2017 (6) TMI 478 - SC - Income Tax

Requirement of AADHAAR number in filing return of income and obtaining PAN - Failure to link Aadhaar with PAN - such person or class or classes of persons - constitutional validity of Section 139AA - Proviso to sub-section (2) of Section 139AA of the Act stipulates the consequences of failure to intimate the Aadhaar number. In those cases, PAN allotted to such persons would become invalid not only from July 01, 2017, but from its inception as the deeming provision in this proviso mentions that PAN would be invalid as if the person had not applied for allotment of PAN, i.e. from the very beginning. Sub-section (3), however, gives discretion to the Central Government to exempt such person or class or classes of persons or any State or part of any State from the requirement of quoting Aadhaar number in the application form for PAN or in the return of income. Held that - Those who have already enrolled themselves under Aadhaar scheme would comply with the requirement of sub-section (2) of Section 139AA of the Act. Those who still want to enrol are free to do so. However, those assessees who are not Aadhaar card holders and do not comply with the provision of Section 139(2), their PAN cards be not treated as invalid for the time being. It is only to facilitate other transactions which are mentioned in Rule 114B of the Rules. Parliament was fully competent to enact Section 139AA of the Act and its authority to make this law was not diluted by the orders of this Court. There is no conflict between the provisions of Aadhaar Act and Section 139AA of the Income Tax Act inasmuch as when interpreted harmoniously, they operate in distinct fields. Section 139AA of the Act is not discriminatory nor it offends equality clause enshrined in Article 14 of the Constitution. Section 139AA is also not violative of Article 19(1)(g) of the Constitution insofar as it mandates giving of Aadhaar enrollment number for applying PAN cards in the income tax returns or notified Aadhaar enrollment number to the designated authorities. Further, proviso to sub-section (2) thereof has to be read down to mean that it would operate only prospective. Regarding penal provisions - Held that - One of the main objectives is to de-duplicate PAN cards and to bring a situation where one person is not having more than one PAN card or a person is not able to get PAN cards in assumed/fictitious names. In such a scenario, if those persons who violate Section 139AA of the Act without any consequence, the provision shall be rendered toothless. It is the prerogative of the Legislature to make penal provisions for violation of any law made by it. In the instant case, requirement of giving Aadhaar enrolment number to the designated authority or stating this number in the income tax returns is directly connected with the issue of duplicate/fake PANs.

Summary

Issues Involved:
1. Legislative Competence
2. Violation of Article 14 (Equality)
3. Violation of Article 19(1)(g) (Right to Practice Any Profession)
4. Violation of Article 21 (Right to Privacy and Human Dignity)
5. Retrospective Effect of the Law

Issue-wise Detailed Analysis:

1. Legislative Competence:
The petitioners argued that the Parliament lacked the authority to enact Section 139AA of the Income Tax Act, which mandates quoting of Aadhaar number for PAN applications and income tax returns, as it contradicted the Supreme Court's interim orders that made Aadhaar voluntary. However, the Court held that the Parliament was fully competent to enact Section 139AA under Article 246 and Entries 82 and 97 of List I of the Seventh Schedule of the Constitution. The Court emphasized that the Aadhaar Act and the Income Tax Act operate in distinct fields and that the Parliament's prerogative to make a provision mandatory in one statute and directory in another cannot be questioned on the ground of legislative competence.

2. Violation of Article 14 (Equality):
The petitioners contended that Section 139AA was discriminatory as it created two classes: those who voluntarily enrolled under Aadhaar and those who did not. The Court rejected this argument, stating that the classification of income tax assessees as a separate class was reasonable and had a rational nexus with the objective of curbing black money, money laundering, and tax evasion. The Court found that the provision was based on reasonable classification and was not arbitrary, thus not violating Article 14.

3. Violation of Article 19(1)(g) (Right to Practice Any Profession):
The petitioners argued that the penal consequences of not linking Aadhaar with PAN, which could result in the invalidation of PAN, were draconian and violated the right to practice any profession under Article 19(1)(g). The Court acknowledged that invalidating PAN could restrict a person's ability to carry on business or profession. However, it held that the restriction was reasonable and proportionate to the objective of preventing tax evasion and ensuring one PAN per person. The Court applied the doctrine of proportionality and found that the measure was necessary and had a proper relation to the objective sought to be achieved.

4. Violation of Article 21 (Right to Privacy and Human Dignity):
The petitioners argued that mandatory linking of Aadhaar with PAN violated the right to privacy and human dignity under Article 21. The Court refrained from addressing this issue in detail, as the matter was already referred to the Constitution Bench. The Court noted that the validity of Section 139AA under Article 21 would be subject to the outcome of the pending petitions before the Constitution Bench.

5. Retrospective Effect of the Law:
The petitioners contended that the proviso to Section 139AA(2), which deemed PAN invalid ab initio for failure to link with Aadhaar, had a retrospective effect and was unconstitutional. The Court agreed that the provision could not be applied retrospectively, as it would unsettle settled rights and have severe consequences. The Court read down the proviso to mean that it would operate prospectively, thus preventing any retrospective invalidation of PAN.

Conclusion:
The Court upheld the validity of Section 139AA of the Income Tax Act, subject to its compliance with Article 21, which would be determined by the Constitution Bench. The Court partially stayed the operation of the proviso to Section 139AA(2) to avoid severe consequences for those who had not linked their PAN with Aadhaar, allowing their PAN to remain valid until the Constitution Bench's decision. The Court also emphasized the need for the Government to address concerns about data security and unauthorized leakage of Aadhaar information.