priority of taxes!

[CA.BHUPENDRASHAH]

Can  Income Tax dues have priority over secured creditors like bank etc?

[bhaskar rao]

Sir,

In judgement of Hon'ble Mumbai High Court which I found on site (http://itatonline.org/archives/?p=21) it is stated as under:

"While the arrears of the State have priority over private debts owed to ordinary or unsecured creditors, this priority does not extend over secured creditors (subject to statutory exception). The fact that the tax arrears are recoverable as arrears of land revenue makes no difference to this principle; "

Name of judgement is Krishna Lifestyle.

There is many good discusssion in judgement and referred to a\many judgements of Hon'ble Supreme Court on point.

Bhaskar rao, ITP.

[CA.BHUPENDRASHAH]

Apex Court has held otherwise in case of Dena bank.

[ashutosh majumdar]

Dear Bhupendra,

I read the judgement in Krishna Lifestyle (thanks Bhaskar for pointing that out).

The Bombay HC has considered the judgement of the SC in Dena Bank v. Bhikhabhai Prabhudas Parekh and Co.
and others(AIR 2000 SC 3654) and pointed out that it was laid down that "The Crowns preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors and not to secured creditors". It was explained that this rule is subject to the statute. In that case,  Section 158 and Section 190(c) of the Karnataka Land Revenue Act, gave primacy to monies recoverable under those provisions. It was accordingly held that the State's claim to recovery were paramount even over secured creditors.

Accordingly, Dena Bank turns on the specific provisions of the Act. The general rule remains that secured creditors have priority over the State.

Ashutosh.