Karnataka High Court has held in A Kowsalya Bai vs UOI that section 206AA is not applicable to persons where income is below exempted limit. The Karnataka High Court held in a writ petition filed chalenging the constitutional vires of section 206AA of Income Tax Act, 1961 that S.206AA of the Act is made inapplicable to persons and read down from
the Statute for whose income is less than the taxable limit.
It is notable here that section 206AA makes it compulsory for every person to furnish PAN to his deductor irrespective of his income. Even Form 15G has been made non acceptable without PAN by the provisions of section 206AA.
The High Court held that it is not in dispute that persons whose
income is below the taxable limit need not have a PAN and also they need
not furnish income tax declaration/returns. However section 206AA makes furnishing of PAN for every person mandatory irrespective of his income, which according to the High Court is against section 139A and is discriminatory in nature. Therefore High Court held section 206AA to be read as inapplicable to those whose income is below taxable limit.
The High Court in this case held as under:
The very intent of S.206AA is to make it
conditional for every person who wish to have a transaction in the bank
or financial institution including small investors/depositors,
invariably to have a PAN. This runs contrary to what has been
contemplated under S.139A of the Act which was introduced by the
Legislature in its wisdom. What is not in dispute is, persons whose
income is below the taxable limit need not have a PAN and also they need
not furnish income tax declaration/returns. Of course, under the
Finance Act, it is made clear that a person whose income is less than
the taxable limit is not taxable. Such of the small investors who come
forward to invest their savings from earnings
as security for their future, by virtue of the present S.206AA of the
Act, necessarily have to give their PAN. The poor and
illiterate/uneducated persons are finding it difficult rather to
approach the various government departments particularly the Income Tax Department
go get their PAN. At the cost of repetition, I may observe it may not
be necessary for such persons whose income is below the taxable limit to
obtain PAN. Such investments – savings from their earnings or by way of
agriculture or any other source, in banking and financial institutions
would also further the financial position from the point of the
country’s economy. But imposing condition to invariably go for a PAN on
such small depositors would cause hindrance and discourage such small
investors to come forward to invest their money for secured returns and
as security for their future. The difficulty expressed by the
petitioners and similarly placed persons is, imposing condition to
invariably go for PAN as per S.206 AA would run contrary to S.139A of
the Act. It is also their grievance that filing Form 15G to seek exemption
from deduction of income tax at source, also is not accepted by the 3rd
and 4th respondents and acted upon unless the PAN is produced.
S.139A which is introduced way back in
April 1991 is in vogue and this provision stands the scrutiny of Art.14
of the Constitution for reasonableness. But, S.206AA which is contrary
to S.139A appears to be discriminatory as if it is over riding S.139A
introduced earlier. Though the intention of the Legislature is to bring
the maximum persons under the net of income tax, when necessarily it
provides for exemption up to taxable limit, it may not insist such
persons whose income is below the taxable limit to compulsorily go for
PAN. If any mischief of avoiding of tax or any other act of concealing
the income is detected, that could be taken care of by penal provisions.
In that view of the matter, in view of
the specific provision – S.139A of the Act, S.206AA of the Act is made
inapplicable to persons and read down from the Statute for whose income
is less than the taxable limit as per the Finance Act, 1991. However, it
is made clear, S.206AA of the Act would of course, be made applicable
to persons whose income is above the taxable limit. The banking and
financial institutions shall not invariably insist upon PAN from such
small investors like the petitioners as well as from persons who intend
to open an account in the bank or financial institution.
