Supreme Court upholds Aadhaar-PAN linkage, partially stays invalidation clause

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Case Name:

Preet Mohan Vs Union Of India & Ors (High Court of Madras)

W.P.No.27826 of 2017 and W.M.P.Nos.29820, 30972 and 30973 of 2017

Key Takeaways:

1. The Supreme Court upheld the constitutionality of Section 139AA (of Income Tax Act, 1961).

2. Aadhaar-PAN linkage remains mandatory for filing income tax returns.

3. The partial stay on PAN invalidation applies only to transactions mentioned in Rule 114B (of Income Tax Rules, 1962), not to filing tax returns.

4. The court emphasized the Parliament's prerogative to make provisions mandatory in one statute while keeping them directory in another.

Issue:

Is the mandatory linking of Aadhaar with PAN for income tax purposes constitutional, and does the Supreme Court's partial stay on PAN invalidation apply to filing income tax returns?

Facts:

1. Section 139AA (of Income Tax Act, 1961) mandates linking Aadhaar with PAN.

2. The Supreme Court, in the Binoy Viswam case, upheld the constitutionality of this provision.

3. The Supreme Court granted a partial stay on the invalidation of PAN for those who don't link it with Aadhaar.

4. The petitioner challenged the mandatory linkage, arguing that the partial stay should apply to filing income tax returns.

Arguments:

Petitioner's argument:

- The partial stay granted by the Supreme Court should apply to filing income tax returns, allowing them to file returns without linking Aadhaar and PAN.

Respondent's argument:

- The partial stay is limited to transactions mentioned in Rule 114B (of Income Tax Rules, 1962) and doesn't extend to filing income tax returns.

- The Supreme Court has upheld the constitutionality of Section 139AA (of Income Tax Act, 1961), making Aadhaar-PAN linkage mandatory for tax purposes.

Key Legal Precedents:

1. Binoy Viswam vs. Union of India:

The Supreme Court upheld the constitutionality of Section 139AA (of Income Tax Act, 1961).

2. Thiagarajan Kumararaja vs. Union of India (W.P.No.28181 of 2017 dated 06.11.2017):

This case was cited as covering the same issue as the current petition.

3. Modern Dental College and Research Centre Vs. State of Madhya Pradesh [2016 (7) SCC 353]:

This case was referenced when discussing the reasonableness of restrictions under Article 19.

Judgement:

The High Court dismissed the writ petition, ruling that:

1. The Supreme Court has not stayed the Proviso to Sub-Section (2) of Section 139AA (of Income Tax Act, 1961).

2. The partial stay is applicable only to facilitate other transactions mentioned in Rule 114B (of Income Tax Rules, 1962).

3. The partial stay doesn't apply to filing income tax returns.

4. The petition to allow filing of income tax returns without Aadhaar-PAN linkage is not sustainable and is rejected.

FAQs:

Q1: Is Aadhaar-PAN linkage still mandatory for filing income tax returns?

A1: Yes, the court upheld the mandatory linkage for filing tax returns.

Q2: What does the partial stay on PAN invalidation cover?

A2: It covers only transactions mentioned in Rule 114B (of Income Tax Rules, 1962), not the filing of income tax returns.

Q3: Can I file my income tax return without linking Aadhaar and PAN?

A3: No, the court ruled that Aadhaar-PAN linkage remains mandatory for filing tax returns.

Q4: Why did the Supreme Court partially stay PAN invalidation?

A4: To avoid severe consequences in day-to-day dealings for PAN holders who haven't linked Aadhaar, pending a final decision on privacy concerns.

Q5: Does this judgment affect the voluntary nature of Aadhaar enrollment?

A5: While Aadhaar enrollment remains voluntary in general, it's mandatory for income tax purposes under Section 139AA (of Income Tax Act, 1961).

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1. Heard the learned counsels for the parties.

