|DATE:||(Date of pronouncement)|
|DATE:||March 1, 2011 (Date of publication)|
|Click here to download the judgement (gvk_s_9_extra_territorial.pdf)|
S. 9(1)(vii) & Parliament’s power to make laws with extra-territorial effect
The assessee filed a Writ Petition in the AP High Court to challenge the constitutional validity of s. 9(1)(vii)(b). The High Court (228 ITR 564) upheld the vires of s. 9(1)(viii)(b) by relying on Electronics Corporation of India Ltd vs. CIT 183 ITR 44 (SC). On appeal to the Supreme Court, the matter was referred to a Constitutional Bench to determine the extent to which laws enacted by Parliament can have extra-territorial effect under Article 245. HELD by the Constitution Bench:
(i) Parliament is constitutionally restricted from enacting legislation with respect to extra-territorial aspects or causes that do not have, nor expected to have any, direct or indirect, tangible or intangible impact(s) on or effect(s) in or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians. In all other respects, Parliament may enact legislation with extra-territorial effect. This power is not subject to tests of “sufficiency” or “significance” or in any other manner requiring a pre-determined degree of strength. All that is required is that the connection to India be real or expected to be real, and not illusory or fanciful.
(ii) However, Parliament does not have the power to legislate “for” any territory, other than the territory of India or any part of it. Parliament can only make laws for India and any law which has no impact on or nexus with India would be ultra-vires.
The decision of the Constitution Bench may mean the end of road for the government in the much hyped vodafone case?
The optimism aired is, in one’s independent view, too fragile to be readily shared.
The Vodafone controversy, as needs to be realised on the first blush, besides involving entirely distinct issues, is founded on an entirely different/distinguishable matrix of facts and circumstances. As such, the reported 5 member SC judgment cannot be regarded to provide any answer or solution, even remotely or otherwise, to any one or more of the issues in the Vodafone case, riddled with complexities, and own peculiarities.
For an appreciation thereof, in a proper light, one will do well to studiously go through the lastly delivered HC Judgment (in that case), where the matter presently rests.
The biggest hurdle of all, as is envisaged and bound to be faced, would arise if and when it eventually comes to the stage of determination of the – ‘cost of acquisition’ and ‘cost of improvement’ of the subject matter of the transaction (s) / transfer in dispute. According to the Revenue, the transfer was of the foreign company (ies) proportionate share in the ‘assets’ of the operating company in India.
As one needs to be aware, in the DTC Bill remaining to be enacted, there are provisions seemingly intended to simplify and meet such a hurdle in the future. Of course, they could be of no relevance, much less of any direct application to any such of the transactions as in the Vodafone case to be governed by the extant law. Further, those provisions by themselves, if and when enacted, are, according to a view, not well conceived; hence, are certain to pose problems/give rise to a fresh set of issues, of a different kind, in the course of their implementation.
In a lighter vein, it appears, endless litigation is assured for the foreseeable future, which, in any case, should be a matter of great satisfaction for the professionals in the field.