LEGAL ISSUE: The constitutional validity of making Aadhaar mandatory for PAN and income tax returns.
CASE TYPE: Tax Law, Constitutional Law
Case Name: Binoy Viswam vs. Union of India & Ors.
Judgment Date: 9 June 2017
Introduction
Citation: This judgment is not yet reported in the official INSC format.
Judges: The judgment was delivered by a two-judge bench comprising Justice A.K. Sikri and Justice Ashok Bhushan.
Can the government make Aadhaar mandatory for filing income tax returns? The Supreme Court of India recently addressed this question. The court examined the validity of Section 139AA of the Income Tax Act, 1961, which requires individuals to link their Aadhaar number with their Permanent Account Number (PAN). This case is about the balance between government’s need to collect taxes and individual rights.
Case Background
The case began with a challenge to Section 139AA of the Income Tax Act, 1961. This section, introduced by the Finance Act, 2017, requires individuals to quote their Aadhaar number in PAN applications and income tax returns. The petitioners argued that this provision makes Aadhaar enrollment compulsory, which conflicts with the voluntary nature of the Aadhaar Act, 2016.
The petitioners, who identified themselves as public-spirited individuals, contended that Section 139AA forces people to enroll for Aadhaar, violating their right to choose. They also argued that making PAN invalid for those who do not link it with Aadhaar is an excessive penalty. The respondents, including the Union of India, defended the law, stating it is necessary to curb tax evasion and money laundering.
The petitioners sought relief from the mandatory nature of Section 139AA, arguing it was unconstitutional. They claimed it violated the principles of voluntariness associated with Aadhaar.
Timeline
| Date | Event |
|---|---|
| January 28, 2009 | Union of India establishes Unique Identification Authority of India (UIDAI). |
| July 02, 2009 | Shri Nandan Nilekhani appointed as Chairman of UIDAI. |
| September 2010 | Aadhaar scheme launched in rural Maharashtra. |
| December 03, 2010 | National Identification Authority of India Bill, 2010 introduced in Rajya Sabha. |
| December 13, 2011 | Standing Committee Report suggests reconsideration of the Bill and project. |
| 2012 | Justice K.S. Puttuswamy files a writ petition challenging the Aadhaar scheme. |
| September 23, 2013 | Supreme Court directs that no person should suffer for not having an Aadhaar card. |
| March 24, 2014 | Supreme Court restrains UIDAI from transferring biometric information without consent. |
| August 11, 2015 | Supreme Court refers the matter to a larger bench to debate the Right to Privacy issue. |
| August 11, 2015 | Supreme Court directs that Aadhaar is not mandatory and is to be used only for PDS and LPG schemes. |
| October 15, 2015 | Supreme Court permits Aadhaar for MGNREGS, Jan Dhan Yojana, etc. |
| March 25, 2016 | Aadhaar (Targeted Delivery of Financial and other Subsidies, Benefits and Services) Act, 2016 comes into force. |
| 2017 | Section 139AA of the Income Tax Act introduced, making Aadhaar mandatory for PAN. |
| June 9, 2017 | Supreme Court upholds Section 139AA with partial stay on invalidation of PAN for those not having Aadhaar. |
Legal Framework
The court considered several legal provisions. Key among them was Section 139AA of the Income Tax Act, 1961. This provision mandates that every person eligible for an Aadhaar number must quote it in their PAN application and income tax returns. Failure to do so would result in the PAN being deemed invalid.
The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, was also a key part of the legal framework. Section 3 of the Aadhaar Act states that every resident is entitled to obtain an Aadhaar number by submitting their demographic and biometric information. Section 7 of the Aadhaar Act makes it necessary to have Aadhaar for receiving certain subsidies, benefits, and services. However, it also provides an alternative means of identification if an Aadhaar number is not assigned.
Other relevant provisions include Sections 2(a), 2(c), 2(d), 2(e), 2(g), 2(h), 2(k), 2(l), 2(m), 2(n), Section 3, Section 7, Section 28, Section 29 and Section 30 of the Aadhaar Act.
The court also looked at Articles 14, 19(1)(g), and 21 of the Constitution of India, which guarantee equality before the law, freedom to practice any profession, and protection of life and personal liberty, respectively.
Arguments
The petitioners argued that Section 139AA is unconstitutional because it goes against the voluntary nature of Aadhaar. They contended that the Supreme Court had repeatedly emphasized that Aadhaar enrollment should be voluntary. They also argued that the penalty for not linking Aadhaar with PAN is too severe, infringing on the right to carry on business.
