Priority under the Special Court Act is limited to finally assessed statutory-period tax liabilities, excluding penalty and interest.

Section 11 of the Special Court Act confines priority over attached assets to tax liabilities that arose during the statutory period and were finally assessed and quantified. A mere charging liability or uncrystallised claim does not qualify, and the priority does not extend to later liabilities. The Special Court cannot reopen tax assessments, but it may exceptionally regulate the amount payable from attached funds where there is serious miscarriage of justice, fraud, collusion, or a grossly disproportionate best judgment assessment. Penalty and interest are distinct from tax and fall outside section 11(2)(a); later liabilities may be recovered otherwise in accordance with law or dealt with from surplus under section 11(2)(c).

---

---

Issues: (i) whether the priority under section 11(2)(a) of the Special Court Act applies only to taxes, cesses and rates arising during the statutory period and only when such liability has been finally assessed and quantified; (ii) whether the Special Court can scale down the tax liability to be paid out of attached assets and whether the priority under section 11(2)(a) extends to penalty and interest; (iii) whether liabilities arising after the date of notification can be treated as payable under section 11 or be discharged from surplus under section 11(2)(c).

Issue (i): whether the priority under section 11(2)(a) of the Special Court Act applies only to taxes, cesses and rates arising during the statutory period and only when such liability has been finally assessed and quantified.

Analysis: The scheme of the Act confines attachment, civil claims and criminal proceedings to transactions in securities within the statutory period. Section 11 operates on attached property belonging to the notified person and the expression "taxes due" must be read in that context. The phrase does not cover a mere charging liability or an uncrystallised claim. It refers to an ascertained liability that has been legally assessed and has become final and binding. The priority under section 11(2)(a) is also limited to tax liabilities arising from the statutory period and not to all tax liabilities of the notified person.

Conclusion: The priority under section 11(2)(a) is confined to finally assessed and quantified tax liabilities arising during the statutory period and is not a general priority for all taxes.

Issue (ii): whether the Special Court can scale down the tax liability to be paid out of attached assets and whether the priority under section 11(2)(a) extends to penalty and interest.

Analysis: The Special Court cannot reopen assessments or sit in appeal over tax authorities, but it can decide how much of an assessed liability should be discharged out of the funds in its hands. That discretion is to be exercised sparingly, only where there is serious miscarriage of justice, fraud, collusion, or a grossly disproportionate best judgment assessment, applying a proportionality standard. Tax, penalty and interest are distinct concepts under the Income-tax Act, and the statutory language in section 11(2)(a) is limited to taxes. Penalty and interest therefore do not fall within that priority provision.

Conclusion: The Special Court may in appropriate cases scale down payment from attached funds, but penalty and interest are not covered by section 11(2)(a).

Issue (iii): whether liabilities arising after the date of notification can be treated as payable under section 11 or be discharged from surplus under section 11(2)(c).

Analysis: Liabilities after notification are not within the priority under section 11(2)(a), because that priority is restricted to liabilities connected with the statutory period. Such later liabilities are not extinguished; they may be recovered under the relevant taxing law from other assets or may, if surplus remains and the Special Court so directs, be considered under section 11(2)(c). The Court also indicated that claims to attached property by third parties must be decided before any distribution, since only the notified person's right, title and interest can be applied toward discharge of liabilities.

Conclusion: Later liabilities do not fall within section 11(2)(a), but may be dealt with from surplus under section 11(2)(c) or recovered otherwise in accordance with law.

Final Conclusion: The interpretation of section 11 was confined to finally assessed statutory-period tax liabilities, permitted limited judicial scrutiny of the amount to be paid from attached assets, excluded penalty and interest from priority, and upheld the scheme's validity on that construction, resulting in disposal of the connected appeals and petition.

Ratio Decidendi: Under section 11 of the Special Court Act, only finally assessed tax liabilities arising during the statutory period are entitled to priority from attached assets, and the Special Court may not reopen assessments but may, in exceptional cases, regulate the amount to be paid out of the available funds while excluding penalty and interest from that priority.

---