Crown debt priority for income-tax arrears prevails over unsecured creditors, while secured creditors' rights remain protected.

Common-law priority of Crown debts for income-tax arrears continued as law in force under Article 372(1) of the Constitution, and the statutory recovery provisions did not displace that priority. Government tax dues therefore ranked ahead of ordinary unsecured creditors in company liquidation, while the rights of secured creditors remained unaffected. The official liquidator was required to satisfy the Union of India's income-tax dues first and distribute any remaining surplus among the other creditors.

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Issues: Whether arrears of income-tax due to the Union of India had priority over the claims of unsecured creditors in the liquidation of the company.

Analysis: The applicable legal position was that the common-law priority of Crown debts continued as law in force under Article 372(1) of the Constitution of India. The legislative provisions governing recovery of tax arrears did not displace that priority. The governing rule, as applied, was that Government tax dues rank ahead of ordinary unsecured creditors, while the rights of secured creditors remain unaffected.

Conclusion: The tax dues of the Union of India were entitled to priority over the claims of the unsecured creditors.

Final Conclusion: The official liquidator was directed to satisfy the income-tax dues first and distribute any remaining surplus among the other creditors.

Ratio Decidendi: The common-law priority of Crown debts for tax arrears continues as law in force under Article 372(1) of the Constitution of India and gives precedence to Government tax dues over unsecured creditors, subject to secured creditors' rights.

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