The petitioners also submitted that the law violates Article 14 of the Constitution by creating an unreasonable classification. They argued that there was no rational nexus between making Aadhaar mandatory for PAN and the stated objective of curbing tax evasion. They also argued that the law infringes upon the right to carry on a profession or business, guaranteed under Article 19(1)(g), by making PAN invalid.
The respondents, on the other hand, justified Section 139AA as a necessary measure to tackle tax evasion, money laundering, and the problem of multiple PAN cards. They stated that Aadhaar is a reliable way to verify identity and prevent fraud. They also argued that the law is within the legislative competence of the Parliament and does not violate any fundamental rights. They also pointed out that the State enjoys the widest latitude where measures of economic regulations are concerned.
The respondents further argued that the Aadhaar scheme has been endorsed by the Supreme Court in various cases related to public distribution systems and other welfare schemes. They also contended that the orders of the Supreme Court which emphasized on voluntary nature of Aadhaar were passed when Aadhaar scheme was being implemented as an executive measure and not as a statutory provision.
Submissions by Parties
| Party | Main Submission | Sub-Submissions |
|---|---|---|
| Petitioners | Section 139AA is unconstitutional |
|
| Respondents | Section 139AA is constitutional |
|
Issues Framed by the Supreme Court
The Supreme Court framed the following key issues for consideration:
- Whether the Parliament was competent to enact Section 139AA of the Income Tax Act, 1961?
- Whether Section 139AA of the Income Tax Act, 1961 is violative of Article 14 of the Constitution?
- Whether Section 139AA of the Income Tax Act, 1961 is violative of Article 19(1)(g) of the Constitution?
- Whether proviso to sub-section (2) of Section 139AA of the Act can be read retrospectively?
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reasoning |
|---|---|---|
| Competence of Parliament to enact Section 139AA | Upheld | Parliament has the legislative competence under Article 246 and Entries 82 and 97 of List I of Schedule VII. |
| Violation of Article 14 | No violation | The classification of individual assessees is reasonable and has a rational nexus with the objective of curbing tax evasion. |
| Violation of Article 19(1)(g) | No violation in the main provision, but partial stay on proviso | Mandating Aadhaar for PAN and returns is not a restriction on trade. However, the penalty of invalidating PAN is disproportionate. |
| Retrospective operation of proviso to Section 139AA(2) | Not allowed | The proviso cannot be read retrospectively as it would unsettle settled rights. |
Authorities
The court considered several cases and legal provisions while arriving at its decision.
Cases:
- M.P. Sharma & Ors. v. Satish Chandra & Ors. [AIR 1954 SC 300] – Supreme Court of India
- Kharak Singh v. State of U.P. & Ors. [AIR 1963 SC 1295] – Supreme Court of India
- Ram Jawaya Kapoor v. State of Punjab [(1955) 2 SCR 225] – Supreme Court of India
- Madan Mohan Pathak v. Union of India [AIR 1978 SC 803] – Supreme Court of India
- Bakhtawar Trust v. M.D. Narayan [(2003) 5 SCC 298] – Supreme Court of India
- R.K. Dalmia v. Justice S.R. Tendolkar [(1959) SCR 279] – Supreme Court of India
- Modern Dental College and Research Centre & Ors. v. State of Madhya Pradesh [(2016) 7 SCC 353] – Supreme Court of India
- Nagpur Improvement Trust & Anr. v. Vithal Rao & Ors. [(1973) 1 SCC 500] – Supreme Court of India
- Subramanian Swamy v. Director, Central Bureau of Investigation & Anr. [(2014) 8 SCC 682] – Supreme Court of India
- State of Madhya Pradesh & Anr. v. Thakur Bharat Singh [AIR 1967 SC 1170] – Supreme Court of India
- National Legal Services Authority v. Union of India & Ors. [(2014) 5 SCC 438] – Supreme Court of India
- Sunil Batra & Anr. v. Delhi Administration & Ors. [(1978) 4 SCC 494] – Supreme Court of India
- Aruna Ramachandra Shanbaug v. Union of India & Ors. [(2011) 4 SCC 454] – Supreme Court of India
- M. Nagaraj & Ors. v. Union of India & Ors. [(2006) 8 SCC 212] – Supreme Court of India
- Gobind v. State of Madhya Pradesh [(1975) 2 SCC 148] – Supreme Court of India
