Tax recovery priority over later execution claims where attachment notice related back and barred civil court process.

Service of a notice under rule 2 of the Second Schedule to the Income-tax Act, 1961 gave the revenue priority over later private execution claims. Because rule 16 barred the defaulter from dealing with the attached property and prevented a civil court from issuing execution against it, and rule 51 related the attachment back to the date of notice, the decree-holder's subsequent decree and attachment could not prevail over the Department's recovery claim. The Department was therefore entitled to payment out of the money deposited in court, confined to the arrears of the particular firm whose liability was established.

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Issues: Whether the Income-tax Department was entitled to recover arrears from the monies in court deposit in priority to the decree-holder's execution claim.

Analysis: A notice under rule 2 of the Second Schedule to the Income-tax Act, 1961 had been served on the defaulter before the suit was filed. Under rule 16, after such notice the defaulter cannot deal with the attached property and a civil court cannot issue process against it in execution for payment of money. Rule 51 gives the attachment relation-back effect from the date of service of notice. On those provisions, the decree-holder's later decree and execution attachment could not prevail over the tax recovery proceedings, and the Department could apply for payment out of the money deposited in court. The claim was also confined to the arrears of the particular firm whose liability was in issue, as recovery against the other firm had been rejected and no appeal was filed by the Department.

Conclusion: The claim of the Income-tax Department had priority over the execution claim, and the objection to payment out in favour of the Department failed.

Ratio Decidendi: Once a notice under rule 2 of the Second Schedule to the Income-tax Act, 1961 is served, the attachment operates with relation-back effect and bars later execution against the property or its proceeds by a civil court, giving the revenue priority over subsequent private execution claims.

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