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Cases of Interest Constitution Bench Cases Supreme Court of India

GVK Inds. Ltd. & Anr v. The Income Tax

O9cer & Anr.
The Appellant by way of a writ petition 2led 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. The High Court
having upheld that Section 9(1)(i) did not apply in the circumstances of the facts of the case,
nevertheless upheld the applicability of Section 9(1)(vii)(b) on the facts and also upheld the
constitutional validity of the said provision. The matter came up for consideration before a two
judge bench of the Supreme Court which referred the matter to a constitutional bench.

The central constitutional themes before the Supreme Court related to whether the
Parliament’s powers to legislate, pursuant to Article 245, include legislative competence with
respect to aspects or causes that occur, arise or exist or may be expected to do so, outside the
territory of India.

The Supreme Court framed two questions and after discussing the relevant case law in detail
and answered the following:

(1) Is the 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 eQect(s) 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?

The Supreme Court answered the question in the aTrmative. However, the Supreme Court
added that the Parliament might 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 eQects 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
eQect 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 further held that
the powers of legislation of the Parliament with regard to all aspects or causes that are within
the purview of its competence, including with respect to extra-territorial aspects or causes, and
as speci2ed by the Constitution, or implied by its essential role in the constitutional scheme,
ought not to be subjected to some a-priori quantitative tests, such as “suTciency” or
“signi2cance” or in any other manner requiring a pre-determined degree of strength. All that
would be required would be that the connection to India be real or expected to be real, and not
illusory or fanciful. Whether a particular law enacted by Parliament does show such a real
connection, or expected real connection, between the extra-territorial aspect or cause and
something in India or related to India and Indians, in terms of impact, eQect or consequence,
would be a mixed matter of facts and of law. Obviously, where the Parliament itself posits a
degree of such relationship, beyond the constitutional requirement that it be real and not
fanciful, then the courts would have to enforce such a requirement in the operation of the law
as a matter of that law itself, and not of the Constitution.

(2) Does the Parliament have the powers to legislate “for” any territory, other than the territory
of India or any part of it?

The Supreme Court decided the question in the negative. It held that the Parliament was
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 extraterritorial 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.
← Rajiv Sarin & anr vs. State of Uttarakhand & Ors.

Electronics Corporation of India Ltd. v. Union of India & Ors. →

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