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2011 (2) Supreme 316
SUPREME COURT OF INDIA
CJI., B. Sudershan Reddy, K.S. Radhakrishnan, Surinder Singh Nijjar and Swatanter Kumar, JJ.
GVK Inds. Ltd. & Anr. — Appellants
versus
The Income Tax Officer & Anr. — Respondents
Civil Appeal No. 7796 of 1997
Decided on : 1-3-2011
(b) Words and Phrases – “Aspects or causes” “aspects and causes” – Events, things, phenomena, resources, actions or transactions, and the like, in the social, political, economic, cultural, biological, environmental or physical spheres, that occur, arise, exist or may be expected to do so, naturally or on account of some human agency. (Para 6)
(c) Words and Phrases – “Extra-territorial aspects or causes” – Aspects or causes that occur, arise, or exist, or may be expected to do so, outside the territory of India. (Para 6)
(d) Words and Phrases – “Nexus with India”, “impact on India”, “effect in India”, “effect on India”, “consequence for India” or “impact on or nexus with India” – Any impact(s)on, or effect(s) in, or consequences for, or expected impact(s) on, or effect(s) in, or consequence(s) for: (a) the territory of India, or any part of India; or (b)the interests of, welfare of, well-being of or security of inhabitants of India, and Indians in general, that arise on account of aspects or causes. (Para 6)
(e) Words and Phrases – “Benefit to India” or “for the benefit of India”, “to the benefit of India”, “in the benefit of India” or “ to benefit India” or “the interests of India”, “welfare of India”, “well-being of India” etc. – Protection of and/or enhancement of the interests of, welfare of, well-being of, or the security of India, or any part of it, its inhabitants and Indians. (Para 6)
(f) Constitution of India – Article 245(1) and (2) – Laws made by the Parliament may not be invalidated on the ground that such laws require to be operated outside the territory of India. (Para 10)
[1946] A.C. 527; (1989) 2 SCC 642 – Relied upon
(g) Constitution of India – Article 245(1) and (2) – The provocation or cause for any law must be found within India itself – Such a law may have extra-territorial operation if the object of the law is related to something in India – Parliament cannot make a law which has no relationship with anything in India. (Para 15)
(1989) 2 SCC 642 – Relied upon
(h) Constitution of India – Interpretation – While interpreting the constitution, liberal and more extensive interpretative analysis should be undertaken – The basic structure should not be permitted to be interfered with. (Paras 26 to 30)
(1973) 4 SCC 225; (2007) 2 SCC 1 – Relied upon
(i) Words and Phrases – “For” – The word “for”, when ordinarily used as a preposition can signify a range of meanings between the subject, that it is a preposition for, and that which preceded it – In Article 245(1) of the Constitution it connects the territory of India with legislative power of the parliament. (Paras 33 and 44)
(j) Constitution of India – Article 245(1) – Parliament is empowered to enact those laws that are in the interest of, to the benefit of, in defence of, in support or favour of, suitable or appropriate to, in respect of or with reference to “the whole or any part of the territory of India. (Para 34)
(k) Words and Phrases – “In” – a The word “in”, used as a preposition, has a much narrower meaning, expressing inclusion or position within limits of space, time or circumstance, than the word “for”. (Para 37)
(l) Constitution of India – Article 245 – No State attempts to exercise jurisdiction over matters, persons, or things with which it has absolutely no concern. (Para 40)
(1933) 49 CLR. 220 – Relied upon
(m) Constitution of India – Article 245 – Parliament has the legislative competence to make laws on even those extra-territorial aspects or causes, which have a nexus with India, except to the extent the Constitution itself specifies otherwise – Parliament’s powers to enact legislation may not extend to those extra-territorial aspects or causes that have no impact on or nexus with India. (Paras 41 and 43)
(n) Constitution of India – Article 51 – To enact legislation with respect to extra-territorial aspects or causes, without any nexus to India, would be an abdication of the responsibility cast upon Parliament. (Para 47)
(o) Constitution of India – Character – By virtue of having a written constitution we have effectively severed our links with the Austinian notion that law as specified by a sovereign is necessarily just, and the Diceyan notion of parliamentary sovereignty. (Para 49)
(p) Interpretation of Statutes – Generally, an exception can logically be read as only operating within the ambit of the clause to which it is an exception – It acts upon the main limb of the Article - the more general clause – The more general clause in turn acts upon it – The relationship is mutually synergistic in engendering the meaning. (Para 53)
(q) Constitution of India – Article 245(2) – Clause (2) of Article 245 carves out a specific exception that a law made by Parliament, pursuant to Clause (1), for the whole or any part of the territory of India may not be invalidated on the ground that such a law may need to be operated extra-territorially – Nothing more – Clause (2) cannot be read as a source of legislative power independent of clause (1). (Paras 53 and 55)
(r) Constitution of India – Article 245 r/w Articles 246 and 248 to 250 – Parliament is not empowered to legislate with respect to extra-territorial aspects or causes that have no nexus whatsoever with India. (Para 59)
(s) Constitution of India – Article 260 – Government of India may exercise legislative, executive, and judicial functions with respect of certain specified foreign territories, under agreement with the Governments of those territories – Parliament may enact laws specifying the conditions under which the Government of India may enter into such agreements, and how such agreements are actually implemented – Even then such laws can be made only “for” India. (Paras 62 and 63)
(t) Constitution of India – Article 245 r/w Articles 1 and 3 – Unless a territory is a part of the territory of India, Parliament may not exercise its legislative powers in respect of such a territory. (Para 64)
AIR 1960 SC 845 – Relied upon
[1944] 12 ITR 265; [1948] 16 ITR 240; [1906] 8 F (J.) 93; [1933] A.C. 156; AIR 1958 Bom 68; [1946] A.C. 527; [1893] A.C. 339; [1949] 17 ITR 63; AIR 1953 SC 394; [1983] A.C. 130; (1994) 5 SCC 459; (2002) 5 SCC 203 – Distinguished
(u) Interpretation of Constitution – Constitution should be interpreted very carefully – There is no need to go looking for powers that the text of the Constitution, properly analysed, does not reveal. (Para 75)
(v) Constitution of India – Article 245 – Powers of the Parliament ought not to be subjected to some a-priori quantitative tests, such as “sufficiency” or “significance” or in any other manner requiring a pre-determined degree of strength – All that would be required would be that the connection to India be real or expected to be real, and not illusory or fanciful. (Para 76)
Facts of the case:
1. The central constitutional themes in this appeal relate to whether the Parliament’s powers to legislate, pursuant to Article 245, include legislative competence with respect to aspects or causes that occur, arise or exist or may be expected to do so, outside the territory of India.
