Section 220(2) interest cannot be levied when no subsisting demand exists after an appeal effect order.

Interest under section 220(2) of the Income-tax Act was held not leviable for a period when no subsisting demand was outstanding after the appeal effect order. The demand raised pursuant to the appeal effect order had been paid in full, and the later demand arose only after the Tribunal's order, so the computation of interest could not be made contrary to the settled legal position recognised by the Supreme Court and the Full Bench of the Andhra Pradesh High Court. The impugned circular could not govern computation in a manner inconsistent with that principle, and relief was granted to the petitioner.

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Issues: Whether interest under section 220(2) of the Income-tax Act, 1961 could be levied for the period when no demand was outstanding after the appeal effect order, and whether the impugned circular could govern the computation of such interest.

Analysis: The demand raised pursuant to the appeal effect order had been paid in full, and the later demand arose only after the Tribunal's order. The question was held to be governed by the settled law recognised by the Supreme Court and the Full Bench of the Andhra Pradesh High Court, under which interest under section 220(2) is not chargeable for a period when there is no subsisting demand liable to be paid. The computation of interest could not proceed contrary to that legal position.

Conclusion: The levy of interest under section 220(2) for the disputed period was unsustainable, and relief was granted in favour of the petitioner.

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