Compensatory interest on quantified tax demand is part of statutory recovery and withstands constitutional challenge.

Interest under section 220(2) arises when the amount in a notice of demand under section 156 is not paid within time, and it runs on the total unpaid quantified demand. The provision treats tax, interest and penalty as part of the recoverable fiscal liability once demand is quantified, and operates as a compensatory measure in the statutory recovery machinery. It is an incidental and ancillary device to enforce timely payment of dues and is not arbitrary or confiscatory merely because the demand includes interest or penalty components. The constitutional challenge under articles 14 and 19(1)(g) therefore fails.

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Issues: Whether section 220(2) of the Income-tax Act, 1961, is violative of articles 14 and 19(1)(g) of the Constitution of India.

Analysis: The liability to pay interest under section 220(2) arises on failure to pay the amount specified in the notice of demand under section 156 within the prescribed time. Once the demand is quantified, the distinction between tax, interest and penalty ceases for the purpose of recovery, and the interest operates on the total amount remaining unpaid. The levy is compensatory in nature and forms part of the recovery machinery of a fiscal statute. The provision is an incidental and ancillary measure to enforce timely payment of dues and is not shown to be arbitrary or confiscatory merely because the demand includes interest or penalty components.

Conclusion: Section 220(2) of the Income-tax Act, 1961, is not violative of articles 14 and 19(1)(g) of the Constitution of India and the challenge fails.

Ratio Decidendi: Interest levied for delayed payment of a quantified fiscal demand is compensatory and part of the statutory recovery mechanism, and is constitutionally valid where it operates on the amount specified in the demand notice.

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