Law:

Section:

Section 226 of the Income-tax Act, 1961 (Corresponding to section 46 of the Indian Income-tax Act, 1922) - Collection and recovery of tax - Other modes of recovery - District Judge, on application of ITO, directed amount lying in deposit in Court to be deposited in Government treasury towards income-tax dues against parties to suit - Whether upon an assessment having been made and a demand created, a debt comes into existence and become due to Government and in such case Government is not bound to act under section 46 of 1922 Act and even if it has acted under provisions of said section for recovery of tax due, it is still open to it to have recourse to any other mode of recovery open to it under law - Held, yes - Whether Government has priority in respect of debts as against other unsecured creditors - Held, yes - Whether it is open to Government to make application to Court which has moneys belonging to assessee, who is in default, lying with it and Court can on such application deposit money in Government Treasury on request of ITO - Held, yes FACTS A civil suit for rendition of accounts of the assessee firm was filed in the Court of the District Judge. A final decree was passed by the District Judge. A certain amount was lying in deposit in the Court as a result of the sale of certain movables of the firm. It was held that each of the four partners of the firm was entitled to one-fourth share therein subject to the claim of the income-tax department and the sales tax department against the firm. It was further ordered that, inasmuch as the claim of the taxing departments far exceeded the deposit in Court, no party to the suit would be allowed to withdraw any part of the deposit till the claim of the taxing department was either withdrawn or reduced. Thereupon, the ITO applied to the District Judge praying that the sum lying in deposit in the Court be deposited in the Government Treasury towards the payment of income-tax dues against the parties to the suit. The plaintiff-decree holder objected on the ground that section 46 of the 1922 Act, required that the recovery should be made through the Collector and, in the instant case, as the demand had been made…

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