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January 25, 2021

Can Proviso to Section 139AA which renders PAN as void ab initio be read retrospectively?

by CA Shivam Jaiswal in Income Tax

Can Proviso to Section 139AA which renders PAN as void ab initio be read retrospectively?

An Aadhaar card is a unique number issued to every citizen in India and is a centralised and universal identification number. The Aadhar card is a biometric document that stores an individual’s personal details in a government database, and is fast becoming the government’s base for public welfare and citizen services. It can be used for a number of purposes, making it a universally acceptable government-issued card, without needing to register or apply for a separate card for each of these services.

According to Section 139AA of the Income Tax Act, every person who is eligible to obtain Aadhaar number shall, on or after the 1st of July, 2017, quote Aadhaar number

  • in the application form for allotment of permanent account number
  • in the return of income:

If the person does not possess the Aadhaar Number, the Enrolment ID of Aadhaar application form issued to him at the time of enrolment shall be quoted in the application for permanent account number or, as the case may be, in the return of income furnished by him.

Every person who has been allotted permanent account number as on the 1st of July, 2017, and who is eligible to obtain Aadhaar number, shall intimate his Aadhaar number to such authority in such form and manner as may be prescribed, on or before a date to be notified by the Central Government in the Official Gazette

In case of failure to intimate the Aadhaar number, the permanent account number allotted to the person shall be deemed to be invalid and the other provisions of this Act shall apply, as if the person had not applied for allotment of permanent account number.

The provisions of this section do not apply to such person or class or classes of persons or any State or part of any State, as may be notified by the Central Government in this behalf, in the Official Gazette.

Let us refer to the case of Binoy Viswam v. UOI (2017), where the issue under consideration was whether proviso to section 139AA(2) which rendered PAN void ab initio for failure to intimate Aadhaar number applied with retrospective effect?

Facts of the Case:

  • Section 139AA of the Income-tax Act, 1961, inserted by the amendment to the said Act vide Finance Act, 2017, which mandates quoting of Aadhaar number in the PAN application forms as well as in the income-tax returns with effect from 1-7-2017.
  • The proviso to the section provided for the rendering of PAN as void ab initio for failure to comply with the requirements of the section.
  • The writ petition filed by the petitioner, who claimed to be pubic spirited person, challenged the constitutional validity of Section 139AA of the Income Tax Act, 1961

Observations of the Supreme Court (SC)

  • Section 139AA made it compulsory for the assessee’s to give Aadhaar number.
  • This meant that as far as income tax assessee’s were concerned, they had to necessarily enrol themselves under the Aadhaar Act and obtain Aadhaar number which would be their identification number as that had become the requirement under the Income-tax Act.
  • The competence of the Parliament could not be questioned on the ground that it was impermissible only because under Aadhaar Act, the provision was directory in nature.
  • It was the prerogative of the Parliament to make a particular provision directory in one statute and mandatory/compulsory in other.
  • That by itself could not be a ground to question the competence of the legislature
  • The provision was aimed at seeding Aadhaar with PAN.
  • One of the main objectives was to de-duplicate PAN cards and to bring a situation where one person was not having more than one PAN card or a person was not able to get PAN cards in assumed/fictitious names.
  • In such a scenario, if those persons who violated section 139AA without any consequence, the provision would be rendered toothless.
  • It was the prerogative of the Legislature to make penal provisions for violation of any law made by it.
  • The requirement of giving Aadhaar enrolment number to the designated authority or stating this number in the income tax returns was directly connected with the issue of duplicate/fake PANs.
  • As the requirements of section 139AA, found as not violative of Articles 14 and 19, there had to be some provision stating the consequences for not complying with the requirements of section 139AA.
  • However, as far as existing PAN holders were concerned, since the impugned provisions were yet to be considered in the context of Article 21 of the Constitution, and was to be decided by the Constitution Bench a partial stay of the aforesaid proviso was necessary
  • If failure to intimate the Aadhaar number rendered PAN void ab initio with the deeming provision that the PAN allotted would be invalid as if the person had not applied for allotment of PAN would have rippling effect of unsettling settled rights of the parties.
  • It had the effect of undoing all the acts done by a person on the basis of such a PAN.
  • It could even have the effect of incurring other penal consequences under the Act for earlier period on the ground that there was no PAN registration by a particular assessee.
  • The rights which were already accrued to a person in law could not be taken away.

In conclusion, the proviso to section 139AA(2) provided for the rendering of PAN as void ab initio for failure to comply with the requirements of the section, could not be read retrospectively as it took away vested rights. It would only have prospective effect.

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