Introduction
The power to make a law having extra-territorial operation is conferred only on Parliament and not on the State Legislatures. Hence, an Act of the State Legislature, if it gives extra-territorial operation to its provisions, can successfully be challenged in court unless the extra-territorial operation can be sustained on the ground of territorial nexus. This means that a state law is not invalid as long as there is a sufficient nexus or connection between the State and the subject matter of the law. In other words, although the object to which the law applies may not physically be located within the territorial limits of a State, the State law will be valid if there exists a connection or nexus between the State and that object.
Application and Conditions of the Doctrine of Territorial Nexus
Sufficiency of the territorial connection involves a consideration of two elements:
- The connection must be real and not illusory.
- The liability sought to be imposed must be pertinent to that connection.
While only Parliament has the authority to create laws with extraterritorial application, a state law can still be valid if a sufficient nexus is proven. This principle was established in cases like Wallace Bros. & Co. Ltd. v. CTT, where the assessee company, incorporated in England and with its registered office, was a partner in a firm conducting business in British India. This connection was considered sufficient to tax not only the income or profits made by the assessee as a partner in the firm but also its income or profits which accrued out of British India.
The doctrine of territorial nexus is not confined to taxing statutes alone. In State of Bihar v. Charusila Dasi, it was held that a State Legislature has the power to legislate with respect to charitable and religious trusts situated within its territory, even though some trust property is situated in another State. The trust being situated in a particular State gives that State legislative power over it, including its trustees or their servants and agents who must be in that State to administer the trust.
Conclusion
To invoke the doctrine of nexus, the connection between the State and the subject matter of the law must be real and not illusory. For instance, if you are allowed to tax a dog, it must be within the territorial limits of your jurisdiction. Simply because its mother was there throughout pregnancy or because its tail returned after delivery does not allow you to tax it. These illustrations highlight the distinction between an actual and an imaginary relationship, which cannot support legitimate legislation.
Additionally, the law must choose a fact that actually connects the subject to the state. The nexus is insufficient if the application of the law to individuals or entities outside the state is not driven by the link. It will be for the court to determine in each case whether the test of sufficiency of nexus is satisfied.
Source-
Written By- Palak Bhuwalka
Edited By- Vishakha Khatri
