Legislative Relationship between centre and State

1. Territory-
2. List- 7th

Doctrine of Territorial Nexus

If the Legislature is dealing with a subject matter, that subject matter must have some
connection or relation to the territory with regard to which the legislature can legislate. In the
absence of such a territorial nexus, a legislation dealing with a subject matter which is outside
the boundaries of the province would be ultra vires the legislature.

Wallace Bros. and Co. Ltd. vs. Income Tax Commissioner, Bombay

Registered in UK- Agent in Bombay- earned total profit 2.4 million- 1.7 million by carrying
its business in India- Indian Income Tax-?
Tax cannot be imposed as the Company is subject to English Law?

The derivation from British India of the major part of its income for a year gives to a company as
respects that year a territorial connection sufficient to justify the company being treated as at
home in British India for all purposes relating to taxation on its income for that year from
whatever source that income may be derived. If it is so at home in British India, it is a person
properly subject to the jurisdiction of the Central Indian Legislature.

Unlike an individual a company has an economic existence only. No activities other than the
making and spending of money are open to it. When a company in any particular year derives
the major portion of its income from a country, it is a legitimate conclusion that the company has
rooted itself there for that year.

The connection that results is at least as solid as the connection given by the place of central
control; and in a search for a home for income tax purposes as respects that year that
connection might well be thought more pertinent than the connection, readily changeable and
often changed, given by the place of central control.

In such a search the place where commercial activities yield the result is at least as relevant as
the place where they are conceived. A company which in substance lives on a country may
rationally be treated as living in it.

Not necessary to be located within the boundaries of State making the law.

State of Bombay vs. R.M.D.C.

A weekly newspaper called “sporting star” printed and published in Banglore contained a
crossword prize competition-
A wide circulation in Bombay- Bombay passed a law ‘Bombay lotteries and Prize
Competition Control and Tax Act, 1948’- Imposed Tax - Art. 245 not allowed- Bombay
could not levy this tax.

Q. Whether the State of Bombay can levy tax on newspaper published and printed in
Bangalore?

Is there sufficient nexus b/w Company and Bombay Tax?

Question of Fact

The doctrine of territorial nexus was a well-established doctrine and could apply only
when

The State which has made the law and upon whom the law is going to be applied has
some nexus in the territory of the State which has made the law.

(1) the territorial connection between the persons sought to be taxed and the
legislating State was real and not illusory and

(2) the liability sought to be imposed was pertinent to that connection.

Tata Iron & Steel Co. Ltd. vs. St. of Bihar

Regd. in Bombay- factory in Bihar- manufacturing- Sales Office in West Bengal-
Bihar Sales Tax Act, 1947- to pay tax under the Act on sales- which have taken place in Bihar

S2 (g)section defines ‘Sales’ is transfer of property in goods and the following are also liable
for taxation under the Act:

(i) Goods which are actually in Bihar at the time when a Contract of Sale of these goods is
made in accordance with section 4 of Sales of Goods Act, 1930

(ii) Goods which are produced or manufactured in Bihar

Territorial Nexus ?

The presence of goods at the date of agreement for sale in the taxing State or the production
and manufacture in that State of Goods, the property wherein eventually passed as a result of
sale.
Q. Rajasthan- maintaining the religious trust- A- is also in Gujarat - A we are also in
Gujarat ?

Territorial Nexus?

A Hindus marries to B- HMA 1955

A went to Germany for study- 4yrs- B- 5- 9yrs- A has got the citizenship of Germany.

Jobs- Australia - 10 yrs b comes back to India- Bombay- Citizenship Australia A-

B- Divorce Files HMA- ? A

Domicile - Intention + No. yrs

Domicile by origin- India

Domicile by choice- later

Doctrine of PIth and Substance

Purpose- to find out which law making institution - Parliament and

State - competent to make the law

Law-

Object- of that Law

Scope- of that law
Effect- from that law

In case the overlapping is not possible to remove- Law of the Parliament

will prevail.
State list- 30. Money-lending and money-lenders; relief of agricultural indebtedness.
vs.
Union List- 46. Bills of exchange, cheques, promissory notes and other like instruments.

State B- has made a law on Money Lenders Control Act- 2001-

Money lending can be done through promissory notes.

Whether the State law is valid?

State List 6. Public health and sanitation; hospitals and dispensaries.

Union List 31. Posts and telegraphs; telephones, wireless, broadcasting and other like
forms of communication.

Loudspeaker/ Sound Amplifier -

State B- made law on the control of Loudspeaker that in Marriages the use DJ/
loudspeaker will not be allowed after 10 PM. on the ground that Health issues-

Which law will prevail- State or Parliament?

Object- Public health
Scope- controlling the instruments which are noisy and affecting the health
Effect- Public health

State law is valid-

Drive in Cinema- entertainment

Entry 62 of State list: Taxes on luxuries, including taxes on entertainments,

amusements, betting and gambling.

Imposed tax on the person who are watching cinema

Imposed tax on cars which are coming- Entertainment Tax part ? seperate from
Entertainment tax?