- Anuj Garg v. Hotel Association of India [(2008) 3 SCC 1] – Supreme Court of India
- Dayawati v. Inderjit [(1966) 3 SCR 275] – Supreme Court of India
- Synthetics and Chemicals Ltd. & Ors. v. State of U.P. & Ors. [(1990) 1 SCC 109] – Supreme Court of India
- Goa Foundation & Anr. v. State of Goa & Anr. [(2016) 6 SCC 602] – Supreme Court of India
- State of Madhya Pradesh v. Rakesh Kohli & Anr. [(2012) 6 SCC 312] – Supreme Court of India
- Secretary to Government of Madras & Anr. v. P.R. Sriramulu & Anr. [(1996) 1 SCC 345] – Supreme Court of India
- G.C. Kanungo v. State of Orissa [(1995) 5 SCC 96] – Supreme Court of India
- Mohd. Hanif Quareshi & Ors. v. State of Bihar [AIR 1958 SC 731] – Supreme Court of India
- K.T. Plantation Private Limited & Anr. v. State of Karnataka [(2011) 4 SCC 414] – Supreme Court of India
- Municipal Corporation of Delhi v. Shiv Shanker [(1971) 1 SCC 442] – Supreme Court of India
- R. Rajagopal & Anr. v. State of Tamil Nadu & Ors. [(1994) 6 SCC 632] – Supreme Court of India
- Union of India & Ors. v. Sicom Limited & Anr. [(2009) 2 SCC 121] – Supreme Court of India
- State of A.P. & Ors. v. McDowell & Co. & Ors. [(1996) 3 SCC 709] – Supreme Court of India
- Rajbala & Ors. v. State of Haryana & Ors. [(2016) 2 SCC 445] – Supreme Court of India
- Sri Srinavasa Theatre & Ors. v. Government of Tamil Nadu & Ors. [(1992) 2 SCC 643] – Supreme Court of India
- Chiranjit Lal Chowdhuri v. Union of India & Ors. [1950 SCR 869] – Supreme Court of India
- E.P. Royappa v. State of Tamil Nadu & Anr. [(1974) 4 SCC 3] – Supreme Court of India
- PUCL v. Union of India [(2011) 14 SCC 331] – Supreme Court of India
- State of Kerala & others vs. President, Parents Teachers Association, SNVUP and Others [(2013) 2 SCC 705] – Supreme Court of India
- People’s Union for Civil Liberties (PDS Matter) v. Union of India & Ors. [(2013) 14 SCC 368] – Supreme Court of India
- People’s Union for Civil Liberties v. Union of India & Ors. [(2010) 5 SCC 318] – Supreme Court of India
- Lokniti Foundation v. Union of India & Ors. [Writ Petition (C) No. 607 of 2016] – Supreme Court of India
- Roe v. Wade [410 U.S. 113 (1973)] – United States Supreme Court
- Sharda v. Dharmpal [(2003) 4 SCC 493] – Supreme Court of India
- United States Department of Justice v. Reporters Committee for Freedom of the Press [489 U.S. 749 (1989)] – United States Supreme Court
- Jindal Stainless Ltd. & Anr. v. State of Haryana & Ors. [(2016) 11 Scale 1] – Supreme Court of India
- McCulloch v. Maryland [17 US 316 (1819)] – United States Supreme Court
- State of Madras v. N.K. Nataraja Mudaliar [AIR 1969 SC 147] – Supreme Court of India
Legal Provisions:
- Section 139AA of the Income Tax Act, 1961
- Sections 2(a), 2(c), 2(d), 2(e), 2(g), 2(h), 2(k), 2(l), 2(m), 2(n), Section 3, Section 7, Section 28, Section 29 and Section 30 of the Aadhaar Act, 2016
- Articles 14, 19(1)(g), 21, 246, 248, 372 of the Constitution of India
- Entries 82 and 97 of List-I of Schedule-VII of the Constitution of India
Authorities Considered by the Court
| Authority | Court’s View |
|---|---|
| M.P. Sharma & Ors. v. Satish Chandra & Ors. [AIR 1954 SC 300] – Supreme Court of India | Referred to for the debate on Right to Privacy but not directly applied |
| Kharak Singh v. State of U.P. & Ors. [AIR 1963 SC 1295] – Supreme Court of India | Referred to for the debate on Right to Privacy but not directly applied |
| Ram Jawaya Kapoor v. State of Punjab [(1955) 2 SCR 225] – Supreme Court of India | Followed to determine the binding nature of court orders. |
| Madan Mohan Pathak v. Union of India [AIR 1978 SC 803] – Supreme Court of India | Followed to determine the limits of legislative power to override judicial decisions. |
| Bakhtawar Trust v. M.D. Narayan [(2003) 5 SCC 298] – Supreme Court of India | Followed to determine the limits of legislative power to override judicial decisions. |
| R.K. Dalmia v. Justice S.R. Tendolkar [(1959) SCR 279] – Supreme Court of India | Followed in the context of Article 14 twin test. |
| Modern Dental College and Research Centre & Ors. v. State of Madhya Pradesh [(2016) 7 SCC 353] – Supreme Court of India | Followed to explain the doctrine of proportionality. |