2. The Appellant by way of a writ petition filed in Andhra Pradesh High Court had challenged an order of the Respondents which decided that the Appellant was liable to withhold a certain portion of monies being paid to a foreign company, under either one of Sections 9(1)(i) or 9(1)(vii)(b) of the Income Tax Act (1961).
3. The Appellant had also challenged the vires of Section 9(1)(vii)(b) of the Income Tax Act (1961) for want of legislative competence and violation of Article 14 of the Constitution.
4. The High Court having upheld that Section 9(1)(i) did not apply in the circumstances of the facts of the case, nevertheless upheld the applicability of Section 9(1)(vii)(b) on the facts and also upheld the constitutional validity of the said provision.
Finding of the Court:
Unless a territory is a part of the territory of India, Parliament may not exercise its legislative powers in respect of such a territory.
JUDGEMENT
B.Sudershan Reddy, J. —
1. In any federal or quasi federal nation-state, legislative powers are distributed territorially, and legislative competence is often delineated in terms of matters or fields. The latter may be thought of as comprising of aspects or causes that exist independently in the world, such as events, things, phenomena (howsoever commonplace they may be), resources, actions or transactions, and the like, that occur, arise or exist or may be expected to do so, naturally or on account of some human agency, in the social, political, economic, cultural, biological, environmental or physical spheres. The purpose of legislation would be to seek the exertion of the State power to control, modulate, transform, eliminate or engender such aspects or causes or the effects or consequences of such aspects or causes. While the purpose of legislation could be seen narrowly or purely in terms of intended effects on such aspects or causes, obviously the powers have to be exercised in order to enhance or protect the interests of, the welfare of, the well-being of, or the security of the territory, and the inhabitants therein, for which the legislature has been charged with the responsibility of making laws. Paraphrasing President Abraham Lincoln, we can say that State and its government, though of the people, and constituted by the people, has to always function “for” the people, indicating that the mere fact that the state is organized as a democracy does not necessarily mean that its government would always act “for” the people. Many instances of, and vast potentialities for, the flouting of that norm can be easily visualized. In Constitutions that establish nation-states as sovereign democratic republics, those expectations are also transformed into limitations as to how, in what manner, and for what purposes the collective powers of the people are to be used.
2. The central constitutional themes before us relate to whether the Parliament’s powers to legislate, pursuant to Article 245, include legislative competence with respect to aspects or causes that occur, arise or exist or may be expected to do so, outside the territory of India. It is obvious that legislative powers of the Parliament incorporate legislative competence to enact laws with respect to aspects or causes that occur, arise or exist, or may be expected to do so, within India, subject to the division of legislative powers as set forth in the Constitution. It is also equally obvious and accepted that only Parliament may have the legislative competence, and not the state legislatures, to enact laws with respect to matters that implicate the use of state power to effectuate some impact or effect on aspects or causes that occur, arise or exist or may be expected to do so, outside the territory of India.
3. Two divergent, and dichotomous, views present themselves before us. The first one arises from a rigid reading of the ratio in Electronics Corporation of India Ltd., v. Commissioner of Income Tax & An’r.,1 (1989) (2) SCC 642-646 (“ECIL”) and suggests that Parliaments powers to legislate incorporate only a competence to enact laws with respect to aspects or causes that occur, arise or exist, or may be expected to do so, solely within India. A slightly weaker form of the foregoing strict territorial nexus restriction would be that the Parliament’s competence to legislate with respect to extra-territorial aspects or causes would be constitutionally permissible if and only if they have or are expected to have significant or sufficient impact on or effect in or consequence for India. An even weaker form of the territorial nexus restriction would be that as long as some impact or nexus with India is established or expected, then the Parliament would be empowered to enact legislation with respect to such extra-territorial aspects or causes. The polar opposite of the territorial nexus theory, which emerges also as a logical consequence of the propositions of t
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