2011 (3) TMI 1 - SC - Income Tax

Extraordinary powers must be constitutionally grounded and subject to judicial review; Parliament's extraterritorial laws require a real nexus with India

GVK INDS. LTD. & ANR. Versus THE INCOME TAX OFFICER & ANR.

SC held that while the State may require extraordinary powers, such powers must be grounded in the Constitution and remain subject to judicial scrutiny; ... Jurisdictional power of central government to enact law - Legislative competence of Parliament regarding territorial jurisdiction - concept of sovereignty - Held that:- Indeed, it may be necessary for the State to possess some extraordinary powers, and exert considerable force to tackle such situations. Nevertheless, all such powers, competence, and extent of force have to be locatable, either explicitly or implicitly, within the Constitution, and exercised within the four corners of constitutional permissibility, values and scheme. There are two aspects, of such extreme arguments claiming absolute powers, which are worrisome. The first one relates to a misconception of the concepts of sovereignty and of power, and a predilection to oust judicial scrutiny even at the minimal level, such as examination of the vires of legislation or other types of state action. The second one relates to predilections of counsel of asking that powers that are undefined, unspecified, vague and illimitable be read into the constitutional text, as matter of some principle of inherent design or implied necessity. However, the Parliament may exercise its legislative powers with respect to extra-territorial aspects or causes, - 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 outside the territory of India, and seek to control, modulate, mitigate or transform the effects of such extra-territorial aspects or causes, or in appropriate cases, eliminate or engender such extra-territorial aspects or causes, only when such extra-territorial aspects or causes have, or are expected to have, some impact on, or effect in, or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, wellbeing of, or security of inhabitants of India, and Indians. It is obvious that Parliament is empowered to make laws with respect to aspects or causes that occur, arise or exist, or may be expected to do so, within the territory of India, and also with respect to extra-territorial aspects or causes that have an impact on or nexus with India as explained above in the answer to Question 1 above. Such laws would fall within the meaning, purport and ambit of the grant of powers to 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 may require extra-territorial operation. Any laws enacted by Parliament with respect to extra-territorial aspects or causes that have no impact on or nexus with India would be ultra-vires, as answered in response to Question 1 above, and would be laws made 'for' a foreign territory. Issues Involved:1. Legislative competence of Parliament regarding extra-territorial aspects.2. Constitutional limitations on Parliament's power to legislate for territories outside India.3. Interpretation of Article 245 and its implications on legislative powers.4. Validity of Section 9(1)(vii)(b) of the Income-tax Act, 1961.Detailed Analysis:1. Legislative Competence of Parliament Regarding Extra-Territorial Aspects:The judgment addresses whether Parliament's legislative powers under Article 245 include competence over aspects or causes outside India. The court recognizes that Parliament can legislate on matters within India, but it also considers whether this extends to extra-territorial aspects that affect India. The judgment discusses various interpretations of the territorial nexus requirement, ultimately concluding that Parliament may legislate on extra-territorial matters if they have a real or expected impact on India.2. Constitutional Limitations on Parliament's Power to Legislate for Territories Outside India:The court examines whether Parliament can legislate 'for' any territory outside India. It concludes that Parliament's legislative competence is limited to the territory of India or extra-territorial aspects that have a nexus with India. The court rejects the notion that Parliament can legislate for foreign territories without any connection to India, emphasizing that such legislation must be for the benefit of India and its inhabitants.3. Interpretation of Article 245 and Its Implications on Legislative Powers:Article 245 is analyzed to determine the scope of Parliament's legislative powers. The court distinguishes between the acts of making laws and their extra-territorial operation. It concludes that while Parliament can make laws with extra-territorial operation, these laws must still have a nexus with India. The court also rejects the argument that clause (2) of Article 245 provides an independent source of legislative power, emphasizing that it only prevents invalidation of laws on the ground of extra-territorial operation.4. Validity of Section 9(1)(vii)(b) of the Income-tax Act, 1961:The appellant challenged the constitutional validity of Section 9(1)(vii)(b) of the Income-tax Act, 1961, on the grounds of legislative competence and violation of Article 14. The High Court upheld the validity of this section. The Supreme Court, while addressing the broader constitutional issues, did not specifically invalidate this provision but focused on the legislative competence of Parliament concerning extra-territorial aspects.Conclusion:The court concludes that Parliament can legislate on extra-territorial aspects if they have a real or expected impact on India. However, it cannot legislate 'for' foreign territories without any connection to India. The judgment emphasizes the necessity of a nexus with India for any extra-territorial legislation and clarifies the interpretation of Article 245 in this context. The appeal is to be listed before an appropriate bench for disposal.