S. 206AA PAN law read down to not apply to assessees without taxable income
The assessee, whoseincome was below taxable limit, filed Form 15G and requested that no TDS be deducted on the interest on fixed deposit. However, she was informed thatin view of s. 206AA inserted by FA 2009, TDS would have to be deducted in the absence of PAN. The assessee filed a writ petition to challenge s. 206AA as beingarbitrary and unconstitutionalto the extent that it compelled persons with no taxable income to obtain a PAN. HELD upholding the challenge:
U/s 139A, only persons whose income is chargeable to tax are required to obtain a PAN. However, s. 206AA compels even persons without a taxable income to obtain a PAN to avoid TDS. This createsdifficulty for poor and illiterate personswho make small investments and discourages them to invest money.S. 206AA runs counter to s. 139A and is discriminatory. Though the Legislatures intention is to bring maximum persons under the income-tax net, it may not insist that even persons whose income is below the taxable limit have to compulsorily obtain a PAN. If any tax avoidance is detected, that can be taken care of by penal provisions. Accordingly,s.206AA is read down as being inapplicable to persons whose income is less than the taxable limit. Banks & financial institutionsshould not insist upon PANfrom such small investors. It continues to apply to persons whose income is above the taxable limit.