The practice of passing legislation pertaining to extraterritorial operations has been growing in recent years. Additionally, the courts have issued a number of rulings upholding various problems pertaining to extraterritorial operations. The 2011 case of gvk industries ltd vs income tax officer and Anr. is one example of this. The main concern in this case is whether or not Parliament has the authority to enact laws pertaining to extraterritorial matters.
gvk industries ltd vs income tax officer Case Facts
- In order to begin a gas-related power project, the GVK Company was incorporated in Andhra Pradesh.
- The company used the services of Zurich, Switzerland-based ABB – Projects & Trade Finance International Ltd. for technical guidance in order to generate funds and secure an easy loan.
- ABB offered professional advice from Zurich via email on how to finish the documentation needed for loan approval from local and international lenders.
- Following the completion of the services, ABB Company sent GVK Company an invoice that needed to be paid.
- After obtaining the invoice, the GVK Company petitioned the Income Tax Officer to request a “No Objection Certificate,” in order to discharge the tax burden under the Income Tax Act, 1961, as the ABB Company did not have any business in India.
- The section 9 1 i income tax act of 1961 of the would not apply to ABB Company since the company does not have a business link in India, and Section 9(1)(vii)(b) would not apply either, according to a submission made by GVK Company to the Income Tax Officer.
- The Income Tax Officer denied the application.
- Subsequently, the GVK Company filed the application with the Commissioner of Income Tax. The Commissioner first granted the application, but after six months, they reversed their judgment and requested payment of the tax according to either section 9 1 i income tax act of 1961 or Section 9(1)(vii)(b) of the Income Tax Act, 1961.
- By means of a writ petition, the GVK Company contested the Commissioner of Income Tax’s ruling in the High Court.
- The High Court maintained the legality of Section 9(1)(vii)(b) in the case and determined that section 9 1 i income tax act of 1961 would not apply in this particular instance. As a result, GVK Company was not eligible to get a “No Objection Certificate.”
- GVK Company appealed the High Court’s verdict to the Supreme Court because it felt wronged by it.
gvk industries ltd vs income tax officer Issues
- Does the Parliament have the authority to pass laws pertaining to extraterritorial matters pertaining to India’s territory or to the welfare of its citizens?
- Does the Parliament have the authority to enact legislation for any region?
Contentions by the Parties
Petitioner:
- It is possible for a state’s laws to be unconstitutional in another state.
- The additional territorial laws could be harmful to India.
- Because even in Hobbesian reasoning, the sole use of state power for the benefit of the populace is necessary for the legitimacy of such authority.
- that the people’s combined powers cannot be held by any organ of the Indian State unless they are used exclusively for the benefit of India.
Respondent:
- They contended that the three-judge bench’s ruling in the ECIL case should be re-examined since the Parliament’s ability to enact laws pertaining to extraterritorial matters that affect or are connected to India has been curtailed by the interpretation of article 245 of the indian constitution.
- Indian courts lacked the jurisdiction to declare extraterritorial laws approved by parliament unconstitutional because of their extraterritorial consequences.
- The joint interpretation of article 245 of the indian constitution’s two paragraphs makes it abundantly evident that laws passed by the Indian Parliament within its borders cannot be overturned just because they will be applied outside of the country.
gvk industries ltd vs income tax officer Judgment
- The court noted that the restricted reading of article 245 of the indian constitution, which prevents the parliament from passing laws pertaining to extraterritorial matters, as well as the usage of terms like “provocation” and “objects” were the main issues with the ECIL ruling. Nonetheless, the court decided that the parliament could only use its authority to pass extraterritorial legislation in cases where it directly affects Indian territory or serves the welfare and interests of Indian citizens.
- In addressing the query of whether the parliament can pass legislation that benefits neither India nor its citizens but has no connection to the country. The court said, “No,” since the Parliament is solely Indian and its first duty is to serve India, even when laws are made for the benefit of citizens in other countries. India must always come first. Thus, extraterritorial elements that are unrelated to India are not covered by Article 245(1).
- Furthermore, any legislation passed by the Parliament pertaining to extraterritorial matters that are unrelated to India would be deemed supra vires and applied to the foreign country. The court further declared that there should be a genuine, not fictitious, connection to India.
- The Indian parliament passing laws that have no connection to India would constitute a breach of “territorial sovereignty,” which is safeguarded by international laws and treaties, according to the Supreme Court’s opinions.
- A bench has been assigned to hear this appeal in order to resolve the matter. On February 18, 2015, this was taken on behalf of the appellant by U.A. Rana and the respondents by Mr. Arijit Prasad. The question was whether or not the High Court was justified in its ruling.
- It was determined that the High Court’s ruling was unchallengeable. The appeal has been denied without incurring any fees.
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