"It logically follows that Parliament is not empowered to legislate with respect to extra-territorial aspects or causes that have no nexus whatsoever with India," a five-judge Constitution bench headed by Chief Justice SH Kapadia said.
The apex court said that it did not agree that Parliament, on account of its alleged absolute legislative sovereignty, should be deemed to have the powers to enact any and all legislation, even without the requirement that it is for the benefit of India.
The apex court passed the order on a petition by a private firm challenging the validity of a provision of the Income Tax Act which mandated the company to withhold part of its payment to a foreign company.
The company had challenged the legislative competency of the Centre in Andhra Pradesh High Court which had upheld the validity of the impugned provision of the Act. Against the order of the high court, the company had moved the apex court.
While examining the question whether Parliament has the powers to legislate for any territory other than the territory of India or any part of it, the bench said, "The answer to the above would be no.
"It is obvious that Parliament is empowered to make laws with respect to aspects or causes that occur, arise or exist, or may be expected to do so, within the territory of India, and also with respect to extra-territorial aspects or causes that have an impact on or nexus with India.
"Such laws would fall within the meaning, purport and ambit of the grant of powers to Parliament to make laws for the whole or any part of the territory of India, and they may not be invalidated on the ground that they may require extra-territorial operation.
"Any law enacted by Parliament with respect to extra-territorial aspects or causes that have no impact on or nexus with India would be ultra-vires, and would be laws made ''for'' a foreign territory," the bench, also comprising justices B Sudershan Reddy, K S Radhakrishnan, S S Nijjar and Swatander Kumar said.
The bench opined that a "liberal" and "more extensive" interpretative analysis be undertaken to ensure that the court does not unnecessarily restrict the powers of another organ of the state.
"Moreover, the essential features of such arrangements, that give the Constitution its identity, cannot be changed by the amending powers of the very organs that are constituted by it," the bench said.
The Constitution casts upon various organs of the state the affirmative responsibilities of protecting the interests of the welfare and security of the nation, it added.