Doctrine of Territorial Nexus

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 cannot be questioned on the ground that it has extra-territorial operation.

2. It is well-established that the Courts of our country must enforce the law with the machinery available to them; and they are not entitled to question the authority of the Legislature in making a law which is extra-territorial[1].

3. Extra-territorial operation does not invalidate a law. But some nexus with India may still be necessary in some of the cases such as those involving taxation statutes[2].

Territorial Nexus and the State Legislature

The Legislature of a State may make laws for the whole or any part of the State[3]. Now, this leaves it open to scrutiny whether a particular law is really within the competence of the State Legislature enacting it. There are plethora of cases that have stated that the laws which a state is empowered to make must be for the purpose of that State[4]
Thus, the Doctrine of Territorial Nexus has been applied to the States as well. There are two conditions that have been laid down in this respect[5]:

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

2. The liability sought to be imposed must be pertinent to that connection.

If the above two conditions are satisfied, any further examination of the sufficiency of Nexus cannot be a matter of consideration before the courts[6].

In various cases relating to taxation statutes, the courts have time and again stated that it is not necessary that the sale or purchase should take place within the Territorial Limits of the State. Broadly speaking local activities of buying or selling carried in the State in relation to local goods would be sufficient basis to sustain the taxing power of the State, provided of course, such activities ultimately result in concluded sale or purchase to be taxed[7].

There is also a Presumption of Constitutionality that the Legislature is presumed not to have exceeded its constitutional powers and a construction consistent with those powers is to be put upon the laws enacted by the Legislature.

Extra-Territorial Operation

It is well-established that the Parliament is empowered to make laws with respect to aspects or causes that occur, arise or exist, or maybe expected to do so, within the territory of India and also with respect to extra-territorial aspects or causes that have an impact or 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 laws 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.”[8]

This clearly indicates that as long as the law enacted by the Parliament has a nexus with India, even if such laws require extra territorial operation, the laws so enacted cannot be said to 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.[9]

What is an acceptable Nexus is again a subjective question. Professor Michael Lang in his book ‘Introduction to the Law of Double Taxation Conventions’ says 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”.

In granting the Parliament the powers to legislate ‘for’ India, and consequently also with respect to extra-territorial aspects or causes, the framers of our Constitution certainly intended that there be limits as to the manner in which, and the extent to which, the organs of the State, including the Parliament, may take cognizance of extra-territorial aspects or causes, and exert the State powers (which are the powers of the collective) on such aspects or causes[10].

Doctrine of Public Trust requires that all legislation by the Parliament with respect to extra-territorial aspects or causes be imbued with the purpose of protecting the interests of, the welfare of and the security of India, along with Article 51[11], a Directive Principle of State Policy, though not enforceable in a court of law, nevertheless fundamental to governance, lends unambiguous support to the conclusion that Parliament may not enact laws with respect to extra-territorial aspects or causes, wherein such aspects or causes have no nexus whatsoever with India.