The doctrine of territorial nexus can be understood under article 245 of the Indian constitution which states that the parliament has the right to make laws with regard to the extra territorial operations and laws for whole or any part of the country. On the other hand, the state legislature is also empowered and has the jurisdiction to make laws for the whole or the part of the state. Therefore, both the state and the central govt has right of it own to make territorial jurisdiction to make laws.
The legislative relations between the central govt and the state is two-fold in nature. First the distribution of the legislative powers in the respect to the territory. And secondly with respect to the subject matter which have been enumerated under the 7th schedule.
The theory of the territorial nexus states that in order to provide the effect to the law which ae made by a state to have a effect of the extraterritorial purpose there has to be a nexus between the object and the state. The territorial nexus serves as a exception for the state to make rules and laws outside of its territory if it is able to show that there exists a nexus between the object and the state.
Case laws regarding territorial nexus
Wallace Bros. And Co. Ltd. vs The Commissioner of Income
In the present case the privy council was of the view that in cases where a major part of the income was extracted from the British India the doctrine of the territorial nexus exists.
There was two condition which need to be fulfilled in order to the prove the doctrine of territorial nexus there are as follows:
(1) The Nexus must be legitimate
(2) The liability shall be in connection to the concerned territory
“Article 245 of the Indian constitution states the extent to which the legislative powers are conferred in parliament and the state legislature in order to make laws with respect to the territory. Parliament has the power to make laws for the for which it has the jurisdiction. The jurisdiction of parliament extends to the whole or any part of India. They can also be enacted by the parliament for extraterritorial operations if there is sufficient nexus of the law with India. These laws cannot be questioned or held invalidated.”
In the case of State of Bombay vs R.M. D Chamarbaugwala the court was of the opinion that in cases the person who resides outside the territorial limits of the states but has a income sources from one place of area or territory it was decided that the sufficient territorial nexus was present and the legislature had the right and the authority to tax the respondent for the revenue.
In the case of Tata Iron and Steel Company vs Bihar State Tax Act the two basic elements to prove the territorial nexus was given and court emphasised that there should be a nexus or a connection between the object and the territory.
In another case relating the State of Bihar in State of Bihar vs Charusila dasi the State of Bihar the govt was allowed to tax the trust deed of immovable property situated outside the state of bihar and the court gave the view that the trust must be present with the limits of the state and there exist sufficient nexus.
Further in the case of Shirkant Bhalchandra vs State of Gujarat the court was of the view that he laws made by the state legislature is applicable to a person and his acts within the territorial limits of a state is not considered as extra territorial.
In India there is a complex mechanism of legislative power been divided into two of the centres and the state. the parliament has the power to make laws with relation to the extra territorial operations the same power is not present to the state legislature by the virtue of article 245 and 246. however there is one exception which gives the power to the state legislature to make laws. the exception been if its is proven that there exists sufficient connection between the object and the state.