2017 (6) TMI 478 - SC - Income Tax

Section 139AA Income Tax Act upheld requiring Aadhaar-PAN linking constitutional but non-Aadhaar holders' PANs remain valid temporarily

Binoy Viswam Versus Union of India And Ors.

Binoy Viswam Versus Union of India And Ors. - [2017] 396 ITR 66, 2017 AIR 2967, 2017 (7) SCC 59, 2017 (6) JT 520, 2017 (6) SCALE 621 Issues Involved:1. Legislative Competence2. 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 LawIssue-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.