The Court of Appeal is right, and Legal Aid is wrong. It's technically "income" to you even if you don't get the money. So if $600 gets garnished from your monthly Social Security check to pay your IRS debt, that $600 still counts as part of your monthly income to determine what welfare programs for which you might or might not be eligible.
Now, Legal Aid has a point; that's somewhat silly, because you're still poor, since you don't actually get the $600, so it seems a bit crazy to say that you're not poor because "in theory" you get an extra $600 a month (that you actually don't receive).
But, yeah, that's the rule. For better or worse.