TaxTMI 
TaxTMI 
2011 (3) TMI 1
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....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 democ....
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....osite of the territorial nexus theory, which emerges also as a logical consequence of the propositions of the learned Attorney-General, specifies that Parliament has inherent powers to legislate "for" any territory, including territories beyond India, and that no court in India may question or invalidate such laws on the ground that they are extra-territorial laws. Such a position incorporates the views that Parliament may enact legislation even with respect to extra- territorial aspects or causes that have no impact on, effect in or consequence for India, any part of it, its inhabitants or Indians, their interests, welfare, or security, and further that the purpose of such legislation need not in any manner or form be intended to benefit India. Juxtaposing the two divergent views outlined above, we have framed the following questions : (1) Is Parliament constitutionally restricted from enacting legislation with respect to extra-territorial aspects or causes that do not have, nor expected to have any, direct or indirect, tangible or intangible impact(s) on, or effect(s) in, or consequences for : (a) the territory of India, or any part of India ; or (b) the interests of, welfa....
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....n, or consequence(s) 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 in general, that arise on account of aspects or causes. "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 (i.e., the whole territory of India), or any part of it, its inhabitants and Indians. III Factual background as to how the matter arose before us 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). 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. Th....
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....nstitution. A further clarification needs to be made before we proceed. The issue of whether laws that deal entirely with aspects or causes that occur, arise or exist, or may be expected to do so, within India, and yet require to be operated outside the territory of India could be invalidated on the grounds of such extra-territorial operation is not before us. The text of clause (2) of article 245, when read together with clause (1) of article 245 makes it sufficiently clear that the laws made by Parliament relating to aspects or causes that occur, arise or exist or may be expected to occur, arise or come into existence within the territory of India may not be invalidated on the ground that such laws require to be operated outside the territory of India. We will of course deal with this aspect to the extent that it is required for a proper appreciation of clause (1) of article 245, and to the extent the permissibility of such extra-territorial operation has been sought to be, by the learned Attorney-General, extrapolated into a power to make any extra-territorial laws. IV The ratio in ECIL The requirement of a nexus with the territory of India was first explicitly articula....
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....ilable. It can of course be clearly appreciated that the said principle falls within the ambit of the prohibition of clause (2) of article 245. The same was stated by the Chief Justice Pathak (as he then was) thus (page 54 of 183 ITR) : "Now it is perfectly clear that it is envisaged under our constitutional scheme that Parliament in India may make laws which operate extra-territorially. Article 245(1) of the Constitution prescribes the extent of laws made by Parliament. They may be made for the whole or any part of the territory of India. Article 245(2) declares that no law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation. Therefore, a Parliamentary statute having extra-territorial operation cannot be ruled out from contemplation. The operation of the law can extend to persons, things and acts outside the territory of India" (emphasis added). However, the principle enunciated above does not address the question as to whether Parliament may enact a law "for" a territory outside the boundaries of India. To enact laws "for" a foreign territory could be conceived of in two forms. The first form would be, where the laws....
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....r understanding of the words used could lead to a strict territorial nexus requirement wherein Parliament may only make laws with respect to objects or provocationsor alternately, in terms of the words we have used "aspects and causes"that occur, arise or exist or may be expected to occur, arise or exist, solely within the territory of India, notwithstanding the fact that many extraterritorial objects or provocations may have an impact or nexus with India. Two other forms of the foregoing territorial nexus theory, with weaker nexus requirements, but differing as to the applicable tests for a finding of nexus, have been noted earlier. V The propositions of the learned Attorney-General It appeared that the learned Attorney-General was concerned by the fact that the narrow reading of article 245, pace the ratio in ECIL*, could significantly incapacitate the one legislative body, Parliament, charged with the responsibility of legislating for the entire nation, in dealing with extraterritorial aspects or causes that have an impact on or nexus with India. India has a parliamentary system of governance, wherein the Executive, notwithstanding its own domain of exclusive operation, is....
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....ould be deemed to have the powers and competence as set forth below, which arise out of a rigorous analysis of his propositions, and consequently examine them in the light of the text of article 245. The main propositions are that Parliament is a "Sovereign Legislature", and that such a "Sovereign Legislature has full power to make extraterritorial laws." They can be analysed in the following two ways: (i) As a matter of first level of assessment, the phrase "full power to make extra-territorial laws" would implicate the competence to legislate with respect to extra-territorial aspects or causes that have an impact on or nexus with India, wherein the State machinery is directed to achieve the goals of such legislation by exerting force on such extra-territorial aspects or causes to modulate, change, transform, eliminate or engender them or their effects. At the next level, such powers would also implicate legislative competence to make laws that direct the state machinery, in order to achieve the goals of such legislation, to exert force on extra-territorial aspects or causes that do not have any impact on or nexus with India to modulate, change, transform, eliminate or engen....