Full Text of the Judgement is as follows:
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
Dated this the 5th day of June, 2012
Before
THE HON’BLE MR JUSTICE HULUVADI G RAMESH
Writ Petitions 12780 – 12782 / 2010 (T)
Between:
1 Smt A Kowsalya Bai, 58 yrs
W/o A S Lakshmana Rao
R/a # 2270, II Main, 4th Cross
RPC Layout, Hampinagar
Bangalore 560 040
2 Smt Parvathamma, 52 yrs
W/o Sri Basavaraj, R/a # 2791
II A Main, 6th Cross, Rajajinagar
Bangalore 10
3 Smt Sarvamangala, 58 yrs
W/o SriSiddappa, R/a # 58
7th Main, 3rd Cross, Vijayanagar
Bangalore 40 Petitioners
(By Sri Udaya Holla, Sr. Adv. For
M/s Holla & Holla, Adv.)
And:
1 Union of India – by its Secretary
Ministry of Finance, North Block
New Delhi
2 Chairman
Central Board of Direct Taxes
North Block, New Delhi
3 M/s Shriram Transport Finance Co Ltd
# 123, Angapanaikan Street
Chennai 600 001
4 M/s Shriram City Union Finance Ltd
# 123, Angapanaikan Street
Chennai 600 001 Respondents
(By Sri M V Seshachala, Adv. For R1-2;
Sri K Prasanna Shetty, Adv. For R3,4)
Writ Petitions are filed under
Art.226/227 of the Constitution praying to declare that S.206AA of the
Income Tax Act, 1961 is unconstitutional, etc.
The Petitions coming on for hearing this day, Court made the following:
ORDER
These petitions have been filed seeking for a declaration
that S.206 AA of the Income Tax Act, 1961 is unconstitutional and for
costs. It is stated, petitioners are small investors. For depositing
their savings out of their meagre income, they approached respondents 3
and 4, for earning better
interest/returns. They do not have any source of income other than their
investment. It is also stated specifically, they do not have income
exceeding the maximum taxable limit as per S.139 A of the Act.
Petitioners even filed Form 15 G as
required under S.197 A of the Act to enable the 3rd and 4th respondents
not to deduct tax at source as per S.193 of the Act.
According to the petitioners, the 3rd
and 4th respondents have informed the petitioners that even Form 15 G
filed by them cannot be accepted for the purpose of exemption
from deduction unless their Permanent Account Number (PAN) is
communicated, pursuant to the amendment to S.206AA of the Finance Act,
2009 based on which the 3rd and 4th respondents insisted for
furnishing of PAN. The grievance of the petitioners is, persons like
them (individual investors) are not assessees and not assessed to income
tax The Parliament also being aware of the plight of such people who
are not assessed to income tax but who invest their money for the
purpose of survival and eking out their livelihood and that deduction of
tax at source on such small investments
would cause undue hardship, introduced S.139 A1(i) of the Act in the
year 1995 which enables such persons not assessable to income tax to
file a declaration to that effect in the prescribed format, by which
income tax would be deducted at source. S.206AA which is introduced has
come into effect from 1.4.2010 as per Finance Act 2/2009, has a
overriding provision to furnish PAN and as a consequence of which,
persons who do not have assessable income are now compelled to obtain
PAN or otherwise, the tax could be
deducted as specified. The grievance of the petitioners is, such a
provision would cause great hardship and inconvenience. The introduction
of S.206 AA is arbitrary and violative of Art.14 of the Constitution
and accordingly, they pray to strike down the very S.206AA of the Act as
unconstitutional.
Heard the Sr. Counsel representing the
petitioners and the counsel representing the respondents. It may be
relevant at this juncture to extract the provisions of S.139A(1) and
S.206AA of the Act which read:
S.139A(1): Every person -
(i) if his
total income or the total income of any other person in respect of which
he is assessable under this Act during any previous year exceeded the
maximum amount which is not chargeable to income tax; or
(ii) carrying on
any business or profession whose total sales, turn over or gross
receipts are or is likely to exceed five lakh rupees in any previous
year; or
(iii) who is required to furnish a return of income under sub-section (4A) of S.139; or
(iv) being an
employer, who is required to furnish a return of fringe benefits under
S.115 WD and who has not been allotted a permanent account number shall,
within such time as may be prescribed, apply to the Assessing Officer
for the allotment of a permanent account number.
