Law: Income Tax Act, 1922

Section: 46(2)

Section 222 of the Income-tax Act, 1961 [Corresponding to section 46(2) of the Indian Income-tax Act, 1922], read with article 372(1) of the Constitution of India - Collection and recovery of tax - Certificate proceedings - Assessment year 1946-47 and 1947-48 - Whether Government of India has priority and precedence in matter of areas of tax due to it from a person over decretal debt due to a creditor from said person - Held, yes FACTS It appeared the respondent No. 2, 'R-2' secured a building contract from the Government and in that behalf it had to make a deposit of Rs. 50,000 with concerned engineer as security for the due execution of the contract. In connection with the execution of the said contract, R-2 obtained supply of building materials from the appellant. The appellant was unable to secure payment for the goods thus supplied by it, and so, it had to sue R-2 for recovery of the dues. The appellant's suit was decreed by for a sum of Rs. 12,275-9-0. This decree was put in execution by the appellant on the 14-2-1952. Meanwhile, the Certificate Officer of the Department requested the concerned judge and the concerned Engineer asking not to make any payment out of the amount deposited by R-2, but to retain it after deducting the departmental dues. It was informed that the arrears of income-tax due from R-2 exceeded Rs. 50,000 with the result that the whole of the security deposit, less departmental dues, was liable to be applied to the satisfaction of the tax debt in respect of which Government had priority over all unsecured creditors. Ultimately, the Executing Court upheld the plea of the Government that the tax amount due to it from R-2 had a priority over the decretal amount due to the appellant creditor from the same debtor. The High Court also decided the issue against the appellant-creditor. On appeal to the Supreme Court: HELD Section 46(2) of the 1922 Act provides that the ITO may forward to the Collector a certificate under his signature specifying the amount of arrears due from an assessee, and the Collector, on receipt of such a certificate, shall proceed to recover from such an assessee the amount specified therein as if it were an arrear of…

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