New Delhi: The Supreme Court on Friday partially stayed Section 139 AA of the Income Tax Act, in a move that upholds the Narendra Modi government’s decision to have existing Aadhaar number holders link their unique identification number with the PAN card system and have them quote their UID number while filing income tax returns.
However, a partial reading down of the 139 AA (2) provision in the judgment implies that Indian residents who currently do not have an Aadhaar number will not face criminal consequences for not linking it to their PAN card. Also, the court stayed the retrospective invalidation of PAN cards for non compliance. The threat of invalidation of a PAN card was inserted into Section 139 AA as part of this year’s finance bill.
The partial stay for people who are yet to enrol for an Aadhaar number will remain in place until a pending batch of petitions that challenges the validity of the biometric authentication scheme is decided by a larger constitution bench of justices, the two-judge Supreme Court bench headed by A.K. Sikri said. It should be noted that the formation of this constitution bench has been pending for over a year.
The bench on Friday also made reference to the wave of Aadhaar number leaks by government agencies and said that it hoped the Centre would “address security issues related to Aadhaar data” soon.
The Supreme Court’s verdict comes a month after a batch of petitions challenged Section 139 AA of the Income Tax Act, which was added through this year’s finance Bill, and made Aadhaar-PAN linkage mandatory for tax purposes.
Confusion about taxpayers who don’t have an Aadhaar card
“Partial relief for the citizen is, if you don’t have an Aadhaar card, you are not going to get every transaction of yours based on a PAN card invalidated. If you want to get an Aadhaar card, you are free to do so. If you don’t get an Aadhaar card, your transactions and returns on the basis of your PAN card will still remain valid,” Salman Khurshid, counsel for one of the petitioners,” told Bloomberg Quint.
But other lawyers had other interpretations about the precise legal consequences of the judgment, in particular for those residents who have a PAN card but have not enrolled for Aadhaar and will soon be filing their income tax return. Since section 139AA(1) – which says every person eligible for Aadhaar “shall” quote his/her Aadhaar number (or enrolment number) in their income tax return – has been upheld, this would imply the Aadhaar holdouts “shall” have to comply. But since the penal provision – section 139AA(2) – has been partially read down, this would imply that failure to comply may have no downside. As Gautam Bhatia writes:
There is a significant amount of confusion with respect to the relief that the court does grant – a “partial stay” of S. 139AA(2) (cancellation of PAN) until the main Aadhaar case is decided. The court states:
“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.” (para 125)
One reading of this passage is that it remains mandatory to provide an Aadhaar number while filing IT returns (after July 1), but if one doesn’t already have an Aadhaar Card, then one’s PAN will not be canceled for failure to comply; however, one’s tax returns shall be invalid, and therefore subject to other penal provisions for not paying tax. On another interpretation, however, S. 139AA(2) provides the punishment for failure to comply with S. 139AA (refusal to provide Aadhaar number for IT returns). The staying of S. 139AA(2) (for those who have no Aadhaar number yet) necessarily implies that there is no penal consequence to follow from violating S. 139AA itself. Over the course of the day, I have heard both views being defended by competent lawyers, implying that at the very least, there is some amount of confusion here.
The bench, last month, had heard three petitions filed by Binoy Vishwam, a senior Communist Party of India leader; Bezwada Wilson, a Dalit rights activist; and S.G. Vombatkere, a retired Army officer. Their counsels had argued that Section 1399 AA was discriminatory and an unreasonable restriction on the right to profession and trade.
The court, however, rejected these contentions and noted that “ending the scourge of fake PANs” was a laudable objective.
Justice Sikri specifically noted that the income tax provision was neither discriminatory nor an unreasonable restriction. In passing its order, the bench noted that there was “no conflict between Section 139AA and the Aadhaar Act” and it rejected the petitioner’s arguments that the mandatory Aadhaar-PAN provision was legally unsustainable.
Consequently, people who already have an Aadhaar number will be required to link it with their PAN card by July 1, 2017 and will be required to furnish it while filing their income tax returns.
In a statement, the Software Freedom Law Centre noted exactly this and said that the Supreme Court judgement was a mixed bag.
“While we are glad that S. 139AA was partially read down for the benefit of those who have chosen not to procure Aadhaar cards as of yet, we are also disappointed that the Supreme Court stopped short of lifting the obligation to link Aadhaar and PAN cards for everyone. The Aadhaar project continues to be riddled with serious problems, including those that pose substantial privacy and security risks to users, and compelling people to use Aadhaar in this scenario is equivalent to exposing them to such risks. We also remain hopeful that all public concerns surrounding Aadhaar will be effectively addressed by the Constitution Bench as it adjudicates on the constitutionality of the overall project at a later stage,” the legal think-tank said.
Note: This story, filed before the full judgment was uploaded on the Supreme Court website, earlier ran with a headline suggesting taxpayers who do not have an Aadhaar card can continue to file their tax returns in the usual manner. This headline was based on an interpretation of the consequences of the Supreme Court reading down the penal provisions of section 139AA of the Income Tax Act. Since there are differing legal views on this question, we have since revised the headline.