S.206AA: Requirement to furnish permanent account number
(1) Notwithstanding
anything contained in any other provisions of this Act, any person
entitled to receive any sum or income or amount, on which tax is
deductible under Chapter XVIIIB (hereafter referred to as deductee)
shall furnish his Permanent Account Number to the person responsible for
deducting such tax (hereafter referred to as deductor), failing which
tax shall be deducted at the higher of the following rates, namely -
(i) at the rate specified in the relevant provisions of this Act; or
(ii) at the rate or rates inforce; or
(iii) at the rate of twenty percent.
(2) No declaration under sub-section(1)
or sub-section (1A) or subsection (1C) of S.197A shall be valid unless
the person furnishes his PAN in such declaration.
(3) In case any declaration becomes
invalid under sub-section (2), the deductor shall deduct the tax at
source in accordance with the provisions of sub-section (1).
(4) No certificate under S.197 shall be granted unless the application made under that section contains the PAN of the applicant.
(5) The deductee shall furnish his PAN
to the deductor and both shall indicate the same in all the
correspondence, bills, vouchers and other documents which are sent to
each other.
(6) Whether the PAN provided to the
deductor is invalid or does not belong to the deductee, it shall be
deemed that the deductee has not furnished his PAN to the deductor and
the provisions of sub-section (1) shall apply accordingly.
The very intent of S.206AA is to make it
conditional for every person who wish to have a transaction in the bank
or financial institution including small investors/depositors,
invariably to have a PAN. This runs contrary to what has been
contemplated under S.139A of the Act which was introduced by the
Legislature in its wisdom. What is not in dispute is, persons whose
income is below the taxable limit need not have a PAN and also they need
not furnish income tax declaration/returns. Of course, under the
Finance Act, it is made clear that a person whose income is less than
the taxable limit is not taxable. Such of the small investors who come
forward to invest their savings from earnings
as security for their future, by virtue of the present S.206AA of the
Act, necessarily have to give their PAN. The poor and
illiterate/uneducated persons are finding it difficult rather to
approach the various government departments particularly the Income Tax Department
go get their PAN. At the cost of repetition, I may observe it may not
be necessary for such persons whose income is below the taxable limit to
obtain PAN. Such investments – savings from their earnings or by way of
agriculture or any other source, in banking and financial institutions
would also further the financial position from the point of the
country’s economy. But imposing condition to invariably go for a PAN on
such small depositors would cause hindrance and discourage such small
investors to come forward to invest their money for secured returns and
as security for their future. The difficulty expressed by the
petitioners and similarly placed persons is, imposing condition to
invariably go for PAN as per S.206 AA would run contrary to S.139A of
the Act. It is also their grievance that filing Form 15G to seek exemption
from deduction of income tax at source, also is not accepted by the 3rd
and 4th respondents and acted upon unless the PAN is produced.
S.139A which is introduced way back in
April 1991 is in vogue and this provision stands the scrutiny of Art.14
of the Constitution for reasonableness. But, S.206AA which is contrary
to S.139A appears to be discriminatory as if it is over riding S.139A
introduced earlier. Though the intention of the Legislature is to bring
the maximum persons under the net of income tax, when necessarily it
provides for exemption up to taxable limit, it may not insist such
persons whose income is below the taxable limit to compulsorily go for
PAN. If any mischief of avoiding of tax or any other act of concealing
the income is detected, that could be taken care of by penal provisions.
In that view of the matter, in view of
the specific provision – S.139A of the Act, S.206AA of the Act is made
inapplicable to persons and read down from the Statute for whose income
is less than the taxable limit as per the Finance Act, 1991. However, it
is made clear, S.206AA of the Act would of course, be made applicable
to persons whose income is above the taxable limit. The banking and
financial institutions shall not invariably insist upon PAN from such
small investors like the petitioners as well as from persons who intend
to open an account in the bank or financial institution
.
With the above observations, petitions are allowed.
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