Facts

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.

Issue

Whether proviso to section 139AA(2) which renders PAN void ab initio for failure  to intimate Aadhaar number applies withretrospective effect?

Views

Section 139AA makes it compulsory for the assessees to give Aadhaar number which means insofar as income tax assessees are concerned, they have to necessarily enrol themselves under the Aadhaar Act and obtain Aadhaar number which will be their identification number as that has become the requirement under the Income-tax Act.

The competence of the  Parliament  cannot be  questioned on  the  ground that it  is  impermissible only because under Aadhaar Act, the provision is  directory   in nature. It is the prerogative of the Parliament to make a particular provision directory in one statute and mandatory/compulsory in other. That by itself cannot be a ground to question the competence of the legislature.

The provision is aimed at seeding Aadhaar with PAN.  One of the main objectives  is to de-duplicate PAN cards and to bring a situation where one person is not having more than one PAN card or a person is not able to get PAN cards in assumed/fictitious names. In such a scenario, if those persons who violate section 139AA without any consequence, the provision shall be rendered toothless. It is  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 is 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 have to be some provision stating the consequences for not complying with the requirements of section 139AA. However, as far as existing PAN holders are concerned, since the impugned provisions are yet to be considered in the context of Article 21 of the Constitution, and is to be decided by the Constitution Bench a partial stay of the aforesaid proviso is necessary.

If failure to intimate the Aadhaar number renders 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 has the effect of undoing all the acts done by a person       on the basis of such a PAN. It may have even 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 are already accrued to  a person in law cannot be taken away.

Held

The proviso to section 139AA(2) cannot be read retrospectively as it takes away vested rights. It will only have prospective effect. (WP(C) No. 247 of 2017/277 of 207/304 of 2017 dt. 9-6-2017)

Editorial : In Hussain Indorewala v. UOI (2018) 408 ITR 338/303 CTR 641/168 DTR 113/257 Taxman 465 (Bom.)(HC) held that in case the system does not accept the return the assesssee is at liberty to file their return of income in physical form with jurisdictional Assessing Officer.

“Fear of disease killed more men than disease itself.”

– Mahatma Gandhi