2. The Tax Recovering Officer Circle VI by his letter dated 17-5-1972, addressed to the nazir of this Court filed a claim for Rs. 30,408.00 only as balance of the Income-tax and Sales Tax demand against judgment-- debtor No. 2, a defaulter, with a request to recover the amount from the sale proceeds of the above property. This letter was followed by a formal notice dated 17-8-1972 under section 46(5-A) of the Income-tax Act, 1922, by which notice, the nazir of this Court was directed to pay to the Department a total sum of Rs. 30,408.00 out of the money due "to the defaulter", the judgment-debtor No. 2 and lying deposited with the nazir, being the sale proceeds of the said property.
3. The decree-holder has filed objections and resisted the claim of the Income-tax Department.
There is, however, no dispute as it was con--ceded by Mr. S. A. Moulvi the learned Advocate for the decree-holder, that the income-tax debt has priority. The only contention raised by the learned counsel was that the amount that is lying deposited in Court, being the sale proceeds, does not belong to the judgment-debtors and the ques--petition of priority could only arise if the amount can be said to be belonging to the judgment-debtors. It was argued that the property of the judgment-- debtors was sold in execution of the decree and this property ceased to belong to the judgment-debtors on confirmation of auction by this Court and the sale proceeds of the auction are held in trust for the benefit of the decree-holder and other creditors who may be entitled to rate-able distribution under section 73 of the Code of Civil Procedure and that the judgment- debtors have no interest in or claim on the sale proceeds of the auction. I am, however, inclined to think that the sale' proceeds deposited in this Court belong to the judgment-debtors and is lying in Court for the purpose of paying it to the persons entitled to it and not only the decree-holder and other creditors entitled to rate-able distribution under the said section 73. What would be consequence, if the decree was otherwise satisfied or by operation of law (assuming there was such a law) was deemed to be satisfied? Would not the sale proceeds, in that event, be refunded to the judgment-debtors? In support of his contention Mr. S. A. Moulvi relied on the following observation appearing in a case reported in Oudh Commercial Bank v. Secretary of State (AIR 1935 Lah. 319), as under: --- "After the sale, tae proceeds of the sale did not belong to the judg--ment-debtor, but were held by the Court in trust for the benefit of the creditor executing the decree and such other creditors as had applied for rate-able distribution under section 73, C. P. C."
4. In the aforesaid case an application was made by the Government for payment of a debt due to it, in a pending proceedings for rate-able distribution under section 73, C. P. C. Between the two decree-holders. The application was resisted on the ground that the Government had no locus standi to claim any share in the assets under section 73 of the C. P. C. As it was not a decree- holder. The executing Court ordered payment of the Government dues and this payment was sought to be refunded in a suit subsequently filed, by the decree-holder under subsection (2) of section 73, C. P. C. The suit was dismissed but in appeal the judgment was reversed primarily on the ground that the execution Court had no juris--diction to entertain a claim on behalf of the Government in the absence of any decree in support of it. Subsection (3) of section 73, C. P. C. Was sought to be explained away by holding that it "only saves the rights of the Government, independent of the section, such as they might be, and merely appears to have reference to the right of priority which can be ordi--narily claimed in respect of debts due to the Crown".
5. In the present case the learned counsel has not expressly argued that the Department can claim priority only if its debt had been con--verted into a decree, but such an argument is implicit in his contention that the assets in Court are available for distribution between the decree-- holder and other creditors entitled to rate-able distribution under section 73, C. P. C. I am unable to accept this proposition for it over- looks subsection (3) of section 73 of the C. P. C. Which in clear terms, saves the right of the Government and there would have been no occasion to introduce this subsection, if the intention was to confine the controversy between the decree-holders only as to which of them was entitled to receive, whole or in part the amount deposited in Court. The right of priority of Government debts is independent of subsection (3) of section 73, C. P. C. And not its creation. It will, therefore, follow that the Government with its priority for undisputed debts, though not a decree -- holder, can apply to the Court for withdrawal of the money lying deposited in Court. If that was not accepted the consequences would be that, for recovery of its undisputed debts, as in the present case, the Govern--ment will have to file a suit against the judgment-debtors and the oppos--ing creditors and then obtaining an interim injunction preventing the money from being withdrawn from Court pending the decision of the suit. When the suit comes on for hearing the Court would be bound to decree it resulting in great waste of time of the parties as well as the Court. In the Lahore case the debt which was claimed by the Government was not an undisputed debt as in the present case. Moreover, it was not an income-tax debt with the provisions for its enforcement as contained in subsection (5-A) of section 46 of the Income-tax Act, 1922. Even if I were, therefore, to hold that the amount deposited in Court does not belong to the judgment-debtor it will follow from what I have stated above that the amount is held by the Court for the benefit of persons entitled to it and since the Court must pay money in its hand to the person entitled to it, in this case the Income-tax Department with admitted priority, I can--not see how the request of the Income-tax Officer be denied to him, more particularly in view of the provisions contained in subsection (5-A) of section 46 of the Income-tax Act, 1922.
6. The result is that the objections filed by the decree-holder have no substance. I will, therefore, order that out of the sum of Rs. 59,000.00 deposited with the Nazir of this Court the sum of Rs.
30,408.00 be paid to the Income-tax Department and the balance to the decree-holder.
7. In the circumstances of the case there will be no order as, to cost.
K. B. A.
Objections disallowed.