On the application filed by the Union of India represented by the Income-tax Officer, Vizianagaram, purporting to be under Order 21, rules 58 and 62, read with Order 1, rule 10, and section 151, Civil Procedure Code, the Subordinate judge, Srikakulam, has directed the decreeholder in the suit (the appellant herein) to bring the property of the judgment-debtors to sale subject to the claim of the Union Government for the arrears of income-tax to be determined in O. S. No. 34/56 on the file of the Subordinate Judge, Visakhapatnam. The contention of the income-tax department was that the judgment-debtor was liable to pay income-tax for the assessment year 1945-46, 1946-47, 1947-48, 1948-49, 1949-50 and 1950-51, to an amount of rupees two lakhs and odd. The decreeholder, Sri K. Appalanarasimham, obtained a decree in O. S. No. 140/53 against the judgment-debtors (the assessees) and was bringing their properties to sale. The judgment-debtors were liable to pay the Income-tax and as such the tax being in the nature of public revenue was crown debt and, therefore, a first charge on the schedule-mentioned properties of the judgment-debtors. The Union of Indian represented by the Income-tax Officer, therefore, may be impleaded as a party and the properties be sold subject to the charge.
This petition was contested by the decreeholder. It was urged that the petitioners (Union of India) were not entitled to be impleaded as a party to the proceeding nor the tax which was liable to be paid by the judgment-debtors was of the nature of crown debt nor it created any charge on the properties. The provisions of Order 21, rules 58 and 62, were not available and as such the petition was liable to be dismissed.
The learned Subordinate Judge on hearing the parties held that the provisions of Order 21, rule 58, Civil Procedure Code, do not apply. However, in the view, Order 21, rule 62, Civil Procedure Code, was applicable and, therefore, he directed that the properties be sold subject to the charge. The appeal is directed against this order.
The learned counsel for the appellant contends that even the provisions of Order 21, rule 62, Civil Procedure Code, not apply as the liability to pay tax is not a charge under the Income-tax Act. The Crown debts are not doubt entitled to priority as has been observed in Builders Supply Corporation v. Union of India. Section 46 of the Income-tax Act prescribes the made and time of recovery for the arrears of Income-tax in cases of default on the part of the assessee. The amount has to be recovered by the Collector as arrears of land revenue and it is well settled that the arrears of tax can claim priority over the prior debts; but this does not mean that the debt is a charge within the meaning of Order 21, rule 62, Civil Procedure Code. It runs as under :
'Where the court is satisfied that the property is subject to a mortgage or charge in favor of some person not in possession, and thinks fit to continue the attachment, it may do so, subject to such mortgage or charge.'
It is only in the case of a mortgage or charge that the provisions of this rule are attracted. This arrears of income-tax do not come within the ambit of Order 21, rule 62, Civil Procedure Code. The lower court was, therefore, not justified in ordering the sale of the properties as if arrears of tax was a charge on the properties of the assessee. Further, it has come on record that the income-tax department has filed a suit, O. S. No. 34/56, on the file of the Sub-Court, Visakhapatnam, for the recovery of arrears. They could very well attach the properties of the assessee to ensure realisation of their amount. In that event, they will be entitled to claim priority over the prior debts in the event of the sale of properties.
I think, having regard to the facts of the case, the order of the lower court directing the sale of properties subject to the claim of the income-tax department is not tenable. The appeal is allowed; but, having regard to the circumstances of the case, there will be no order as to costs.