Section 206AA is in Contradiction to Section 139A for PAN requirement.
Before quoting the case law first we should look at the Section 139A and Section 206AA for better understanding of the decision.
Provisions of Section 139A mandate every person to apply for PAN card:
- Whose total income assessable to tax either in respect of his income or the income of any other person is required to apply on or before the 31st May of the relevant assessment year.
- Carrying on business/profession whose turnover or gross receipts are likely to exceed Rs. 5,00,000 in any previous year is required to apply before the end of the relevant previous year.
- Who is required to furnish a return of income under section 139(4A) is required to apply before the end of the previous year.
Above provisions provides relaxation to a person whose total income does not exceed the maximum amount not chargeable to income tax for applying to the Assessing officer for the allotment of a permanent account number, i.e. person whose income falls below the maximum amount not chargeable to tax is not required to get PAN card.
But, Provisions of Section 206AA states that “any person entitled to receive any sum or income or amount, on which tax is deductible under chapter XVIIB shall furnish his PAN to the person responsible for deducting such tax, falling which tax shall be deducted as per provisions of section 206AA, which is normally higher, i.e. even the income of the assessee falls below the tax limit s/he required to furnish PAN card to the deductor.”
It is also mandatory for an assessee to furnish his/her PAN, despite filling form 15G as required under section 197A, to seek exemption from deduction of tax.
The provisions of section 139A are contradictory to section 197A, due to the fact that assessees whose income was less than the maximum amount not chargeable to income-tax, were not required to hold PAN, whereas their declaration furnished under section 197A was not accepted by the bank or financial institution unless PAN was communicated as per the provisions of section 206AA. The provisions of section 206AA creates inconvenience to small investors, who invest their savings from earnings as security for their future, since, in the absence of PAN, tax was deducted at source at a higher rate.
In order to avoid undue hardship caused to such persons, the Karnataka High Court, in the case of Smt. A. Kowsalya Bai v. UOI (2012) 346 ITR 156 (Kar.), held that it may not be necessary for such persons whose income is below the maximum amount not chargeable to income-tax to obtain PAN and in view of the specific provision of section 139A, section 206AA is not applicable to such persons.
Therefore, the banking and financial institutions shall not insist upon such persons to furnish PAN while filing declaration under section 197A. However, section 206AA would continue to be applicable to persons whose income is above the maximum amount not chargeable to income-tax.