2.The learned counsels do not dispute the fact that the prayer sought for in this writ petition is squarely covered by the earlier decision of this Court in the case of Thiagarajan Kumararaja vs. Union of India, rep. by the Secretary, Ministry of Finance, North Block, New Delhi-110001 and two others in W.P.No.28181 of 2017 dated 06.11.2017. The operative portion of the order reads as follows:

"8.The Hon'ble Supreme Court, in the case of Binoy Viswam, pointed out that on the one hand, the enrollment under aadhaar card is voluntary, however, for the purposes of the Act, Section 139AA (of Income Tax Act, 1961) makes it compulsory that for assessees to give aadhaar number, which means that in so far as income tax assessees are concerned, they have to necessarily enroll themselves under the Aadhaar Act and obtain aadhaar number, which will be their identification number, as that has become the requirement under the Act.

9. It has been further held by the Hon'ble Supreme Court in Binoy Viswam that the contention that since enrollment under the Aadhaar Act is voluntary and cannot be made compulsory under the Act, was rejected. It has also been held that the purpose behind the Act namely the Income Tax Act, 1961 is entirely different and the purpose being to curb black money, money laundering and tax evasion, etc. It has been further held that for achieving such objects, if the Parliament chooses to make the provision mandatory under the Act, the competence of the Parliament cannot be questioned on the ground that it is impermissible only because under the Aadhaar Act, the provision is directory in nature. The Hon'ble Supreme Court also held that it is the prerogative of the Parliament to make a particular provision directory in one Statute and mandatory/compulsory in the other and that by itself cannot be a ground to question the competence of the Legislature.

10. In paragraphs 113 and 114 of the judgment, the Hon'ble Supreme Court, in order to consider the submissions advanced, bifurcated Section 139AA (of Income Tax Act, 1961) into two parts and observed as follows :

"113. In order to consider the aforesaid submissions, we may bifurcate Section 139AA (of Income Tax Act, 1961) in two parts, as follows:

(i) That portion of the provision which requires quoting of Aadhaar number (Sub-Section (1)) and requirement of intimating Aadhaar number to the prescribed authorities by these who are PAN holders (Sub-Section (2)).

(ii) Consequences of failure to intimate Aadhaar number to the prescribed authority by specified date.

114. Insofar as first limb of Section 139AA (of Income Tax Act, 1961) is concerned, we have already held that it was within the competence of the Parliament to make a provision of this nature and further that it is not offensive of Article 14 of the Constitution. This requirement, per se, does not find foul with Article 19(1)(g) of the Constitution either, inasmuch as, quoting the Aadhaar number for purposes mentioned in Sub-Section (1) or intimating the Aadhaar number to the prescribed authority as per the requirement of Sub-Section (2) does not, by itself, impinge upon the right to carry on profession or trade, etc. Therefore, it is not violative of Article 19(1)(g) of the Constitution either. In fact, that is not even the argument of the petitioners. Entire emphasis of the petitioners submissions, while addressing the arguments predicated on Article 19(1)(g) of the Constitution, is on the consequences that ensue in terms of proviso to Sub-Section (2) inasmuch as it is argued, as recorded above, that the consequences provided will have the effect of paralysing the right to carry on business/ profession. Therefore, thrust is on the second part of Section 139AA (of Income Tax Act, 1961), which we proceed to deal with, now."

11. After rendering the above finding, it was observed that though the PAN is issued under the provisions of Section 139A (of Income Tax Act, 1961), its function is not limited to giving this number in the income tax returns or for other acts to be performed under the Act as mentioned in Sub-Sections (5), (5A), (5B), 5(C), 5(D) and (6) of Section 139A (of Income Tax Act, 1961). It was further observed that Rule 114B (of Income Tax Rules, 1962) mandates quoting of this PAN in various other documents pertaining to different kinds of transactions listed therein. It was also observed that for doing many activities of day to day nature, including in the course of business, the PAN is to be given and in the absence of a PAN, it will be impossible to undertake any of the activities, though its requirement is aimed at curbing the tax evasion. It was further observed that if the PAN of a person is withdrawn or is nullified, it definitely amounts to placing restrictions on the right to do business.

