Relevance of article 245: even if IPC says its applicable abroad, it needs

constitutional backing for the same- which comes from Article 245.

Relevance for Deciding GVK: Vodafone acquired Hutch in the Cayman Islands, and
through Hutch they came to India. BPL acquired by Hutch, Hutch acquired by
Vodafone. Income Tax authorities in India applied taxes. BomHC held Vodafone
liable for 10kcrores.

AH Wadia v. CIT (1945)

 Gave liberal interpretation regarding ETO
 Question of extra territoriality of any enactment cannot be raised as a ground
for questioning it’s validity in municipal courts.
 The legislation may offend the rules of international law, might not recognized
by foreign courts as there may be practical difficulties in enforcing it but these
are questions of policy with which the domestic tribunals are not concered
with. (cited Ashbury v. Ellis)

Electronics Corporation of India Ltd v. CIT (1989)

FACTS:

1. ELIC Company based in Hyderabad entered into an agreement with

Norwegian company at Paris. As per this agreement, the NC would provide
technical know how, technical services and train the ECL personnel-
consideration of 575 lakhs.
2. ELIC approached the income tax authorities to obtain an NOC as per S.195(2)
of the IT Act- acc to ECIL such income did not accrue or arise in India and
NC was entitled to be paid the entire amount and ECL would be exempted
from paying tax. Thus, ECL wanted exemption of tax from paying this
amount.
3. Contention: NC did not come to India, did not do business in India and no tax
could accrue or arise in India.
4. Contention of IT: Income constituted a tax in India and NOC cannot be issued
as S.9(1)(vii)(b) applicable. 30% tax deductible.
5. ELIC challenged this before APHC

APHC: Based on a previous case of Indo-Asian and US company involved with

similar facts, the Court held that S.195 will not be applicable an it would rather by
S.9-7-7-b.

ELIC challenged the constitutional validity of the S.9 privisino of the IT Act claiming
it to be ultra vires due to ET.
Supreme Court
1. Looked into S.9 which says that the following income shall be deemed to arise
in India, with a section related to income by way f offer for technical services.

2. On A.245, SC considered
(a) British Columbia Electric Railway Ltd v. King. HoL said that a legislature
which passes a law having ET may find that what it has enacted cannot be
directly enforced, but not invalid on that ground. While it can’t have juris over
other countries, the laws applicable must be enforced with machinery
available.
(b) AH Wadia- Liberal interpretation
(c) General principles of sovereignty- strict interpretation

Held:
 Law passed by Parliament where (a) provocation for the law must be found within
India itself. (b) Such a law may have ET in order to sub serve the object and it must
be something related to India.
 Essentially Indian law would be valid but there has to be a mechanism to enforce
it. Introduced a way to test ET law and a compromise was taken.

Impact: The judgement did not answer the question and said due to the substantial
importance of the matter it was referred to a larger bench. This larger benchd id not
answer the question. It only came in GVK Industries v. ITO (2011) so as to answer
the Vodafone case judgement.

GVK Industries and Anr. v. ITO (2011)

Appellant challenged the order of ITO to withhold the amount of money being paid to
foreign company under S-9 provision. Secondly, vires of the provision was
questioned due to lack of competence and violation of Article 19. HC upheld validity
and held that S.9(i) did not apply.

Facts:
1. GVK hired ABP for facilitating loans, who arranged from IDBI and US
company. ABP arranged 839 crores consideration for ABP 5.6 crores.
2. GVK Approached IT for obtaing NOC under S.195(2), who held it was S.9
provision GVK had to deduct 30% TDS.
3. HC relied on ELIC. SC in GVK-I looked into
a) Constitutional validity of 9-i-vii-b
b) Extra territorial operation and Article 245

ISSUES FRAMED
1. Is Parliament constitutionally restricted from enacting legislation with ETO as
per causes that do not have ot expected to have any direct, indirect, tangible or
 intangible impacts or effect or consequences for the territory of India or any
part, or interest of the welfare state? [Simply- can Parlaiment make law not for
Indians?)
2. Does Parliament have power to legislate for any territory other than the
territory of India and Indians?

CONTENTIONS OF THE AGI

1. Sovereign Inherent right: Distinction between sovereign and subordinate
legislature. Subordinate has limitations where as sovereign has full powers to
make ETO laws as an inherent right.
2. The fact that it may not do so doesn’t arise form consti limitation but
consideration of applicability, based on AH Wadia. This does not detract from
inherent powers of the Parliament.

3. Not valid grounds for challenge: In any case, domestic courts cannot set aside
law on the groudns of ETO or violation of international law.