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....e it that the learned Attorney-General has proposed that all three possibilities are within constitutionally permissible limits of legislative powers and competence of Parliament. The further proposition of the learned Attorney-General, is that courts in India do not have the powers to declare the "extra-territorial laws" enacted by Parliament invalid, on the ground that they have an "extraterritorial effect", notwithstanding the fact : (a) that such extra-territorial laws are with respect to extra-territorial aspects or causes that have no impact on or nexus with India ; (b) that such extra-territorial laws do not in any manner or form work to, or intended to be or hew to the benefit of India ; and (c) that such extra-territorial laws might even be detrimental to India. The word "extra-territorial effect" is of a much wider purport than "extra-territorial operation", and would also be expected to include within itself all the meanings of "extra-territorial law" as explained above. The implication of the proposed disability is not merely that the judiciary, under our Constitution, is limited from exercising the powers of judicial review, on specific grounds, over a clearly defin....
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....rough its Constituent Assembly, in a foundational and a constitutive moment. Written constitutions seek to delineate the spheres of actions of, with more or less strictness, and the extent of powers exercisable therein by, various organs of the State. Such institutional arrangements, though political at the time they were made, are also legal once made. They are legal, inter alia, in the sense that they are susceptible to judicial review with regard to determination of vires of any of the actions of the organs of the State constituted. The actions of such organs are also justiciable, in appropriate cases, where the values or the scheme of the Constitution may have been transgressed. Hence clarity is necessary with respect to the extent of powers granted and the limits on them, so that the organs of the State charged with the working of the mandate of the Constitution can proceed with some degree of certitude. In such exercises we are of the opinion that a liberal and more extensive interpretative analysis be undertaken to ensure that the court does not, inadvertently and as a consequence of not considering as many relevant issues as possible, unnecessarily restrict the powers of....
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.... in the enactment. However, in the light of the serious issues it would always be prudent, as a matter of constitutional necessity, to widen the search for the true meaning, purport and ambit of the provision under consideration. No provision, and indeed no word or expression, of the Constitution exists in isolation-they are necessarily related to, transforming and in turn being transformed by, other provisions, words and phrases in the Constitution. Our Constitution is both long and also an intricate matrix of meanings, purposes and structures. It is only by locating a particular constitutional provision under consideration within that constitutional matrix could one hope to be able to discern its true meaning, purport and ambit. As Prof. Laurence H. Tribe points out : "[T]o understand the Constitution as a legal text, it is essential to recognize the . . .sort of text it is : a constitutive text that purports, in the name of the people . . . . , to bring into being a number of distinct but inter-related institutions and practices, at once legal and political, and to define the rules governing those institutions and practices." (See : Reflections on Free-Form Method in Constitutio....
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....ical lives, such constitutional topological spaces, when primarily used for validation of unambiguous textual meanings, would ease our epistemological burdens. VII Textual analysis of article 245 Prior to embarking upon a textual analysis of clauses (1) and (2) of article 245, it is also imperative that we bear in mind that a construction of provisions in a manner that renders words or phrases therein to the status of mere surplusage ought to be avoided. The subject in focus in the first part of clause (1) of article 245 is "the whole or any part of the territory of India", and the object is to specify that it is Parliament which is empowered to make laws in respect of the same. The second part of clause (1) of article 245 deals with the legislative powers of State Legislatures. The word that links the subject, "the whole or any part of the territory of India" with the phrase that grants legislative powers to Parliament, is "for". It is used as a preposition. 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 : "-prep. 1 in the interest or to the benefit of ....
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....d "object" can also mean the end goal or purpose to be achieved by an action or a reaction to an independent aspect or cause in the world. In legal discourse, particularly in the task of interpreting statutes, and the law, the said words could be used in both senses. The tools of "purposive interpretation" and the "mischief rule" ought to come to mind. Consequently, the ratio of ECIL* could wrongly be read to mean that both the "provocations" and "objects"-in terms of independent aspects or causes in the world-of the law enacted by Parliament, pursuant to article 245, must arise solely "in" or "within" the territory of India. Such a narrowing of the ambit of clause (1) of article 245 would arise by substituting "in" or "within", as prepositions, in the place of "for" in the text of article 245. The word "in", used as a preposition, has a much narrower meaning, expressing inclusion or position within the limits of space, time or circumstance, than the word "for". The consequence of such a substitution would be that Parliament could be deemed to not have the powers to enact laws with respect to extra-territorial aspects or causes, even though such aspects or causes may be expected....