12. Then, the Hon'ble Supreme Court proceeded to frame the question as to whether these restrictions are reasonable and meet the requirement of Clause (6) of Article 19. After referring to the decision in the case of Modern Dental College and Research Centre Vs. State of Madhya Pradesh [reported in 2016 (7) SCC 353], proceeded to discuss as to whether the restrictions, which would result in terms of the Proviso to Sub-Section (2) of Section 139AA (of Income Tax Act, 1961), are reasonable or not. On this question, it would be beneficial to refer to certain paragraphs viz. paragraphs 122, 124 and 125 of the decision in the case of Binoy Viswam, as under :

"122. While considering the aforesaid submission of the petitioners, one has to keep in mind the aforesaid purpose of the impugned provision and what it seeks to achieve. The provision is aimed at seeding Aadhaar with PAN. We have already held, while considering the submission based on Article 14 of the Constitution, that the provision is based on reasonable classification and that has nexus with the objective sought to be achieved. 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 Income Tax Act, 1961) 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.

"124. Therefore, it cannot be denied that there has to be some provision stating the consequences for not complying with the requirements of Section 139AA (of Income Tax Act, 1961), more particularly when these requirements are found as not violative of Articles 14 and 19 (of course, eschewing the discussion on Article 21 herein for the reasons already given). If Aadhar number is not given, the aforesaid exercise may not be possible.

125. Having said so, it becomes clear from the aforesaid discussion that those who are not PAN holders, while applying for PAN, they are required to give Aadhaar number. This is the stipulation of sub-section (1) of Section 139AA (of Income Tax Act, 1961), which we have already upheld. At the same time, as far as existing PAN holders are concerned, since the impugned provisions are yet to be considered on the touchstone of Article 21 of the Constitution, including on the debate around Right to Privacy and human dignity, etc. as limbs of Article 21, we are of the opinion that till the aforesaid aspect of Article 21 is decided by the Constitution Bench a partial stay of the aforesaid proviso is necessary. Those who have already enrolled themselves under Aadhaar scheme would comply with the requirement of sub- section (2) of Section 139AA (of Income Tax Act, 1961). 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) (of Income Tax Act, 1961), 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 Income Tax Rules, 1962). We are adopting this course of action for more than one reason. We are saying so because of very severe consequences that entail in not adhering to the requirement of sub-section (2) of Section 139AA (of Income Tax Act, 1961). A person who is holder of PAN and if his PAN is invalidated, he is bound to suffer immensely in his day to day dealings, which situation should be avoided till the Constitution Bench authoritatively determines the argument of Article 21 of the Constitution. Since we are adopting this course of action, in the interregnum, it would be permissible for the Parliament to consider as to whether there is a need to tone down the effect of the said proviso by limiting the consequences."

13. On a reading of the above quoted paragraphs in the decision in the case of Binoy Viswam, it would clearly show that the Hon'ble Supreme Court has not stayed the Proviso to Sub-Section (2) of Section 139AA (of Income Tax Act, 1961) and the partial stay would be applicable only to facilitate the other transactions, which are mentioned in Rule 114B (of Income Tax Rules, 1962), which pertains to transactions, in relation to which, PAN is to be quoted in all documents for the purpose of Clause (C) of Sub- Section (5) of Section 139A (of Income Tax Act, 1961). Therefore, to state that the partial stay granted by the Hon'ble Supreme Court would enure to the benefit of the petitioner even for filing income tax returns is a plea, which is not sustainable and is liable to be rejected.

14. For all the above reasons, this Court finds no grounds to entertain the writ petition and grant the relief sought for.

15. Accordingly, the writ petition is dismissed. No costs. Consequently, the above WMP is also dismissed."

3.Following the above order, the writ petition is dismissed. No costs. Consequently, connected miscellaneous petitions are closed.

s/d-

Assistant Registrar(CS VIII)

True Copy

Sub-Assistant Registrar

To

1. Union of India, Represented by Secretary, Ministry of Finance, North Block, New Delhi - 110 001.

2. Central Board of Direct Taxes, Represented by its Chairperson, Ministry of Finance, 9th Floor, Lok Nayak Bhavan, New Delhi - 110 001.

3. Income Tax Officer, Non Corporate Ward 3(2), Chennai. W.P.No.27826 of 2017 and W.M.P.Nos.29820, 30972 and 30973 of 2017

SP(11/01/2018)