4. Nexus only for state laws: Referred to the theory of nexus which was evolved
in Australia as a defence to a challenge of laws on ground of ETO. Nexus
principle is only for state laws and not Parliamentary law as only union law
can have ET effect.

5. Draft Consti: Courts have no power to question. Draft Consti had two
provisions, reproduced in Final Consti showing clear intent to provide power
in favour of Parliament.
Framed 179(1) and 179(2). Two separate clauses are thus intended indepetendent of
each other CONSTI HISTORY EXAMINED. Originally single provision, divided
into two.
6. Courts thus do not have powers to question:
-Such ET laws are with respect to ETo aspects or causes that have no impact
on or nexus with India
-Do not in any manner or form work or intend to be or benefit Indians
-Such ET laws might even be detrimental to Inda.

7. Both ETE AND ETO: The world ET effect Is wider than ET operation, and
would be expected to be include in meaning of “extra territorial laws.”

SUPREME COURT OBSERVATIONS:

Part 1 of the judgement relates to the nature of 245 and the requirement of laws “for”
India. Lincoln quoted too. Further para;s talked about ECIl, facs about this case and
two sissues were thus framed:
 1. Interpretation of the word “For” as proposition, from Oxford Concise
reference to say that Article 245 must be for the well being of inhabitants of
India and Parliamentary law must be for territory of India.
2. Oppenheim’s IL on Sovereignity- no state had power over other state in
general. A.51 promotion of international peace and security; 51B- peaceful
relations. Thus, consti does not intended to go against the same.
3. Express mention of one thing implies exclusion of others- Express mention of
requirement of law for people of India meant implied exclusion of law for
outsidesr.
4. SC rejected the argument of AGI on the draft consti and said that both
provisions are conntected to each other “subject to other provisions.” After
this, wide analysis:

ISSUE 1
 Parliament may exercise its legislative powers with respect to extra territorial
aspects on causes mentioned however ought not to be subjected to some apriori
qualitiative tests.
 SC said Parliament may exercise power, but there should be a real connection of
the law in relation to India and not illusory. A law could have ETO if the degree of
relationship is prescribed by the Parliamnet, and further this relationship must be real
and not illusory. This was a requirement beyond the one in Constitution.

ISSUE 2: No ET law was permitted where India makes laws for foreign territory. Any
law which did not have nexus with India would amount to laws “for” foreign territory
and are unconsti.

GVK INDUSTRIES v. ITO (2015- Fact judgement)

ISSUE 1: Service by ABP whether it was consultancy service or technical service?

[Relevance: S.9 provision is applicable to technical services provided by nonr-
resident liable for taxation]

Held, degree of relationship must be provided by the Parliament and apply it for ETO
to be valid. SC interpreted “technical service” by referring to 2 cases:

(a) Ref Pet no. 28 of 1999- Ruling of AAR- Technical service includes
consultancy services
(b) Delhi HC in CIT v. Bharati Cellular said technical services includes
consultancy services
(c) Black’s Law Dictionary for the same prop

Based on this, the SC held that ABP projects liable to pay.

SEBI v. Pan Asia Advisors Ltd and ORs (2005) : Do from Ramjay

SEBI issued an order debarring PAN Asia from rednereign any service in relation to
securities prescribed under the SCRA for 10 years. PAN Asia challenged before SAT.
Chairman held SEBI to be correct, members disagreeing. SEBI Challenged this ruling
before SC.

Shares sold outside India they are called GDR oR ADR. Companies wanted to sell
shares outside India and appointed lead manager, who was PAN Asia advisors which
is a registered company registered under Financial Conduct Authority of UK,
compliant with statutes of UK and Austria.

SEBI found out that Pan Asia funds were fraudulent through insider trading.
Pan Asia raised GDR and sold to Vintage EURO
for Asahi and 5 other companies insider trading alleged.
Such arrangemetns havet o eb informed to SEBI. SEBI found that promote of Asahi
was dealing with Pan Asia and informing them about transanctions.

SEBI counsel:
(a) Claimed that GDR are marketable securities and SEBI can regulate the same
through S.11.
(b) Fraudulent transanctions of people can be regulated. By virtue of Section 12-a-
enormous powers to prohibit manipulative and deceptive devices.
(c) Fraud committed by Pan Asia resulted in loss of 140 million resukting in
Indian investors losing heavily.

Shyam Divan said SEBI deos not have primary juris as Pan Asia is regd with UK laws
and in compliance with local statuets of UK and Austria
(ii) There is no obligation to disclose information to SEBI under Indian law.