| Nagpur Improvement Trust & Anr. v. Vithal Rao & Ors. [(1973) 1 SCC 500] – Supreme Court of India | Followed to explain the concept of discrimination under Article 14. |
| Subramanian Swamy v. Director, Central Bureau of Investigation & Anr. [(2014) 8 SCC 682] – Supreme Court of India | Followed to explain the concept of discrimination under Article 14. |
| State of Madhya Pradesh & Anr. v. Thakur Bharat Singh [AIR 1967 SC 1170] – Supreme Court of India | Followed to highlight the concept of limited government. |
| National Legal Services Authority v. Union of India & Ors. [(2014) 5 SCC 438] – Supreme Court of India | Followed to explain the scope of personal autonomy. |
| Sunil Batra & Anr. v. Delhi Administration & Ors. [(1978) 4 SCC 494] – Supreme Court of India | Followed to explain the meaning of “life” in Article 21. |
| Aruna Ramachandra Shanbaug v. Union of India & Ors. [(2011) 4 SCC 454] – Supreme Court of India | Followed to explain the concept of self-determination and informed consent. |
| M. Nagaraj & Ors. v. Union of India & Ors. [(2006) 8 SCC 212] – Supreme Court of India | Followed to explain the concept of Right to Dignity. |
| Gobind v. State of Madhya Pradesh [(1975) 2 SCC 148] – Supreme Court of India | Referred to in the context of the State’s burden to justify mandatory provisions. |
| Anuj Garg v. Hotel Association of India [(2008) 3 SCC 1] – Supreme Court of India | Followed to explain the ‘strict scrutiny’ test. |
| Dayawati v. Inderjit [(1966) 3 SCR 275] – Supreme Court of India | Followed to explain the impermissibility of retrospective operation without separate objects. |
| Synthetics and Chemicals Ltd. & Ors. v. State of U.P. & Ors. [(1990) 1 SCC 109] – Supreme Court of India | Followed to explain the sovereign power of the State to legislate. |
| Goa Foundation & Anr. v. State of Goa & Anr. [(2016) 6 SCC 602] – Supreme Court of India | Followed to determine the legislative power to remove the basis of a court judgment. |
| State of Madhya Pradesh v. Rakesh Kohli & Anr. [(2012) 6 SCC 312] – Supreme Court of India | Followed to explain the limited scope of judicial review in fiscal statutes. |
| Secretary to Government of Madras & Anr. v. P.R. Sriramulu & Anr. [(1996) 1 SCC 345] – Supreme Court of India | Followed to explain the wide latitude of the State in economic regulations. |
| G.C. Kanungo v. State of Orissa [(1995) 5 SCC 96] – Supreme Court of India | Followed to explain that mala fides cannot be attributed to the Parliament. |
| Mohd. Hanif Quareshi & Ors. v. State of Bihar [AIR 1958 SC 731] – Supreme Court of India | Followed to explain the presumption of constitutionality of a statute. |
| K.T. Plantation Private Limited & Anr. v. State of Karnataka [(2011) 4 SCC 414] – Supreme Court of India | Followed to explain that the plea of unreasonableness is subjective. |
| Municipal Corporation of Delhi v. Shiv Shanker [(1971) 1 SCC 442] – Supreme Court of India | Followed to explain that two statutes with different objects can run parallel. |
| R. Rajagopal & Anr. v. State of Tamil Nadu & Ors. [(1994) 6 SCC 632] – Supreme Court of India | Followed to explain the concept of ‘Right to be let alone’ and its connection to Right to Privacy. |
| Union of India & Ors. v. Sicom Limited & Anr. [(2009) 2 SCC 121] – Supreme Court of India | Followed to explain the power of judicial review of legislation. |
| State of A.P. & Ors. v. McDowell & Co. & Ors. [(1996) 3 SCC 709] – Supreme Court of India | Followed to explain the limited grounds for striking down legislation. |
| Rajbala & Ors. v. State of Haryana & Ors. [(2016) 2 SCC 445] – Supreme Court of India | Followed to explain that a statute cannot be struck down for being ‘arbitrary’. |
| Sri Srinavasa Theatre & Ors. v. Government of Tamil Nadu & Ors. [(1992) 2 SCC 643] – Supreme Court of India | Followed to explain the meaning of ‘equality before law’. |
| Chiranjit Lal Chowdhuri v. Union of India & Ors. [1950 SCR 869] – Supreme Court of India | Followed to explain that equality does not mean identical treatment in all circumstances. |
| E.P. Royappa v. State of Tamil Nadu & Anr. [(1974) 4 SCC 3] – Supreme Court of India | Referred to in the context of proportionality and Article 14. |
| PUCL v. Union of India [(2011) 14 SCC 331] – Supreme Court of India | Followed to endorse the use of Aadhaar for PDS. |
