Quick answer
Yes, but only when the foreign matter has a real connection (nexus) with India. In GVK Industries Ltd. v. Income Tax Officer (1 March 2011), a five-judge Constitution Bench of the Supreme Court held that under Article 245 Parliament may make laws about events, things or transactions outside India if they have, or are expected to have, some impact on or consequence for India or Indians. Parliament cannot make laws "for" a foreign territory, and a law about a foreign matter with no connection to India would be ultra vires (beyond legal power).
The law: Article 245
- Article 245(1): subject to the Constitution, Parliament may make laws for the whole or any part of the territory of India, and a State Legislature may make laws for the whole or any part of the State.
- Article 245(2): no law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation (effect outside India).
The case
GVK Industries Ltd. v. Income Tax Officer, Supreme Court of India, Constitution Bench, 1 March 2011 (S.H. Kapadia, C.J., B. Sudershan Reddy, K.S. Panicker Radhakrishnan, Surinder Singh Nijjar and Swatanter Kumar, JJ.; judgment by B. Sudershan Reddy, J.). GVK, building a power project in Andhra Pradesh, paid a "success fee" to a Zurich-based company that had advised it on raising loans, and the tax department insisted on tax deduction from the payment. The Bench answered two constitutional questions on Article 245 and sent the tax appeal back to an appropriate bench.
What the Court held
- Nexus is required: Parliament may legislate on extra-territorial aspects or causes only if they have, or are expected to have, some impact on, effect in or consequences for the territory of India, or the interests, welfare, wellbeing or security of Indians.
- No quantity test: the connection need not be "sufficient" or "significant". It only has to be real or expected to be real, and not illusory or fanciful.
- No law "for" a foreign land: Parliament has no power to legislate for any territory other than India. A law on a foreign matter with no impact on or nexus with India is ultra vires.
- Role of clause (2): Article 245(2) only saves a valid law from being struck down for operating outside India; it is not an independent source of power.
- Earlier view clarified: a rigid reading of Electronics Corporation of India Ltd. v. CIT (1989), that Parliament can deal only with matters arising within India, was rejected.
Nexus or no nexus
| Law about a matter outside India | Result under GVK |
|---|---|
| Has a real impact on India or Indians (for example, income earned from services used for an Indian project) | Valid; its extra-territorial operation is protected by Article 245(2) |
| Has no impact on or connection with India at all | Ultra vires; it would be a law "for" a foreign territory |
Example
Farhan, sitting in another country, hacks a hospital server located in Delhi. Section 1(5)(c) B.N.S. applies the Sanhita to any person outside India who commits an offence targeting a computer resource located in India. The act happened abroad, but its effect falls on India, so the provision has a clear nexus and is within Parliament's power. A law punishing a theft between two foreigners abroad, with no effect on India or Indians, would fail the GVK test.
What happened to the tax dispute
The constitutional answers did not decide the tax appeal. In a later judgment of 18 February 2015, a two-judge bench held that the success fee was "fees for technical services" (consultancy services) under Section 9(1)(vii)(b) of the Income-tax Act, 1961, so tax had to be deducted at source, and dismissed GVK's appeal. For a fuller case brief, see GVK Industries Ltd. vs Income Tax Officer (2011).
Exam point
GVK Industries (2011): Article 245 lets Parliament legislate on foreign matters only where there is a real, not fanciful, nexus with India; it can never legislate "for" a foreign territory.