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....territory may have an impact on or in another territory. Externalities arising from economic activities, including but not limited to large scale exploitation of natural resources, and consequent pressure on delicate global environmental balance, are being recognized to be global in scope and impact. Global criminal and terror networks are also examples of how events and activities in a territory outside one's own borders could affect the interests, welfare, well-being and security within. Many other examples could also be adduced. For instance, the enablement, by law, of participation of the State in many joint, multilateral or bilateral efforts at co-ordination of economic, fiscal, monetary, trade, social, law enforcement activities, reduction of carbon emissions, prevention or mitigation of war in another region or maintenance of peace and security, etc., may be cited as additional examples of such inter-territorial dependence. Within international law, the principles of strict territorial jurisdiction have been relaxed, in the light of greater interdependencies, and acknowledgment of the necessity of taking cognizance and acting upon extraterritorial aspects or causes, b....
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....n the light of the extreme conclusions that may arise on account of the propositions made by the learned Attorney-General. Is Parliament empowered to enact laws in respect of extra-territorial aspects or causes that have no nexus with India, and furthermore could such laws be bereft of any benefit to India ? The answer would have to be no. The word "for" again provides the clue. To legislate for a territory implies being responsible for the welfare of the people inhabiting that territory, deriving the powers to legislate from the same people, and acting in a capacity of trust. In that sense Parliament belongs only to India ; and its chief and sole responsibility is to act as Parliament of India and of no other territory, nation or people. There are two related limitations that flow from this. The first one is with regard to the necessity, and the absolute base line condition, that all powers vested in any organ of the State, including Parliament, may only be exercised for the benefit of India. All of its energies and focus ought to only be directed to that end. It may be the case that an external aspect or cause, or welfare of the people elsewhere may also benefit the people of ....
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....ose for which it has been constituted. That purpose is to continuously, and forever be acting in the interests of the people of India. It is a primordial condition and limitation. Whatever else may be the merits or demerits of the Hobbesian notion of absolute sovereignty, even the Leviathan, within the scope of Hobbesian logic itself, sooner rather than later, has to realize that the legitimacy of his or her powers, and its actual continuance, is premised on such powers only being used for the welfare of the people. No organ of the Indian State can be the repository of the collective powers of the people of India, unless that power is being used exclusively for the welfare of India. Incidentally, the said power may be used to protect, or enhance, the welfare of some other people, also ; however, even that goal has to relate to, and be justified by, the fact that such an exercise of power ultimately results in a benefit-either moral, material, spiritual or in some other tangible or intangible manner-to the people who constitute India. We also derive interpretational support for our conclusion that Parliament may not legislate for territories beyond India from article 51, a Direct....
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....xisting there have no connection, to India would be to demolish the very basis on which international peace and security can be premised. For the aforesaid reasons we are unable to agree that Parliament, on account of an alleged absolute legislative sovereignty being vested in it, should be deemed to have the powers to enact any and all legislation, de hors the requirement that the purpose of such legislation be for the benefit of India. The absolute requirement is that all legislation of Parliament has to be imbued with, and at the core only be filled with, the purpose of effectuating benefits to India. This is not just a matter of the structure of our Constitution ; but the very foundation. The arguments that India inherited the claimed absolute or illimitable powers of the British Parliament are unacceptable. One need not go into a lengthy or academic debate about whether in fact the British Parliament always did, or as a matter of absolute necessity needs to, possess such powers. There is a healthy debate about that, casting serious doubts about the legal efficacy of such arguments. (See Chapter 2 : "The Sovereignty of Parliament-in Perpetuity ?", by A. W. Bradley in The ....
