The Supreme Court delivered its judgment in the constitutional challenge to Section 139AA of the Income Tax Act today. Brought in by way of an amendment in April this year, this provision made it mandatory for all taxpayers to quote their Aadhaar number when applying for a Permanent Account Number (PAN) and for filing returns of income. Failure to link one’s PAN with Aadhaar would automatically invalidate the former.

BACKGROUND:

It is important to recall that this amendment was passed at a time when several petitions challenging the constitutionality of the Aadhaar project continue to be pending before the Supreme Court. Through various interim orders, the Court has repeatedly directed that Aadhaar must remain voluntary till the petitions are conclusively decided. In 2015, a three-judge bench felt that there was some ambiguity in the Supreme Court’s jurisprudence on the right to privacy (which the petitions rely on), and referred the matter to a larger bench. This bench is yet to be constituted. These orders were passed before the Parliament passed the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act in 2016 (Aadhaar Act). With the passage of the Aadhaar Act, the status of the interim orders has been put in question, with the government claiming that it is free to mandate Aadhaar for any service or benefit.

In the context of the Aadhaar-PAN petitions, the pending reference on the issue of privacy is important as it severely curtailed the grounds for challenge available to the petitioners. Forced to give up arguments on privacy, the submissions in this case were largely limited to the issue of bodily integrity and the right to equality. Arguments were also made on the grounds that the introduction of Section 139AA of the Income Tax Act violates Articles 14 and 19 of the Constitution of India.

However, in its judgement today, the Court has construed privacy extremely broadly. The Court excluded all arguments made on bodily integrity, dignity and the right to informational self-determination, on the basis that these concepts are linked to privacy.

THE DECISION:

The Court upheld s. 139AA, making it mandatory for taxpayers to quote their Aadhaar while filing returns of income. However, for existing PAN holders who are not yet enrolled and do not have an Aadhaar number, the proviso under s. 139AA(2) has been stayed till the Constitution Bench decides the pending writ petitions challenging Aadhaar. This stay would not benefit those who have already obtained an Aadhaar number.

The Court justifies this partial stay on the ground that the consequences for non-compliance are severe, and individuals should not be made to suffer till the main matter attains finality.

The Court also read down the proviso to s. 139AA(2) which creates a legal fiction by which non-linking of the PAN with the Aadhaar number would result in penal provisions under the Income Tax Act applying ‘as if the person had not applied for the allotment of the PAN’. The Court held that these provisions could only apply prospectively.

DECISION ON SPECIFIC GROUNDS:

I. Legislative Competence:

a) Legislature lacked authority to pass a law contrary to judgments of the Supreme Court (the interim orders) without removing its basis – The court held that these orders were passed in the absence of any statutory scheme (and hence, lacked a basis). Further, it held interim orders could not preclude the Parliament from passing such a law.

b) Aadhaar Act itself was voluntary, and therefore, s. 139AA could not indirectly make it mandatory – The Court categorically holds that enrolment under Aadhaar is voluntary. However, it leaves open the question whether the government could make the number mandatory for receipt of benefits under Section 7, observing that is was squarely within the ambit of the pending writ petitions.

The Court went on to reject the contention the legislature could not make Aadhaar mandatory under s. 139AA, holding that the purpose behind the statute was entirely different from that of the Aadhaar Act. It accepts the efficacy of Aadhaar in solving stated objectives such as money laundering and black money based solely on the Parliament’s wisdom.

II. Article 14 –

It was argued that s. 139AA drew an arbitrary distinction between assesses who were individuals and others such as partnership firms, companies and trusts etc. as the latter were not required to obtain an Aadhaar number. Excluding juristic entities such as companies would fail to address the government’s stated objectives of weeding out fake cards and curbing black money.

The Court outlined the twin tests under Article 14 – that there must be a reasonable classification founded on intelligible differentia and this must have a rational nexus with the object sought to be achieved. It rejected the contention that mandating Aadhaar only for individuals could not achieve the desired purpose. What is surprising is that in reaching this conclusion, the Court accepts without question, the efficacy of Aadhaar to successfully de-duplicate PAN cards. This is despite the fact that the petitioners brought to light several instances of private enrollers mismanaging data and the cancellation of lakhs of cards for biometric and other errors.

III. Article 19(1)(g)

The petitioners had argued that the penal consequences associated with non-compliance were draconian and completely disproportionate, affecting individuals’ rights to carry on their business or profession. In dealing with the submission on proportionality, the Court focused on s. 139AA(2), which prescribes the penalty for non-compliance. The Court observed that several routine activities in course of any business required PAN. It held that invalidating one’s PAN would restrict the freedom to carry on trade enshrined under Article 19(1)(g). The Court then undertakes a lengthy discussion on the objective of Aadhaar to determine the reasonableness of the restriction.

The Court’s analysis in this section is astonishing. Without having presented any evidence to support or deny such a claim, the Court observes that failure to identify beneficiaries is ‘one of the main reasons’ for leakages in subsidies. (In fact, researchers have repeatedly questioned and de-bunked this assertion). The Court also fails to note the RTI reply cited by the petitioners, pointing out that 99.7% of persons enrolled for Aadhaar already had two other identity proofs. The judgment also makes bald assertions, referring to Aadhaar as the ‘most advanced and sophisticated infrastructure’, and hints at its use ‘to take care of problem of terrorism to some extent’ and also to check ‘crimes and also help investigating agencies in cracking the crimes’. It is worth pointing out that it is exactly this sort of mission creep that makes Aadhaar an extremely worrisome project.

The Court holds that it is the prerogative of the legislature to make penal provisions for violating a law, but does not explicitly comment on the reasonableness of the restriction.

ANALYSIS:

Limiting the relief to those who have not yet enrolled for Aadhaar is questionable for two reasons –

1. As per the government’s submissions, 98-99% of the adult population already has an Aadhaar number, and therefore this decision only protects a miniscule minority of the population. Additionally, limiting relief to those who have managed to remain outside the system overlooks the fact that many were coerced to enrol (as essential services or benefits were made contingent on it). It also overlooks that instances of data leaks came to light only recently, prompting several citizens to have second thoughts about the project only after they had enrolled. But most importantly, the judgment ends up protecting only those who are privileged enough to not depend on the state for benefits and services, and have thus managed to remain un-enrolled.
2. Rejecting the Article 14 challenge, the Court had held that there could be no distinction between assesses who had ‘voluntarily’ enrolled for Aadhaar, and those who hadn’t or did not wish to. The legal regime had to apply uniformly to all individual assesses, it held. It is perplexing then for the Court to make the same distinction at the time of the final order, without any cogent reasons.

However, despite the limited relief, there is a silver lining in this judgment – the Court observed that it had not addressed any of the objections based on Article 21 of the Constitution, and the statute was being upheld subject to Aadhaar passing this ‘more stringent test’. At several places, the judgment makes note of these ‘important’ issues and hopes for their proper adjudication.

The judgment also notes the petitioners’ concerns regarding data leaks and observes that appropriate measures to address this are essential.

Disclosure: The author assisted the petitioners’ (Maj. Gen. Vombatkere and Mr. Bezwada Wilson) lawyers on specific occasions during the course of the hearing.