1963 (3) TMI 51 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to the sale proceeds from the security bond.
2. Scope and beneficiaries of the security bond.
3. Priority of Government claims over other creditors.
4. Application of Board Standing Order 48.
5. Validity and effect of the attachment by the income-tax department.

Detailed Analysis:

1. Entitlement to the Sale Proceeds from the Security Bond:
The appellant sought payment of Rs. 33,500 from the sale proceeds of properties secured by a bond. The application was dismissed based on objections from the Tahsildar, who claimed the proceeds for the Government due to large arrears of income-tax owed by the property owner, Kaka Mohamed Ismail Sahib.

2. Scope and Beneficiaries of the Security Bond:
The security bond was executed for Rs. 5 lakhs for the benefit of creditors, excluding those in schedules A and B. The appellant argued that the bond should benefit only creditors in schedule C. However, the court held that the bond was intended for all creditors except those in schedules A and B. The court emphasized that the bond was offered for all creditors in general, and no specific investigation was made to identify C schedule creditors. Thus, the bond was available to all creditors other than those in schedules A and B.

3. Priority of Government Claims Over Other Creditors:
The court upheld the Government's priority over other creditors. It cited established legal principles that the Crown's (Government's) right takes precedence over private creditors. This principle was reinforced by several precedents, including Manickam Chettiar v. Income-tax Officer, Madurai and Bank of India v. John Bowman, which recognized the Government's preferential right to recover debts.

4. Application of Board Standing Order 48:
The appellant argued that under Board Standing Order 48, the Government should not recover arrears from sale proceeds of land sold under a civil court decree. The court clarified that this order applies to arrears of land revenue, which constitute a charge on the property. Since income-tax arrears do not create such a charge, the order did not apply. The Government could claim the sale proceeds as the property in the purchaser's hands would not be subject to any charge for income-tax arrears.

5. Validity and Effect of the Attachment by the Income-tax Department:
The court addressed the attachment of the properties by the income-tax department under section 46(2) of the Income-tax Act. It was argued that any security created after such attachment would not affect the Government's rights due to section 64 of the Civil Procedure Code. The court confirmed that the attachment was valid and subsisting, thus giving the Government priority over the sale proceeds. The appellant's contention that there was no proof of attachment was dismissed based on affidavits confirming the attachment.

Conclusion:
The appeal was dismissed, affirming the Government's priority to the sale proceeds over other creditors, including the appellant. The court held that the security bond was for the benefit of all creditors except those in schedules A and B, and the attachment by the income-tax department took precedence over any subsequent security interests.