DOCTRINE OF TERRITORIAL NEXUS

LEADING CASE LAWS:

WALLACE BROS. AND CO. LTD. VS THE COMMISSIONER OF INCOME TAX, AIR 1948
PC 118

In the instant case, a company which was registered and incorporated in England,
and also carried out its business in India through a sleeping partner. The firm made a
staggering profit in that accounting year. The income tax authorities sought to levy a
tax upon the company of the respondent. The income tax authority was challenged
by the respondent, but it was held by the privy council that there existed the
doctrine of territorial nexus and held the tax valid. It is said that the major part of
that income was extracted from British India was the sufficient ground to establish a
territorial nexus.

STATE OF BOMBAY VS R.M.D. CHAMARBAUGWALA AIR 1957 SC 699 [LANDMARK]

In the instant case, the respondent who was not a resident of Bombay conducted a
prize competition of a crossword puzzle through a newspaper which was printed and
published in the Bangalore. This paper was widely published in Bombay to. For this
competition depots were established in Bombay, so that the forms and fees can be
collected. It attracted a lot of buyers for the ticket of that competition from the State
of Bombay.

The state government then imposed a tax over the respondent company. The
respondent challenged the taxation before the supreme court and a question was
raised whether the tax can be levied upon a person who resides outside the
territorial limits of the state. It was held by the supreme court that there was a
sufficient territorial nexus and the legislature has the authority to tax the respondent
for the revenue earned by his company through the prize competition.

TATA IRON AND STEEL COMPANY VS. STATE OF BIHAR AIR 1958 SC 452

The state of Bihar passed sales tax act for levying a tax on the sales whether it took
place within the territorial limits of the state or outside of that limit, it was also
stated that the goods should be manufactured in the state. In the instant case, it was
held that there was an established nexus between the object which was to be taxed
and the law. These are the two essential elements that constitute the doctrine of
territorial nexus.

STATE OF BIHAR V. CHARUSILA DASI AIR 1959 SC `1002

In the instant case, the state of Bihar passed a legislation which dealt with the motive
to safeguard the properties relating to the Hindu religious trusts. This act consists of
all the trusts within the territorial limits of Bihar. So the respondent Madea trust
deed several of her properties in situated in Bihar and Calcutta, and the trust was
inside the territorial limits of Bihar. Several questions were raised about the scope of
this act.

It was held that the act passed by the state of Bihar could have the effect over the
property situated outside the territorial limits of Bihar keeping in mind that the trust
must be situated with the limits of the state and there exist the sufficient nexus.

SHRIKANT BHALCHANDRA KARULKAR V. STATE OF GUJARAT, 1994 Supp 1 SCR 568

The hon’ble supreme court in this instant case of Shrikant Bhalchandra Karulkar v.
State of Gujarat held that the state legislature is conferred with the power to enact
legislation for extra-territorial operations complying with the provisions enshrined
under article 245 and 246.The 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.