarat24

It was held that :-

Territorial connection or nexus being sufficient or necessary for application of the law to a
particular object cannot be confined to a general formula. Sufficiency of the law to a particular
object sufficiency of the territorial connection involves consideration of two elements viz : -

(a) True and non illusionary character of the connection.

22
Ibid.
23
Wallace v. Income – Tax Commissioner , AIR 1948 PC 118 (India).
24
Shrikant Bhalchandra Karulkar v. State of Gujarat , AIR1994 5 SCC 459 (India).

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(b) According to the law, the responsibility sought must have a specific nature as well as be
related to that relation. Whether or not there is a territorial nexus in a given case is a matter of
fact and it is up to the courts to determine in each case whether' territorial nexus' is "sufficient" or
not to get advanced towards the step where the law could be enforced.

6. Raj Shipping v. State of Maharashtra25

Assessee had been occupied in the business of supplying fuels to the shipping vessels having
their location in territorial waters of India, off the coast of Maharashtra.An order for the purchase
of fuel was given to the assesse by the shipping vessel. Assessee, in return, placed purchase order
on oil marketing companies (OMCs). The fuel was transported by the OMCs to the barge loading
point where the fuel used to get decanted in cargo tanks of barges. The cargo tanks were owned
by the assessee. After getting the delivery of fuel from, the barges sailed to the anchorage point
of shipping vessels where the fuel was unloaded in vessel. There was no dispute on the fact that
the Sales tax was leviable on sale of motor spirit but sales of motor spirit at retail outlet are
exempt. Yet assessee demanded exemption from MVAT fee on HSD selling and did not pay
sales tax. It was contended that sale transactions executed were not within the territorial
jurisdiction of the State of Maharashtra. The petition was subsequently dismissed, after hearing
both the sides

7. E.R. Samuel v. State of Punjab26

Electricity duty in respect of electricity consumed within the territories of Himachal Pradesh,
was levied by the Punjab government. Since, the petitioners were employees of the state of
Punjab, the duty was levied upon them as well. It was opined that the mere fact that the
petitioners were employees of the State of Punjab did not constitute sufficient territorial nexus so
as to empower the State of Punjab to impose the levy on the petitioners. The argument does not
fall beyond the petitioners ' situation. The event took place outside the State of Punjab and the
mere fact that they were Punjab State employees clearly did not constitute an appropriate
territorial link between the tax imposed and the individuals sought taxation.

25
WRIT PETITION NO.8940 OF 2018.

26
AIR 1966 Him Pra 59.

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 CHAPTER-4

CONCLUSION
In basic terms, Doctrine of territorial nexus states that laws framed by legislature of a state are
not to be applied outside the territorial jurisdiction of the state, except the situation where there is
an optimum nexus between state and object. The Doctrine, therefore, plays a significant role in
assessing the tax. Levying of tax should be done on one transaction where the operations which
may give rise to income must take place partly in one territory and partly in another.

The State’s Legislature may frame necessary laws for the entire or any particular part. Extra
territorial operation means a law outside the territory, does not invalidate the law. However, this
general rule has one exception. If there is sufficient nexus between object and state, a state law of
extra-territorial operation will be valid. Parliament alone has the power to make a law with extra
territorial operation and not the state legislatures. Therefore, a law of the State Legislature can be
successfully challenged in court if it gives its relevant provisions extra-territorial operation,
unless it can be sustained on the ground of territorial nexus.

It means that although the object to which the law applies may not physically be located within
the territorial limits of a State, yet the State law will be valid if there exists, a connection or
nexus between the state and the object. Territorial nexus is not limited within India's borders, but
can be extended across the world. At that moment, the rule that prevails in India comes into
force. Territorial nexus is a doctrine that enables a nation's law to be applied outside its territorial
boundaries and is essentially an international law.

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 BIBLIOGRAPHY

Books-

1. Indian Constitutional Law- M.P.Jain (7th Edition Lexis Nexis)

2. Constitution Of India- V.N.Shukla (11th Edition Eastern Book Company)
3. The constitution of india (14th Edition PM bakshi)

Online Sources-

1. www.gktoday.in/blog/doctrine-of-territorial-nexus/
2. www.taxsutra.com/experts/column?sid=417
3. www.studymode.com/subjects/doctrine-of-territorial-nexus-in-india-page1.html
4. www.livelaw.in
5. www.legallyindia.com
6. www.indiankanoon.org
7. www.scconline.in

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