The Supreme Court on Friday passed an order clarifying the government’s rules mandating the use of Aadhaar for the filing of income tax returns. The rules had made it mandatory for all Indian residents to link their Aadhaar, a 12-digit unique identity number that is otherwise voluntary, to their PAN card, which is necessary for taxation and banking transactions. Anyone who refused to do so was at risk of having their PAN card declared invalid. Petitioners had challenged the rules saying they were discriminatory, draconian and unconstitutional, especially when the Supreme Court is also hearing another matter challenging the Aadhaar project on questions of privacy.
The court’s decisions clarified a number of things, making Aadhaar-PAN linking for those who already have UID, while leaving a window open for those without Aadhaar. Below is a rundown of what the order means.
- Those who have Aadhaar and want to file income tax returns, must link the two by July 1, 2017.
- If they do not link their Aadhaar number before filing income tax returns, they risk having their PAN card be declared invalid.
- This provision will only apply prospectively, which is to say from July 1, 2017, and will not affect income tax returns filed for previous years.
- The PAN will also only be declared invalid from that date, and not “as if the person had not applied for it”, as the provision had mentioned.
- Those who do not have Aadhaar cannot be forced to get it in order to file income tax returns, at least until the Constitution Bench hears the privacy case regarding UID. IT returns may still be declared defective if they are filed without quoting an Aadhaar number.
- But the court also suggested that Parliament consider another punishment for those filing I-T returns without a linked Aadhaar, which is “toned down” from the current one, where the PAN card may be declared invalid.
The full judgment gets into a number of questions that will affect the way Aadhaar can be used by the government.
Can Aadhaar be mandatory for some and voluntary for others?
The petitioners in the case argued that the original spread of Aadhaar was done under the presumption that it was voluntary. The Supreme Court has also made it clear, in previous orders, that Aadhaar is to be voluntary except for a limited set of public welfare schemes, and even in those the government has to provide an alternative if people do not have Aadhaar. The Aadhaar Act, passed last year, also says that enrolling for it is voluntary. Yet, the government has repeatedly attempted to make it mandatory for many other programs and, the petitioners argued that the most egregious was this provision requiring Aadhaar for I-T returns.
The court, however, said that though Aadhaar may have been voluntary for welfare schemes and other benefits, Parliament has the authority to make it mandatory as well – even if the Aadhaar Act calls it voluntary.
“It is the prerogative of the Parliament to make a particular provision directory in one statute and mandatory/compulsory in other,” the order said. “Aadhaar Act and the law contained in Section 139AA of the Income Tax Act deal with two different situations and operate in different fields.”
Beyond I-T returns, this conclusion makes it easier for the government to pass any number of laws making Aadhaar mandatory for other services, even as its constitutionality is being challenged in the Supreme Court.
Does the rule illegally discriminate between those with and without Aadhaar?
The petitioners argued that the law treats individuals unequally, by providing one set of rules for those who have Aadhaar and have linked it and a different set of rules for others.
Arvind Datar, the lawyer arguing for the petitioners, pointed out that making PAN-Aadhaar linking mandatory with the stated aim of curbing black money would not be valid, since it only affects individuals with PANs and not companies that also do transactions and have PANs. Shyam Divan, another lawyer for the petitioners, said the rules do not properly account for those who do not want to enrol for Aadhaar, for various reasons.
The court dismissed Datar’s argument, saying that just because it did not apply to all PANs did not make it discriminatory. Cutting down on bogus PAN cards at the individual level was itself enough of an aim. On Divan’s argument too, the court said people could not simply choose not to follow a law and then say it is discriminating against them.
“When a law is made, all those who are covered by that law are supposed to follow the same. No doubt, it is the right of a citizen to approach the Court and question the constitutional validity of a particular law enacted by the Legislature. However, merely because a section of persons opposes the law, would not mean that it has become a separate class by itself,” the court said. “If such a proposition is accepted, every legislation would be prone to challenge on the ground of discrimination.”
Again, the court looked at the question on technical grounds without considering why some might have chose not to get Aadhaar – because of questions about its very constitutionality. Instead, the court said the government is empowered to treat all tax assessees as one class, and make laws covering them.
Does the punishment of invalidating PAN violate the Constitution?
The constitution gives every Indian the fundamental right to practise any profession they wish to. The petitioners argued that, by threatening to invalidate the PAN card for anyone who does not link it to Aadhaar, the government was violating this fundamental right. PAN is not just used for income tax returns, it is also necessary for operating bank accounts above a certain limit, to use debit and credit cards and a number of other services connected to banking.
The court agreed that invalidating the PAN card could potentially be violative of Article 19(1)(g) of the Constitution, which protects the right to any occupation or trade. But it also pointed out that the stated objective of the linking is a reasonable one – to cut down on black money by eliminating bogus PAN cards, which is a duty of the government.
So the court concluded that it was reasonable to require PAN-Aadhaar linking, but only for those who already have Aadhaar or have enrolled for it. It however acknowledged that there is a constitutional challenge regarding privacy, which the Supreme Court is yet to hear, and so put a partial stay on this punishment, saying it would not apply to those without Aadhaar.
“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 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,” the court said.
It did however, suggest that Parliament can still think up consequences for those who have not linked Aadhaar to the PAN card by “toning down” the effects, basically telling the government it needs to use a punishment that is not so harsh as to declared the PAN card invalid.
Does Aadhaar violate privacy?
The court did not get into this question at all, saying that an earlier bench had already referred the matter to a Constitution Bench, which has not yet been constituted. Whenever that bench sits to hear the case, Aadhaar will be examined on the fundamental question of whether the project violates a right to privacy, and indeed, whether the Constitution guarantees privacy at all.
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