Linkage of Aadhaar Card with PAN while Filing of the Income Tax Returns

Practice Areas

By Hansa Patel

The Hon’ble Supreme Court in its judgment dated 9th June 2017 upheld Section 139AA of the Income Tax Act, 1961. The aforesaid provision mandates the quoting of Aadhaar number for filing of income tax returns and in the application form for a Permanent Account Number (PAN).

Every person who has been allotted permanent account number (PAN) as on 1st day of July, 2017, and who is eligible to obtain Aadhaar number is to intimate his Aadhaar number and 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 the Act shall apply, as if the person had not applied for allotment of permanent account number. Those who have applied for an Aadhaar number, the Enrolment ID of Aadhaar application form is to be quoted at the time of filing of the income tax returns.

Impact of Aadhaar and its Linkage to PAN

 Mentioned below are the impacts as noticed by the apex Court:

  • The various welfare schemes for which the Government sets aside large amount of funds are unable to reach the socially and economically backward classes. One of the main reasons is due to the failure to identify these persons for lack of means by which identity could be established of such genuine needy class. Resultantly, lots of ghosts and duplicate beneficiaries are able to take undue and impermissible benefits. The UID scheme will be able to help out in this aspect.
  • Our country’s economic progress is severely affected by the corruption and black money situation. The Special Investigation Team (SIT) and CBDT both have suggested that the UID scheme and linking of PAN to the Aadhaar will prevent people from entering into the financial world using other means of identification which can be easily duplicated. CBDT also says that this would prevent black money and money laundering through shell companies which are held by people through multiple PANs under different names.
  • A large section of the citizens are concerned about the security of the data and the possibility of a data leak. The court has directed the Government to address such concerns by taking proper measures and instilling confidence among the public at large that it is highly unlikely for an unauthorized data leak to occur.

Decision of the Court & Conclusion

  • The Court clearly stated that, under the Aadhaar (Targeted Delivery of Financial and other Subsidies, benefits and services) Act, 2016, it is voluntary to obtain the Aadhaar number in order to claim the benefits of various welfare schemes but when it comes to Income Tax Act, Aadhaar is compulsory. Those who are not PAN holders are required to quote their Aadhaar number when applying for one as given under sub-section (1) of Section 139AA, which has been upheld by the Hon’ble Supreme Court.
  • Since the provisions are yet to be considered with regard to Article 21 of the Constitution and the debate around Right to Privacy and human dignity are yet to be decided in front of a Constitution Bench, a partial stay has been ordered on the provision. Thus, those who have already enrolled with the Aadhaar scheme will be required to comply with sub section (2) of the provision, which mandates intimating of the Aadhaar number to the concerned authorities for the purpose of linking the Aadhaar number with the PAN.
  • However, the Court was clear in stating that those assesses who are not Aadhaar card holders and do not comply with the above-mentioned provision, their PAN cards will not be treated as invalid for the time being till the decision on Article 21 is pending before the Constitution Bench. This step has been taken by the Court to avoid any interference with the day-to-day dealings of the people till a decision pertaining to interpretation of Article 21 in this matter is taken up by the Constitution Bench.