State debt priority and prior attachment can reach sale proceeds even after withdrawal by a decree-holder.

A prior attachment by the State in income-tax recovery proceedings can fasten on sale proceeds realised from the attached property, even if the proceeds are later taken by a decree-holder. Debts due to the State retain priority over other debts, and where the sale proceeds remain in court the State may seek payment out in execution. If the money has already been withdrawn, a payment-out application is unavailable, but the State may still recover the proceeds from the person who received them by suit. The earlier attachment therefore remained effective against the proceeds taken by the decree-holder, and the claim of lost priority was rejected.

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Issues: Whether the State, having earlier attached the judgment-debtors' property for recovery of income-tax dues, could recover the sale proceeds from a decree-holder who had subsequently taken the amount away after sale in execution.

Analysis: Debts due to the State carry priority over other debts. Where sale proceeds are still in court, the State may seek payment out in execution. If the State allows the amount to be withdrawn and no money remains in court, a payment-out application is not available. But where the State had already effected attachment before the sale, that prior attachment fastens on the sale proceeds, and the State can recover the amount by suit from the person who received it. The earlier attachment by the Collector therefore remained effective against the proceeds taken by the decree-holder.

Conclusion: The State was entitled to recover the sale proceeds from the decree-holder; the contention that priority could not be enforced after withdrawal of the money was rejected.

Ratio Decidendi: A prior attachment by the State in recovery proceedings attaches to the sale proceeds of the property and permits recovery from the person who has received those proceeds, notwithstanding that the money was withdrawn from court.

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