UNION OF INDIA vs. SMT A KOWSALYA BAI

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 28TH DAY OF JANUARY 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR.JUSTICE NATARAJ RANGASWAMY W.A. NO.3477 OF 2012 (T) BETWEEN: 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.

... APPELLANTS (BY MR. K.V. ARAVIND, ADV.) AND: 1. SMT. A. KOWSALYA BAI

DEAD REP. BY LRS.

(AMENDED VIDE COURT

ORDER DATED 12.06.2014) 1(a) SHRI. A. LAKSHMAN RAO, MAJOR. 1(b) SHRI. A.L. ASWATH NARAYAN RAO, MAJOR 1(c) SHRI. A.L. GURUPRASAD RAO, MAJOR. 1(d) SHRI. A.L. JAGADHEESWAR RAO, MAJOR.

2 1(e) SMT. HAMPI BAI, MAJOR.

ALL ARE R/AT. #2270, II MAIN

4TH CROSS, RPC LAYOUT

HAMPINAGAR, BANGALORE-560040. 2. SMT. PARVATHAMMA

AGED 54 YEARS

W/O SRI. BASAVARAJ

R/AT. NO.2791, II A MAIN

6TH CROSS, RAJAJINAGAR

BANGALORE-560010. 3. SMT. SARVAMANGALA

AGED 60 YEARS

W/O SRI. SIDDAPPA

R/AT. NO.58, 7TH MAIN

3RD CROSS, VIJAYANAGAR

BANGALORE-560040. 4. M/S. SHRIRAM TRANSPORT FINANCE CO. LTD.,

NO.123, ANGAPANAIKAN STREET

CHENNAI-600001. 5. M/S. SHRIRAM CITY UNION FINANCE LTD.,

NO.123, ANGAPANAIKAN STREET

CHENNAI-600001.

... RESPONDENTS (BY MR. PRABHATH A.P. ADV., FOR MR. K. PRASANNA SHETTY, ADV., FOR R4 & R5 R1(A), R1(B), R1(C), R1(D), R1(E) AND R3 ARE SERVED V/O DTD:12.06.2014 NOTICE TO R2 IS HELD SUFFICIENT) - - - THIS W.A. IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE ORDER PASSED IN THE WRIT PETITION NO.2780- 12782/2010 DATED 05-06-2012.

3 THIS W.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT In this intra court appeal under Section 4 of the Karnataka High Court Act, 1961 the appellants have assailed the validity of the order dated 05.06.2012 passed by the learned Single Judge, by which learned Single Judge while dealing with a challenge to the constitutional validity of Section 206AA of the Income Tax Act, 1961 (hereinafter referred to as 'the Act' for short) has read down Section 206AA of the Income Tax Act, 1961 and it has been held that it is inapplicable to the persons whose income is less than taxable limit as per Finance Act, 1991 and the Banking and Financial Institutions shall not invariably insist upon Permanent Account Number (PAN) from small investors like respondent Nos.1 to 3 as well as from persons who intend to open an account in a Bank or Financial Institution.

4 2. Facts leading to filing of this appeal briefly stated are that respondent Nos.1 to 3 filed a writ petition, in which inter alia it was averred that they are small investors and for depositing their savings from their meager income, the respondent Nos.1 to 3 approached respondent Nos.4 and 5 with a view to earn better interest / returns on their investment. It was also averred that the respondent Nos.1 to 3 do not have income exceeding the maximum taxable limit as prescribed under Section 139A of the Act. The petitioners filed Form 15G as required under Section 197A of the Act to enable respondent Nos.4 and 5 not to deduct the Tax at Source. However, respondent Nos.4 and 5 insisted for production of Permanent Account Number in pursuance of amendment to Section 206AA of the Finance Act, 2009. The grievance of respondent Nos.1 to 3 before the learned Single Judge was that they are not assesses and are not assessed to income tax and such a provision would cause undue hardship to

5 them, which has come into force with effect from 01.04.2010. It was further averred that introduction of Section 206AA of the Act is arbitrary and violative of Article 14 of the Constitution of India. Accordingly, the prayer was made to strike down the provisions of Section 206AA of the Act as unconstitutional. 3. The appellants herein filed statement of objections in which inter alia it was pleaded that respondent Nos.1 to 3 had been set up by third parties. It was also averred that Section 206AA of the Act has been introduced with the sole object of prevention of evasion of tax and Union of India in order to monitor all transactions which are taking place in India is proposing to create a data bank which records all the transactions both incoming as well as outgoing. It was also averred that in order to achieve complete data for setting up information database, Parliament has introduced the requirement of furnishing the Permanent Account Number in all transactions and creation of multiple

