GVK Industries Ltd. v. Income Tax Officer

Quick Summary

The Supreme Court explained the reach of Article 245. Parliament may pass laws about extra-territorial aspects only when those aspects have a real link or effect on India. If there is no such link, Parliament’s lawmaking power does not stretch that far. Articles 51 and 260 show how India works with other countries, but they do not give a free hand to legislate for foreign regions without a nexus.

Issues

• Can Parliament legislate on extra-territorial features that have no impact on India?
• Can Parliament make laws “for” a place other than India?

Rules

• Article 245(1): Parliament’s laws apply to India, and can cover extra-territorial aspects if they have a nexus with India.
• Article 51: Guides respect for international law and treaty duties.
• Article 260: India may perform functions for foreign territories by agreement; Parliament can set the framework.
• Income-tax Act: Sections 9(1)(i) (business connection) and 9(1)(vii) (fees for technical services) used to test taxability.

Arguments

Judgment

The Court held that Parliament’s power under Article 245(1) does not extend to extra-territorial aspects with no impact on India. When an extra-territorial aspect does have a real nexus with India, Parliament may legislate. The Court rejected the idea of absolute legislative sovereignty to make laws entirely detached from India’s interests, welfare, or security.

Ratio Decidendi

• Territorial Nexus Rule: Extra-territorial legislation is valid only if a real connection to India exists.
• Constitutional Limits: Article 245(1) is not a blank cheque; purpose must relate to India.
• International Cooperation: Articles 51 and 260 guide cooperation, not unfettered lawmaking for foreign lands.

Why It Matters

The decision draws a clean line for extra-territorial laws. It protects Indian federal interests while allowing Parliament to act when there is a genuine link to India. It also guides tax and regulatory cases that involve foreign services tied to Indian projects.

Key Takeaways

1. Article 245 permits extra-territorial laws only with a clear Indian nexus.
2. No absolute legislative power to make laws for foreign regions without impact on India.
3. Articles 51 and 260 support cooperation frameworks, not blanket reach.
4. Taxability of foreign services depends on connection with India (e.g., Sections 9(1)(i)/(vii)).

Mnemonic + 3-Step Hook

Mnemonic: “NEXUS-OR-NO-GO” — If there is a nexus with India, it’s a go; if not, no go.

1. Spot: Is the subject outside India?
2. Link: Show a real effect or connection to India.
3. Legislate: Only then may Parliament act under Article 245.

IRAC Outline

Issue: Can Parliament legislate on extra-territorial matters without any Indian impact?

Rule: Article 245(1) allows extra-territorial reach only with a nexus to India; Articles 51 and 260 frame cooperation.

Application: The case tests tax on foreign services for an Indian project; the link to India becomes key.

Conclusion: No power where there is no nexus; power exists when there is real impact on India.

Glossary

Article 245

Gives Parliament power to make laws; extra-territorial reach needs a nexus with India.

Nexus

A real link or effect connecting the subject to India.

Section 9(1)(i)

Income deemed to accrue in India via business connection.

Section 9(1)(vii)

Fees for technical services deemed to accrue in India in certain cases.

FAQs

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