Tax recovery priority under Schedule II bars civil court execution against attached property, while surplus after sale remains attachable.

Once notice under rule 2 of Schedule II of the Income-tax Act has been served and the property is attached by the Tax Recovery Officer, rule 16 bars the civil court from issuing further execution process against that property. The Income-tax authorities' application under section 151 CPC was treated as maintainable because it merely placed the statutory bar before the court and prevented action contrary to law. Sale of the attached property had to be carried out by the Tax Recovery Officer, not by the civil court. Any surplus remaining after compliance with rule 8 and statutory deductions could still be attached by the decree-holder under Order 21 Rule 46 CPC.

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Issues: (i) whether an application under section 151 of the Code of Civil Procedure by the Income-tax authorities, though they were not parties to the suit, was maintainable to bring to the court's notice the bar created by the income-tax recovery proceedings; (ii) whether, after a notice under rule 2 of Schedule II of the Income-tax Act, 1961 and attachment by the Tax Recovery Officer, the civil court could continue execution by sale of the property or direct sale through court with adjustment of tax dues and decree-holder's claim; and (iii) whether the balance, if any, remaining after sale by the Tax Recovery Officer could be attached for the decree-holder under Order 21 Rule 46 of the Code of Civil Procedure, 1908.

Issue (i): whether an application under section 151 of the Code of Civil Procedure by the Income-tax authorities, though they were not parties to the suit, was maintainable to bring to the court's notice the bar created by the income-tax recovery proceedings

Analysis: The application was treated as competent because the court could otherwise remain unaware that a notice under rule 2 of Schedule II had been issued, and no obligation existed on the defaulter to inform the court. The court accepted that a person other than the decree-holder or judgment-debtor may move the court under section 151 where the object is only to place material facts before it and prevent further process contrary to law.

Conclusion: The application by the Income-tax authorities was maintainable.

Issue (ii): whether, after a notice under rule 2 of Schedule II of the Income-tax Act, 1961 and attachment by the Tax Recovery Officer, the civil court could continue execution by sale of the property or direct sale through court with adjustment of tax dues and decree-holder's claim

Analysis: Rule 16 of Schedule II expressly barred a civil court from issuing any process against the defaulter's property once notice under rule 2 had been served. The court held that the statutory scheme gave priority to the State's recovery and that the sale had to be effected by the Tax Recovery Officer, not by the civil court. The alternative suggestion of selling through court and distributing the proceeds was rejected as inconsistent with the express statutory bar and with the scheme of priority under the recovery provisions.

Conclusion: The civil court could not continue execution against the attached property, and the Tax Recovery Officer alone could proceed with the sale.

Issue (iii): whether the balance, if any, remaining after sale by the Tax Recovery Officer could be attached for the decree-holder under Order 21 Rule 46 of the Code of Civil Procedure, 1908

Analysis: The court held that although the Tax Recovery Officer had to apply rule 8 of Schedule II in making deductions and payment of the residue to the defaulters, the decree-holder could attach any balance payable to the judgment-debtors after those statutory deductions. To protect the decree-holder's interest, an attachment order was directed against any such surplus in the hands of the Tax Recovery Officer.

Conclusion: The balance, if any, remaining after compliance with rule 8 could be attached for the decree-holder.

Final Conclusion: The execution by the civil court was stayed in respect of the attached property, the Tax Recovery Officer was permitted to sell the property for recovery of tax dues, and the decree-holder was allowed to attach any surplus payable to the judgment-debtors after statutory deductions.

Ratio Decidendi: Where recovery proceedings under Schedule II of the Income-tax Act, 1961 have commenced and notice under rule 2 has been served, the civil court is barred from issuing process in execution against the defaulter's property, and the statutory priority of public dues must be given effect by permitting tax recovery to proceed first.

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