The doctrine of Territorial Nexus

Extra- territorial operation” – Law made to operate outside territorial limits of India.

State laws would be void if it has extra-territorial operation i.e., takes effect outside the state. However, there is one exception to this general rule. A state law of extra-territorial operation will be valid if there is sufficient nexus between the object and the state. This is clarified by the case State of Bombay vs. R.M.D.C.

The doctrine of Territorial nexus can be invoked under the following circumstances-

• Whether a particular state has an extra-territorial operation.

• If there is a territorial nexus between the subject- matter of the Act and the state making the law.

It signifies that the object to which the law applies need not be physically located within the territorial boundaries of the state, but must have a sufficient territorial connection with the state.

A state may levy a tax on a person, property, object or transaction not only when it is situated within its territorial limits, but also when it has a sufficient and real territorial connection with it.

State of Bombay vs RMDC- The Respondent was not residing in Bombay but he conducted Competitions with prize money through a newspaper printed and published from Banglore having a wide circulation in Bombay. All the essential activities like filling up of the forms, entry fees etc for the competition took place in Bombay. The state govt. sought to levy tax the respondent for carrying on business in the state.

The question for decision before the Supreme Court was if the respondent, the organiser of the competition, who was outside the state of Bombay, could be validly taxed under the Act.

Decision-It was held that there existed a sufficient territorial nexus to enable the Bombay Legislature to tax the respondent as all the activities which the competitor is ordinarily expected to undertake took place mostly within Bombay.