Interest under income-tax demand provisions cannot be revived after full payment and later refund, the High Court clarified.

Interest under section 220(2) of the Income-tax Act was held not chargeable where the assessee had already fully satisfied the original demand under section 156 and no subsisting default remained. The later refund of the amount after appellate relief did not revive a continuing liability to interest, because the statute fastens interest only on non-payment within the prescribed time. Section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 was held incapable of creating a fresh substantive interest liability or enlarging a demand that had already been discharged. The interpretation of the taxing provision was confined to its clear language, resulting in the issue being decided in favour of the assessee.

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Issues: Whether interest under section 220(2) of the Income-tax Act, 1961 could be levied on an assessee after the original demand had been fully satisfied, the amount was later refunded following appellate relief, and a fresh demand was subsequently raised after the Department succeeded in further appeal; and whether section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 authorised such levy.

Analysis: Section 220(2) makes liability to pay interest contingent on non-payment of the amount specified in a notice of demand under section 156 within the stipulated period. Where the assessee has already discharged the original demand in full, there is no continuing default and no existing demand on which interest can be fastened merely because the amount was later refunded after appellate relief. The Validation Act was enacted to preserve recovery proceedings where a demand notice had been served and proceedings had been affected by appellate or other orders, but it does not create a fresh substantive liability to interest in a case where the original demand stood satisfied. The provision cannot be used to revive or enlarge a demand already discharged. In interpreting a taxing statute, the language must be applied as it stands, and no levy can be imposed unless the statute clearly authorises it.

Conclusion: Interest under section 220(2) was not leviable on the facts, and section 3 of the Validation Act did not authorise the demand. The issue is decided in favour of the assessee.

Ratio Decidendi: Interest under section 220(2) of the Income-tax Act, 1961 is chargeable only where there is a subsisting default in payment of the amount demanded under section 156 within the prescribed time, and the Validation Act cannot be used to impose such interest once the original demand has been fully satisfied.

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