{"id":239108,"date":"2020-11-15T10:00:08","date_gmt":"2020-11-15T04:30:08","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=239108"},"modified":"2020-11-15T10:54:50","modified_gmt":"2020-11-15T05:24:50","slug":"right-to-privacy-vis-a-vis-tax-information","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2020\/11\/15\/right-to-privacy-vis-a-vis-tax-information\/","title":{"rendered":"Right to Privacy vis-\u00e0-vis Tax Information"},"content":{"rendered":"

In 2017, the Supreme Court originated the new fundamental right – right to privacy – by interpreting Article 21 of the Constitution of India.[1]<\/a> The Supreme Court in its detailed order explains the various facets of privacy, one of which is informational privacy. On the same occasion, the Court laid out a test that can be used to check if any activity of the State violates the right to privacy. In this article, we would delve into one such act of the State.<\/p>\n

The Central Government issued a Notification[2]<\/a> on 31-8-2020 and specified \u201cScheduled Commercial Banks\u201d as a \u2018body\u2019 under Section 138(1)(a)(ii) of the Income Tax Act, 1961[3]<\/a> that has been empowered to seek any information with regards to an assessee from the data repository of the tax authorities.<\/p>\n

It is pertinent to mention that prior to the aforesaid notification, only statutory and governmental authorities like SEBI, MCA and the likes were notified and, in consequence, legally permitted to obtain relevant information in connection with an assessee from taxation authorities. Also, the Government had specified in the notifications the types of information and procedures for request of information and its furnishing by the tax authorities (under certain circumstances). The notifications dictated the broad contours of limitations and mechanism for the exchange of taxation data by the tax authorities.<\/p>\n

The term “Scheduled Commercial Banks” is defined under Section 2(e) of the Reserve Bank of India Act, 1934[4]<\/a> which includes all types of the bank i.e. public, private and international banks. The current number of banks listed under the said Schedule is 225.<\/p>\n

Prior to the Notification dated 31st<\/sup> August, the Scheduled Commercial Banks had to take recourse to Section 138(1)(b) of the Income Tax Act which essentially provides for making an application to the income tax authorities for obtaining the particular piece of information from any income tax authorities. Such application was given due consideration on a case-to-case basis.<\/p>\n

Now the big question arises as to \u201cWhether the furnishing of tax information of any individual to banks without the consent of individuals concerned, or assessees (in the parlance of the Income Tax Act), violates the right to privacy under Article 21?\u201d<\/p>\n

Before analysing the above question, we need to first examine whether the information obtained by the tax authorities is personal enough and ought to receive the protection of the right to privacy that has been recognised as a fundamental right by the Supreme Court in\u00a0 K.S. Puttaswamy<\/em>\u00a0 v. Union of India<\/em> [5]<\/a>(Privacy judgment).<\/p>\n

There are various examples in both regulations and judicial pronouncements conferring tax information as an intrinsic part of one’s privacy. For the purposes of our inquiry, regulations and judicial pronouncements ought to be looked at and there is sufficient jurisprudence to conclude that tax information forms a part and parcel of one\u2019s privacy. \u00a0For example, the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011[6]<\/a> which includes \u2018financial information\u2019 as part of \u201csensitive personal data or information\u201d in Rule\u00a0 3.<\/p>\n

As for the judicial pronouncement, R.F Nariman, J. in the Privacy judgment[7]<\/a> penned \u201cTaxation laws which require the furnishing of information certainly impinge upon the privacy of every individual which ought to receive protection.\u201d<\/em><\/p>\n

In Girish Ramchandra Deshpande v. Central Information Commr.<\/em>[8]<\/a>, the Supreme Court held:<\/p>\n

\u201c<\/em>13.<\/em><\/strong>\u00a0The details disclosed by a person in his income tax returns are \u201cpersonal information\u201d which stand exempted from disclosure under clause (j) of Section 8(1) of the RTI Act<\/em>\u201d<\/em><\/p>\n

The abovementioned regulation and judgment beg the point that information furnished to tax authorities falls inside the ambit of private information. However, it must be stressed sufficiently that, there is no explicit mention of \u201ctax information\u201d as part of sensitive personal data in any of the legislation. Also, the Data Protection Bill, 2019[9]<\/a> \u00a0introduced in Parliament in the monsoon session does not include tax information as part of financial data or \u2018sensitive personal data\u2019. This is a clear omission by the legislators and speaks volumes of the legislative intent. Now prima facie<\/em> any prudent person can deduce that this is a clear invasion of privacy of the taxpayer.<\/p>\n

In the Privacy judgment[10]<\/a>, the Supreme Court of India introduced the three-fold requirement for any law\/regulation to invade the right of life and privacy. The three-fold requirement is:<\/p>\n

    \n
  1. Legality, which postulates the existence of law – it is clear that no specific legislation has been passed by Parliament on sharing the data with the scheduled commercial banks rather a gazette notification has been published to this effect. The gazette notification is a method of publication and giving effect to the particular Act\/ Rule\/Order and it cannot, in itself held to be the existence of law. The Supreme Court in T.C. Bhadrachalam Paperboards<\/em> v. Mandal Revenue Officer<\/em>[11]<\/a> held:<\/li>\n<\/ol>\n

    \u201c<\/em>The object of publication in the Gazette is not merely to give information to the public. Official Gazette, as the very name indicates, is an official document. It is published under the authority of the Government. Publication of an order or rule in the Gazette is the official confirmation of the making of such an order or rule. The version as printed in the Gazette is final.\u201d<\/em><\/p>\n

    The two takeaways from the above judgment are that gazette notification is to provide information to the public about the Act\/Rule and secondly, it acts as an official document, nothing more nothing less.<\/p>\n

    Thus, the requirement of the existence of law is not met.<\/p>\n

      \n
    1. Need, defined in terms of the legitimate State aim or larger public interest. Section 138(1)(a) provides the sharing of information to enable officers, authorities, and bodies to perform his\/her duties under that law. The officers, authorities, and bodies are notified by the Central Government which in its opinion is necessary for “public interest”.<\/li>\n<\/ol>\n

      The notification in question does not specify any “public interest” that it aims to achieve, nor does it point out how to achieve that public interest.<\/p>\n

      As for any duties to be performed under law, the commercial banks are governed by the Reserve Bank of India Act, 1934, and the Banking Regulation Act, 1949[12]<\/a>. Both these statutes do not cast any correspondent duty or requirement on the bank to collect or gather data from the tax authorities.<\/p>\n

      Generally, the objects and aim of any Act are mentioned before the starting of any Act\/statute. The object and aims show the intention of the legislature in passing that Act. Since no specific legislation has been passed in this case, it cannot be found out what the actual aim is.<\/p>\n

      We can draw a logical analogy provided by Union of India in Aadhar case[13]<\/a> where the Attorney General contended that the Aadhar Act aims to provide subsidies to the real beneficiary directly into their bank accounts – the public interest – which is \u00a0provided under Section 7 of the Act.<\/p>\n

      Thus, it is quite clear that both Section 138 and the Notification dated 31st<\/sup> August do not provide any legitimate State aim to provide the information to scheduled commercial banks. The section and notification are vague and ambiguous as to what to achieve.<\/p>\n