Secured creditor priority over income-tax dues upheld, allowing sale of mortgaged assets despite tax attachment.

A State Financial Corporation's secured claim over mortgaged property was treated as having priority over income-tax dues under the State Financial Corporations Act, 1951. The court reasoned that the Act's non obstante framework and enforcement powers primed the Corporation's right to recover its dues, while the Income-tax Act, 1961 and Second Schedule did not create a first charge for the tax department. The tax attachment therefore could not defeat the Corporation's right to sell the secured assets, and any surplus after recovery was to be remitted to the Income-tax Department.

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Issues: Whether income-tax dues have priority over the secured debt of a State Financial Corporation under the State Financial Corporations Act, 1951, and whether the attachment of the mortgaged property could be sustained against the Corporation's right to sell the secured assets.

Analysis: The statutory scheme of the State Financial Corporations Act, 1951, especially the non obstante provision and the Corporation's enforcement powers, gives primacy to the secured creditor for recovery of its dues from the mortgaged property. The Income-tax Act, 1961 and the Second Schedule provisions relied on by the Revenue do not create a first charge in favour of the Income-tax Department over the assessee's assets. The Court also noted the Revenue authority's own acknowledgment that the Corporation had a prior charge and that the Department stood as a subsequent claimant. On that basis, the tax attachment could not defeat the Corporation's right to proceed against the mortgaged property.

Conclusion: The income-tax attachment was quashed, and the Corporation was entitled to sell the mortgaged properties to recover its dues, with any surplus to be remitted to the Income-tax Department.

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