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.... and occurs after examination of the vires of a particular law. While there may be some overlap of functions, the essential cores of the functions delineated by the meanings of the phrases "make laws" "operation of laws" and "invalidate laws" are ordinarily and essentially associated with separate organs of the state-the Legislature, the Executive and the Judiciary respectively, unless the context or specific text, in the Constitution, unambiguously points to some other association. In article 245 we find that the words and phrases "make laws" "extraterritorial operation", and "invalidate" have been used in a manner that clearly suggests that the addressees implicated are the Legislature, the executive and the judiciary respectively. While clause (1) uses the verb "make" with respect to laws, thereby signifying the grant of powers, clause (2) uses the past tense of make, "made", signifying laws that have already been enacted by Parliament. The subject of clause (2) of article 245 is the law made by Parliament, pursuant to clause (1) of article 245, and the object, or purpose, of clause (2) of article 245 is to specify that a law so made by Parliament, for the whole or any part o....
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....ise a public purpose that subserves the general welfare of the people. It is one of the essential defences of the people in a constitutional democracy. If one were to read clause (2) of article 245 as an independent source of legislative power of Parliament to enact laws for territories beyond India wherein, neither the aspects or causes of such laws have a nexus with India, nor the purposes of such laws are for the benefit of India, it would immediately call into question as to why clause (1) of article 245 specifies that it is the territory of India or a part thereof "for" which Parliament may make laws. If the power to enact laws for any territory, including a foreign territory, were to be read into clause (2) of article 245, the phrase "for the whole or any part of the territory of India" in clause (1) of article 245 would become a mere surplusage. When something is specified in an article of the Constitution it is to be taken, as a matter of initial assessment, as nothing more was intended. In this case it is the territory of India that is specified by the phrase "for the whole or any part of the territory of India." Expressio unius est exclusio alterius-the express mention....
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....of the history of various iterations of the precursor to article 245 in the Constituent Assembly. VIII Analysis of Constitutional Topological Space : Chapter I, Part XI We now turn to Chapter I Part XI, in which article 245 is located, to examine other provisions that may be expected to transform or be transformed by the meaning of article 245 that we have discerned and explained above. In particular, the search is also for any support that may exist for the propositions of the learned Attorney-General that Parliament may make laws for any territory outside India. As is well known, article 246 provides for the division of legislative competence, as between Parliament and the State Legislatures, in terms of subjects or topics of legislation. Clauses (1), (2) and (3) of article 246 do not mention the word "territory". However, clause (4) of article 246 specifies that Parliament has the power to "make laws for any part of the territory of India not included in a State" with respect to any matter, notwithstanding that a particular matter is included in the State List. Inasmuch as clause (1) of article 245 specifies that it is for "the whole or any part of the territory of Indi....
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....h a limited reading of the legislative powers of Parliament, which nevertheless are not as restricted as the narrow understanding of the ratio in ECIL* may suggest, we are in partial agreement with the same. When we look at articles 249 (conditions under which Parliament may legislate with respect to matters in List II of the Seventh Schedule, wherein the Council of States has deemed it to be in national interest to do so) and 250 (ambit of Parliamentary powers as inclusive of competence to legislate with respect to matters in the State List while a Proclamation of Emergency is in operation) we find that the legislative powers of Parliament are spoken of, in the said articles also, only in terms as being "for the whole or any part of the territory of India". Article 253 deals with legislation that may be needed to give effect to various international agreements, and again the powers are specified only in terms of making laws "for the whole or any part of the territory of India." Nowhere within Chapter I, Part XI do we find support for the propositions of the learned Attorney-General that Parliament may make laws "for" any territory other than the "whole or any part of the territ....
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....exercise full jurisdiction-i.e., executive, legislative and judicial-over a foreign territory, that such a jurisdiction can be exercised only upon an agreement with the foreign Government (thereby comporting with international laws and principles such as "comity of nations" and respect for "territorial sovereignty" of other nation-states), and the manner of entering into such agreements, and the manner of effectuating such an agreement has to be in conformity with a law specifically enacted by Parliament (whereby the control of the people of India over the actions of the Government of India, even extraterritorially is retained), implies that it is only "for" India that Parliament may make laws. Parliament still remains ours, and exclusively ours. Though the Government of India, pursuant to article 260, acts on behalf of a foreign territory, there is always Parliament to make sure that the Government of India does not act in a manner that is contrary to the interests of, welfare of, well-being of, or the security of India. The foregoing is a very different state of affairs from a situation in which Parliament itself acts on behalf of a foreign territory, as implicated by the express....