1. Act itself provides for proceedings against any person in orde to protect
interests of investors and stock market In India with ref to any fraud played
against the interests of the investors.
2. Applying GVK-1, degree of relationship is found in the interest of regulation.

SC referred o Republic of Italy through Ambassador v. Union of India: SC

considered authority of Parliament law to be applied outside India. In 139, SC
noted that P has always asserted its authority make law which can be qapplied
over persons who aren’t present with int eh territoru of India, when such
persons commit acts against the legitimate interests of the country.

Vodafone Intl. Holdings v. Union of India

Vodafone CASE
Hutchinsson, company in Hong Kong entered India through hutch India and acquired
BPL and SR; and continued ot be controlled by Hong Kong company. The shares of
Hutchinson was acquired by Vodafone Netherlands having it’s regd office in London,
which happened at Cayman Islands.
Vodafone thus entered India through Hutchinson. IT Authorities imposed a 10k crore
tax on Vodafone in light of the indirect transfer at CL upheld by BomHC.

Question before SC: Whether indian law is applicable to the transanction between
Hutch and Vodafone and thus liable to be taxed under S.9 of IT Act?

SC Held in Vodafone that transfer of shares of a foreign company to a non-resident

company involved no transfer of Indian shares. It made a distinction between direct
and indirect transfers and what is required under S.9 is a direct transfer only. <this is
the degree of relationship prescribed>
IMPACT: Courts no longer need to look into provocation, they simply need to look
into degree of relationship prescribed by the parliament.

EXTRA TERRITORIALITY OF STATE LAW

Doctrine of territorial nexus: Says that state law will have valid ETO if there is a
sufficient connection or nexus between state and the object. 2 Essential elements are
therefore important:
1. The connection must be real and not illusory
2. Liability should to be imposed must be pertinent to that connection.

Governor General v. Raleigh Investment Co.

-Raleigh Co. established and registered office in England. It invested and purchased
shares of 9 other companies regd in England, and do business in India yielded
profit and pay dividend.
-Raleigh got dividend. IT authorities posed taxed on this which was challenged before
FC.
-FC justified taxation and created the doctrine of TN, which gave the above two
requirements.

Wallace Brothers and Co Ltd v. Income Tax Commissioners, Bombay

-WB est and reg in England, appointed an agent and did business in Bombay through
him. During the FY, their profi was 24 million, of which 1.7 was from India. IT
imposed tax.
PC: Reiterated FC decision and upheld HC.

Note: ETO of a state law means that state law can go outside the territory of a sate and
apply in other States in India.

State of Bombay v. RMDC AIR 1957

-Under Bombay Lotteries and Prize Competitions Control and Tax Act, 1948, Bomb
Tax authorities imposed tax on RMDC – a company situated in Bangalore.
-RMDC had a newspaper called Sporting Star which ahd wide circulation in Bombay.
They started a prize comp to increase PR mentioned in the newspaper in the form of a
crossword puzzle. To do this, they opened up an office in Bombay and issued coupons
to conduct this competition.
-Winners were decided here at this office and given prizes there.
-Tax authrotiies imposed tax

RMDC: Based in Bangalore thus law cant have ET operation. BomHC struck it down
saying state cant have ETO.

SC: Upheld the taxation and held that state law can have ET operation and brought in
the doctrine of territorial nexus. If there is a sufficient nexus between state making
law and the object of the law and secondly, real object nor illusory: then ETO
allowed. The liability sought to be imposed must be pertinent to that connection.
In this case, connection is real and not illusory.

CONCLUSION: Though 245 is silent, state laws can have ETO through this.

State of Bihar v. Charusia Dasi (1958)

1. ETO of State law
2. Whether ETO must be limited to tax law or is it also possible w.r.t general law
The act in question is the Bihar Hindu Religious Trust Act

Facts:
1. Under S.2, 59 and 70 of the Act proceedings were initated by tge authorities
(trust board of Bihar) against Smt. Charusia tryst. Thus trust was set up in
Bihar and it’s liability was assessed by the Board.
2. Charusia being from Bihar, husband from Bengal and had many properties in
Calcutta along with a plot of land, which was converted into a Trust
3. B, C scheduled properties were Charusia’s properties in Bihar. D was her
husband’s in Calcutta. Trust was est in Bihar and managed by Charusia.
4. When authorities initiated proceedings, Charusia claimed:
 (a) Trust being a private trust in character of worship of family idol and since
public was not interested, the above Act will not Apply.
5. Patna HC ruled in her favour. Bihar sought appeal to SC.
6. Issue: Can the Act be applied to a trust in Bihar with properties situated in
Calcutta>
Supreme Court held:

DO FROM AMOGA’S NOTES