| State of Kerala & others vs. President, Parents Teachers Association, SNVUP and Others [(2013) 2 SCC 705] – Supreme Court of India | Followed to endorse the use of Aadhaar for checking bogus admissions in schools. |
| People’s Union for Civil Liberties (PDS Matter) v. Union of India & Ors. [(2013) 14 SCC 368] – Supreme Court of India | Followed to endorse the digitisation of PDS including biometric identification. |
| People’s Union for Civil Liberties v. Union of India & Ors. [(2010) 5 SCC 318] – Supreme Court of India | Followed to endorse biometric identification of homeless persons. |
| Lokniti Foundation v. Union of India & Ors. [Writ Petition (C) No. 607 of 2016] – Supreme Court of India | Followed to approve Aadhaar based verification of mobile subscribers. |
| Roe v. Wade [410 U.S. 113 (1973)] – United States Supreme Court | Referred to in the context of Right to Privacy being not absolute. |
| Sharda v. Dharmpal [(2003) 4 SCC 493] – Supreme Court of India | Referred to inthe context of Right to Privacy being not absolute. |
| United States Department of Justice v. Reporters Committee for Freedom of the Press [489 U.S. 749 (1989)] – United States Supreme Court | Referred to in the context of Right to Privacy being not absolute. |
| Jindal Stainless Ltd. & Anr. v. State of Haryana & Ors. [(2016) 11 Scale 1] – Supreme Court of India | Followed to explain the concept of ‘reasonable restriction’. |
| McCulloch v. Maryland [17 US 316 (1819)] – United States Supreme Court | Followed to explain the doctrine of ‘implied powers’. |
| State of Madras v. N.K. Nataraja Mudaliar [AIR 1969 SC 147] – Supreme Court of India | Followed to explain the interpretation of legislative entries. |
| Section 139AA of the Income Tax Act, 1961 | Upheld as constitutional, with partial stay on proviso. |
| Sections 2(a), 2(c), 2(d), 2(e), 2(g), 2(h), 2(k), 2(l), 2(m), 2(n), Section 3, Section 7, Section 28, Section 29 and Section 30 of the Aadhaar Act, 2016 | Interpreted to determine the nature and scope of the Aadhaar scheme. |
| Articles 14, 19(1)(g), 21, 246, 248, 372 of the Constitution of India | Interpreted to determine the constitutional validity of Section 139AA. |
| Entries 82 and 97 of List-I of Schedule-VII of the Constitution of India | Interpreted to determine the legislative competence of the Parliament. |
Judgment
The Supreme Court upheld the constitutional validity of Section 139AA of the Income Tax Act, 1961. The court held that the Parliament was competent to enact the law, and it did not violate Articles 14 and 19(1)(g) of the Constitution. The court found that the classification of individual assessees was reasonable and had a rational nexus with the objective of curbing tax evasion.
However, the court held that the proviso to sub-section (2) of Section 139AA, which made PAN invalid for those not having Aadhaar, was disproportionate and could not be read retrospectively. The court granted a partial stay on this proviso, stating that PAN would not be invalidated for those who do not have an Aadhaar number. The court clarified that the main provision of Section 139AA, which requires quoting Aadhaar for PAN and returns, is valid.
The court also addressed the issue of privacy, stating that the Right to Privacy is not absolute and is subject to reasonable restrictions in the interest of the State. The court acknowledged the importance of Aadhaar in ensuring efficient delivery of welfare schemes and curbing tax evasion.
Conclusion
The Supreme Court’s judgment in Binoy Viswam vs. Union of India & Ors. upheld the constitutional validity of Section 139AA of the Income Tax Act, 1961. The court found that the law was within the legislative competence of the Parliament and did not violate fundamental rights. However, the court provided relief to those who did not have Aadhaar by staying the proviso that would have invalidated their PAN.
The judgment reflects the court’s balancing act between the government’s need to collect taxes and individual rights. It also clarifies that while Aadhaar is mandatory for PAN and income tax returns, the penalty for not having Aadhaar cannot be disproportionate. This case is significant for its interpretation of the Aadhaar Act and the limits of legislative power.