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....cases, we do note that none stand for the proposition that the powers of a Parliament are unfettered and that our Parliament possesses a capacity to make laws that have no connection whatsoever with India. Nevertheless, we will address a few of the cases relied on by the learned Attorney General primarily for limited purpose of locating their rationale and reasoning. In Governor-General in Council v. Raleigh Investments Co. Ltd. [1944] 12 ITR 265 (FC), the key issue was about extra-territorial operation of a law, and not whether the law as made was with respect to aspects or causes outside the territory of British India and bearing no nexus with it. In this regard the Privy Council's observations about the appellant's contention are pertinent (page 273) : "The appellant's arguments . . . comprised two contentions. It was first argued that these provisions were not extra-territorial in their operation. It was also argued that even if they should be found in any degree to operate extra-territorially, that would be no ground for holding them to be invalid, so far as municipal courts called upon to deal with them were concerned", and finally (page 284) "in our judgment t....
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.... bigamous marriage contracted outside the territory of the State to be unlawful. The main issue was with regard to the power of a State to legislate beyond its territory, and Chief Justice Chagla held that it could not. One paragraph in that decision that could be deemed to be supportive of the learned Attorney General's propositions is (page 71) : "Now, under our present Constitution Parliament has been given absolute territorial powers. Therefore, today Parliament may enact any extra-territorial law. The only limitation on its power is the practicability of the law. If an extra-territorial law cannot be enforced, then it is useless to enact it but no one can suggest today that a law is void or ultra vires which is passed by Parliament on the ground of its extra-territoriality". Clearly, the statements that under our Constitution Parliament has been given absolute powers, and therefore it can enact extra-territorial laws, are not in comport with present day constitutional jurisprudence in India that the powers of every organ of the State are as provided for in the Constitution and not absolute. We discern that the second half of the excerpt cited above provides the clue ....
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....nd further arguing that if Governments were not to have such absolute powers that invariably lead to internal disorder. While it is generally and uncritically argued that Hobbes and Bodin stood for blind political absolutism, when viewed from a historical perspective, they can also be seen as the starting points of human beings' quest for greater accountability of States and Governments, which were to be increasingly viewed as the repositories of collective powers of the people. Hobbes specifically recognized that Governments would become unstable and lose their legitimacy if they failed to protect the welfare of the subjects. For Bodin, the absolute sovereign was tempered by divine law (or "natural law"), and the customary laws of the community. Alan James states that "[f]rom this basis it could be argued that sovereignty lay not with the ruler but with the ruled. In this way the ultimate authority could be claimed for the people, with the Government simply acting as their agent." (See Sovereign Statehood-The Basis of International Society*). These seeds of accountability, carried within them the incipient forms of arguments that would inexorably lead to the modern notion of s....
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....hrough a non-violent struggle, presaged the emergence of a moral voice : that while we claim our right to self-determination, we claim it as a matter of our national genius, our status as human beings in the wider swath of humanity, with rights that are ascribable to us on account of our human dignity. Such a morality arguably does not brook the claims of absolute sovereignty to act in any manner or form, on the international stage or within the country. To make laws "for another territory" is to denigrate the principle of self-determination with respect to those people, and a denigration of the dignity of all human beings, including our own. The debates in the Constituent Assembly with regard to the wording of article 51, which was cited earlier in this judgment, gives the true spirit with which we the people of this country have vested our collective powers in the organs of governance. This is so particularly because they were made in the aftermath of World War II, arguably the most brutal that mankind has ever fought, and the dawn of the atomic age. In particular the statements of Prof. Khardekar, are worth being quoted in extenso : &....
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....ch the Constitutional text does not unambiguously support. To readily accede to demands for a reading of such powers in the constitutional matrix might inevitably lead to a destruction of the complex matrix that our Constitution is. Take the instant case itself. It would appear that the concerns of the learned Attorney General may have been more with whether the ratio in ECIL* could lead to a reading down of the legislative powers granted to Parliament by article 245. A thorough textual analysis, combined with wider analysis of constitutional topology, structure, values and scheme has revealed a much more intricately provisioned set of powers to Parliament. Indeed, when all the powers necessary for an organ of the State to perform its role completely and to effectuate the constitutional mandate, can be gathered from the text of the Constitution, properly analysed and understood in the wider context in which it is located, why should such unnecessarily imprecise arrogation of powers be claimed ? To give in to such demands, would be to run the risk of importing meanings and possibilities unsupportable by the entire text and structure of the Constitution. Invariably such demands are m....
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....ny part of India ; or (b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians ? The answer to the above would be yes. However, 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, well-being of, or security of inhabitants of India, and Indians. It is important for us to state and hold here that the powers of legislation of Parliament with re....