1997 (5) TMI 3 - SC - Income Tax

After the passing of the order dated March 4, 1974, by the executing court, UOI did not take any steps to obtain stay of the payment - appellant has obtained the cheque from the executing court on April 23, 1974 - That, in our opinion, has no effect on the maintainability of the application under section 226(4) which was submitted on August 31, 1973, prior to such payment - payment of money to the appellant after the filing of the application would not render the said application infructuous.

Summary

Issues:
- Priority of the Union of India over other creditors in attachment and realization of money in court.
- Interpretation of section 226(4) of the Income-tax Act, 1961.
- Application of section 73 of the Code of Civil Procedure in rateable distribution among decree-holders.
- Determination of ownership of money in court before distribution among decree-holders.
- Effect of application under section 226(4) of the Act on money belonging to judgment-debtors.

Analysis:
The judgment concerns an appeal by the decree-holder against a judgment of the Allahabad High Court in a matter involving attachment and distribution of money in court. The Union of India sought priority over other creditors for the realization of tax dues from judgment-debtors. The dispute arose when the executing court dismissed the Union's application under section 226(4) of the Income-tax Act, 1961, asserting that the money ceased to belong to the judgment-debtors. The High Court allowed the Union's revision petition, emphasizing that the money remained liable until disbursed to decree-holders. The court highlighted the importance of section 73 of the Civil Procedure Code, stating that money in court belongs to judgment-debtors until distribution among decree-holders or creditors. The court clarified that the money was still with the executing court when the Union filed its application, making the rejection of the application erroneous.

The judgment delves into the legal provisions of section 226(4) of the Income-tax Act, 1961, which allows the Assessing Officer to seek payment from money in custody of the court for discharging tax liabilities of the assessee. The court emphasized that the crucial factor is the custody of money belonging to the assessee at the time of the application. The court also cited section 73 of the Civil Procedure Code, which mandates rateable distribution of money among decree-holders until disbursed. The court held that the money in question belonged to the judgment-debtors until distributed among the decree-holders, supporting the Union's right to seek payment under section 226(4) of the Act.

The judgment addressed the contention that the Union of India failed to obtain a stay on payment to the decree-holder after the executing court's order. The court dismissed this argument, stating that the application under section 226(4) was filed prior to the payment, rendering the subsequent payment irrelevant to the application's validity. The court rejected the appeal, emphasizing that the money in court remained the property of the judgment-debtors until distribution among decree-holders, upholding the Union's right to seek priority in payment for tax liabilities.