[Smt. A. Kowsalya Bai v. UOI, 22 Taxman.com 157 (Kar.)]
Considering the constitutional validity of section 206AA of the Income-tax Act, 1961, the Karnataka High Court held as under: “
(i) The very intent of section 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 u/s.139A 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.
(ii) Such of the small investors who come forward to invest their savings from earnings as security for their future, by virtue of the present section 206AA 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 to get their PAN.
(iii) It is, therefore, held that 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.
(iv) 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.
(v) The difficulty expressed by the petitioners and similarly placed persons is, imposing condition to invariably go for PAN as per section 206AA would run contrary to section 139A. It is also their grievance that filing of 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.
(vi) Section 139A which is introduced way back in April 1991 is in vogue and this provision stands the scrutiny of Article 14 of the Constitution for reasonableness. But, section 206AA which is contrary to section 139A appears to be discriminatory as if it is overriding section 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.
vii) In that view of the matter, in view of the specific provision of section 139A, section 206AA is made inapplicable to persons and read down from the statute for those whose income is less than the taxable limit as per the Finance Act, 1991. However, it is made clear that section 206AA would of course be made applicable to persons whose income is above the taxable limit.
(viii) 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.”
