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India: Supreme Court Upholds Mandatory Use of Biometric Identification for Filing Taxes and Tax Account Applications

(July 21, 2017) India’s Supreme Court, on June 9, 2017, upheld the constitutional validity of section 139AA of the Income Tax Act, 1961, which made the Act’s biometric-based identification project, Aadhaar, mandatory for filing income tax returns and applying for Permanent Account Numbers (PANs). (Binoy Viswam v. Union of India & Ors., (2017), Supreme Court website; Centre for Communication Governance – National Law University, Delhi, Supreme Court Upholds Law Linking Aadhaar with PAN, Legally India website (June 10, 2017); Anviti Chaturvedi, Overview of the Legal Issues Around Aadhaar, Legally India website (June 10, 2017); Income Tax Act, 1961, as amended, sec. 139AA, Government of India Income Tax Department website.) PANs are account numbers issued in the form of laminated cards and used for all transactions and correspondence with the Income Tax Department. (About PAN, Government of India Income Tax Department website (last visited July 13, 2017).) However, the Court’s ruling exempts PAN holders who are not yet enrolled in Aadhaar from the provision under section 139AA(2) of the Act, which requires PAN holders to use Aadhaar numbers, until constitutional challenges to Aadhaar have been settled. (Supreme Court Upholds Law Linking Aadhaar with PAN, supra.)

The Court rejected arguments that in seeking to address tax fraud committed solely by individuals, the new provision discriminated between individuals and companies, firms, and trusts, which are not required to obtain an Aadhaar number. (Id.)  The Court also held that, despite evidence demonstrating that people had multiple Aadhaar numbers, Aadhaar was still the best method of addressing tax fraud through duplicate PANs and that the rationale for linking the PAN database with Aadhaar was sound.  (Chaturvedi, supra.)

Background on Aadhaar Program

The Aadhaar program was initiated in 2009 to prevent the payment of benefits and subsidies to ineligible beneficiaries resulting from the duplication or forging of the identity proofs (ration cards, driver’s licenses, or voter IDs) required for access to government benefits, subsidies, and services. The program received legislative backing with Parliament’s passage of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (Aadhaar Act), which enabled mandating Aadhaar’s use by the central and state governments and private organizations and persons for any service or benefit. (Id.; Supreme Court Upholds Law Linking Aadhaar with PAN, supra; Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, GAZETTE OF I NDIA, pt. 2 sec. 1 (Mar. 26, 2016), Unique Identification Authority of India (UIDAI) website.)

However, the passage of this Act put in question the status of various interim Supreme Court orders directing that Aadhaar must remain voluntary until several petitions challenging the constitutionality of the Aadhaar project are conclusively decided. (Supreme Court Upholds Law Linking Aadhaar with PAN, supra.) This issue was further complicated when, in 2017, Parliament passed the Finance Act to amend the Income Tax Act and made Aadhaar mandatory for filing income tax returns and applying for PANs. (Chaturvedi, supra; Finance Act, 2017, GAZETTE OF INDIA, pt. 2 sec. 1 (Mar. 31, 2017), Tax India Online website.)

Key Legal Issues

The Supreme Court has yet to decide whether privacy is a fundamental right under article 21 of the Indian Constitution and whether Aadhaar violates this right for lack of adequate safeguards in the collection of identity data. (Chaturvedi, supra; Constitution of India (as of Nov. 9, 2015), art. 21, Ministry of Law and Justice website.) The Court will also be ruling on the constitutionality of government notifications issued under the Aadhaar Act that make Aadhaar mandatory for various programs.  (Chaturvedi, supra.) Finally, the Court must rule on challenges to the Aadhaar Act based on the argument that the Act, which was passed as a “money bill,” does not qualify as a money bill because it contains provisions unrelated to government taxation and expenditure. (Id.)

Criticism of the Ruling

Critics of the ruling have argued that section 139AA’s exclusion of juristic entities such as companies, which are not required to obtain Aadhaar numbers, “would fail to address the government’s stated objectives of weeding out fake [PAN] cards and curbing black money.” (Supreme Court Upholds Law Linking Aadhaar with PAN, supra.)  These critics also note that the Court’s view that the failure to identify beneficiaries is a primary reason for “leakages in subsidies” has been repeatedly debunked by researchers.  (Id.)

In addition, with regard to limiting relief to those who have not yet enrolled in Aadhaar, critics claim that, “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.” (Id.)  However, the critics were heartened by the Court’s assertions that the Aadhaar Act would ultimately need to pass the “more stringent test” of whether “the collection of identity data without adequate safeguards interferes with the fundamental right to privacy protected under Article 21 of the Constitution[,] . . . [which] guarantees right to life and personal liberty,” and that taking appropriate measures to address data leaks was essential. (Id.; Chaturvedi, supra; Constitution of India, art. 21.)

A five-judge Constitution Bench of the Supreme Court heard the case concerning whether the mandatory use of Aadhaar violates a fundamental right to privacy on July 18–19, 2017. India’s Attorney General, Mukul Rohatgi, said that, as a result of previous inconsistent judgments by six- and eight-judge benches regarding the right to privacy, elaborate debate and an authoritative pronouncement were required to resolve the issue. (Aadhaar Privacy Issue: Supreme Court’s 5-Judge Constitution Bench to Hear Case on 18 July, FIRSTPOST (July 12, 2017).) It is expected that once the privacy issue has been decided, other cases related to Aadhaar will be resolved.  (Id.)