Crown priority over unsecured creditors justified payment out from court funds for undisputed income-tax arrears.

The court accepted the Crown's priority over unsecured creditors for an undisputed income-tax debt and held that Section 46 of the Indian Income-Tax Act, 1922 was not exhaustive because it did not exclude other lawful recovery methods. An attaching creditor did not become a secured creditor merely by attachment, and requiring the Crown to file a separate suit would cause needless delay and expense. The court therefore held that its inherent powers under Section 151 of the Code of Civil Procedure could be invoked to direct payment out of money lying in court to satisfy the tax arrears, and the payment-out order in favour of the Revenue was upheld.

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Issues: Whether the court could, on application under Section 151 of the Code of Civil Procedure, direct payment out of money in court to satisfy arrears of income-tax due to the Crown, notwithstanding the recovery provisions in Section 46 of the Indian Income-Tax Act, 1922.

Analysis: The Crown's right to priority over unsecured creditors was accepted, and the debt due for income-tax was treated as indisputable. Section 46 of the Indian Income-Tax Act, 1922 was held not to be exhaustive, because it provided certain modes of recovery but did not expressly exclude other lawful methods available to the Crown. The court further held that the attaching creditor did not become a secured creditor by reason of the attachment, and that compelling the Crown to file a separate suit would cause needless delay and expense. In these circumstances, the court could invoke its inherent powers to order payment out of money already lying in court to the person entitled to it.

Conclusion: The application for payment out was maintainable and the order directing payment to the Income-tax Officer was upheld in favour of the Revenue.

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