The Supreme Court’s Refusal to Stay the Requirement of Aadhaar for Income-Tax Returns Raises Several Troubling Questions

12 June 2017
The Supeme Court failed to address the necessity of providing an Aadhaar number for filing income-tax returns, leaving open the possibility that a failure to do so would invite penal consequences.
Bikas Das/AP Photo

The Supreme Court’s recent judgment in the case of Binoy Viswam vsUnion of India is the latest in a series of developments with respect to Aadhaar, the central government’s program to provide unique identification numbers to all residents of India. In the judgment, which was pronounced on 9 June, the court was adjudicating a challenge to Section 139AA of the Income Tax Act. The section was introduced into the Income Tax Act as a part of the Finance Act in April 2017. It included two controversial mandates: that all individuals seeking to file income-tax returns or apply for a fresh Permanent Account Number (PAN) card after 1 July 2017 must quote their Aadhaar number in the return or application; and that a failure to link a PAN card allotted before 1 July to an Aadhaar number or Aadhaar enrolment number would result in the invalidation of the PAN card. While the Supreme Court has read down the latter to mean that a PAN card will not get invalidated if a person does not obtain an Aadhaar card, it failed to address the necessity of providing an Aadhaar number for filing income-tax returns, leaving open the possibility that a failure to do so would invite penal consequences.

The Aadhaar programme has been controversial since its introduction in 2009. As Aadhaar cards were used for welfare schemes, such as the transfer of domestic gas subsidies, or benefits under the National Rural Employment Guarantee Programme, several civil society organisations, social activists and privacy-law experts raised concerns with respect to data protection and possible invasions of privacy. In August 2015, while hearing a batch of petitions challenging the validity of the Aadhaar scheme, a three-judge bench of the Supreme Court referred the cases to a higher bench on the question of whether the constitution enshrines a right to privacy that is violated by the biometric-data collection for Aadhaar enrolment. In October 2015, the Supreme Court directed that enrolment in the Aadhaar programme would be purely voluntary, and that the Aadhaar number “cannot be made mandatory till the matter is finally decided by this Court one way or the other.”

The central government, however, took every possible step to expand the Aadhaar programme. In 2016, Arun Jaitley, the finance minister, introduced the Aadhaar Bill as a money bill in the Lok Sabha, which meant that the Rajya Sabha would have no powers to reject the bill. Despite criticism over the manner of its introduction, the bill was passed, leading to the enactment of the Aadhaar Act in March 2016. In 2017, the government introduced Section 139AA into the Income Tax Act and the section was then challenged before the Supreme Court on grounds of unconstitutionality.

In Binoy Viswam, the Supreme Court only read down Section 139AA to a very limited extent. It found the first part of the section—which provides that it is mandatory for income-tax assessee to provide an Aadhaar number in her application for a PAN card and in her income-tax returns—to be constitutionally valid. The court, however, stayed the operation of the second part of the section, which states that a failure to link a PAN card with an Aadhaar card would invalidate the PAN card from the date of its issuance. The court noted that the invalidation of a PAN card would have several serious consequences, such as making the holder of an invalid card incapable of obtaining a bank loan of more than Rs 50,000 or depositing the same amount in a bank account. The court therefore read down a retrospective application of the law, according to which someone who does not possess an Aadhaar card before 1 July cannot be compelled to link it to their PAN card. It noted: “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.” However, the court has upheld the prospective application, and anyone already possessing an Aadhaar card would necessarily have to comply with the second part of the section.

The stay on the second part of Section 139AA provides little relief to persons who do not possess Aadhaar cards because the Supreme Court has not expressed any views on how individuals without Aadhaar cards may file their tax returns from this year. It appears that the section has been read down only with respect to the invalidity of PAN cards, and to a limited extent at that, considering any fresh applications for a PAN card will require the applicant to quote her Aadhaar number. The rest of the Supreme Court’s order raises a number of concerns.

Anupama Kumar is a lawyer based in Chennai.

Keywords: Supreme Court Income Tax Aadhaar