6 transactions in order to avoid the limit prescribed will be eliminated. 4. The learned Single Judge vide impugned order dated 05.01.2012 inter alia held that Section 206AA of the Act is contrary to Section 139A of the Act and therefore, Section 206AA of the Act would not be applicable to persons whose income is below the taxable limit. In the result, Section 206AA of the Act has been read down and it has been held that it will not be made applicable to persons whose income is below taxable limit. In the aforesaid factual background, this appeal has been filed. 5. Learned counsel for the appellants submitted that learned Single Judge erred in holding that Section 206AA of the Act is contrary to Section 139A of the Act. It is further submitted that learned Single Judge erred in holding that Section 206AA of the Act will cause hardship to poor, illiterate and uneducated person and it

7 would be difficult for them to obtain Permanent Account Number. It was also pointed out that the learned Single Judge has failed to take into account the objects for introduction of Section 206AA of the Act and ought to have appreciated that principles of equity, hardship and inconvenience cannot be made applicable to taxation laws and on such ground, the provision cannot be read down. It is also urged that Section 206AA of the Act is not violative of any provisions of the constitution and therefore, could not have been read down. 6. Learned counsel for respondent Nos.3 and 4 submitted that they are formal parties to the lis. 7. We have considered the submissions made by learned counsel for the appellants and have perused the record. It is trite law that the constitutional validity of the provision has to be tested on the grounds of legislative competence and violation of fundamental rights. [See: 'PUBLIC SERVICES TRIBUNAL BAR

8 ASSOCIATION VS. STATE OF U.P. AND ORS.', (2003) 4 SCC 104]. It is well settled legal proposition that hardship or equity is not relevant in interpreting the provisions relating to taxation specially when the language used by the Legislature is plain and unambiguous. [See: 'STATE OF MADHYA PRADESH VS. RAKESH KOHLI AND ANR.', (2012) 6 SCC 312]. 8. Now we may advert to the facts of the case. The rational behind introduction of Section 206AA of the Act is explained in the memorandum explaining the provisions in Finance Act (2) of 2009. Section 206AA of the Act is enacted as a measure to prevent the tax evasion. The Government of India is trying to eliminate circulation of unaccounted money and is intending to set up a database which contains and monitor all the transactions which take place in India. In order to gather the information for the aforesaid database, the appellants are insisting on furnishing of Permanent Account Number in all the transactions. The contention

9 of the petitioner that Section 206AA of the Act takes away the benefit conferred by Sections 139A(1)(i) and 197A of the Act is misplaced. Section 139A(1)(i) of the Act provides that a person shall apply for allotment of Permanent Account Number if his total income or total income of any other person in respect of which he is assessable under the Act during the Previous Year exceeded the maximum amount which is not chargeable to income tax. Section 139(1)(i) is not absolute and apart from persons mentioned in the aforesaid clause, there are number of instances in Section 139A itself where persons are required to obtain Permanent Account Number even if they do not fulfill the conditions mentioned in Section 139A(1)(i) of the Act. For instance, a person is required to obtain Permanent Account Number if turnover of his business is exceeded Rs.5 Lakhs irrespective of the fact whether his total income exceeded maximum amount chargeable to tax or not. Therefore, the conclusion recorded by the learned Single

10 Judge that the persons whose total income do not exceed maximum amount and are not chargeable to tax need not obtain Permanent Account Number to the exclusion of others cannot be upheld. It is pertinent to mention here that learned Single Judge has neither recorded a finding that the parliament do not have the legislative competence to enact Section 206AA of the Act nor has not recorded a finding that the aforesaid provision is violative of fundamental rights. The Principle of reading down a provision can be applied for the limited purpose of making a particular provision workable and to bring it in harmony with the other provisions of the statute and has to be used keeping in view the scheme of the Act and to fulfill its purposes [See: 'CALCUTTA GUJ. EDUCATION SOCIETY & ANR. VS. CALCUTTA MUNICIPAL CORPORATION & ORS.', (2003) 10 SCC 533]. In the fact situation of the case, since, the provision was either not unworkable nor was inconsistent with other provisions of the Act,

11 therefore, the learned Single Judge could not have applied the principle of reading down merely on the basis of hardship or equity which are not relevant in interpretation of the law relating to taxation. In view of preceding analysis, the impugned order passed by the learned Single Judge cannot be sustained in the eye of law. It is accordingly quashed. In the result, the appeal is allowed. Sd/- JUDGE Sd/- JUDGE ss