Original demand notice governs section 220(2) interest, and no fresh notice is needed after appellate modification.

Interest under section 220(2) of the Income-tax Act remains linked to the original notice of demand issued under section 156, even where appellate proceedings later reduce or enhance the assessed income. The proviso to section 220(2) adjusts the interest if the demand is reduced, while section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 preserves the continuity of recovery proceedings during appeals. On that scheme, no fresh notice of demand is required after appellate finalisation, and interest is computed with reference to the original demand as ultimately modified by the appellate order.

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Issues: Whether interest under section 220(2) of the Income-tax Act, 1961 could be charged on the basis of the original notice of demand despite appellate reduction and enhancement of the assessed income, and whether a fresh notice under section 156 was required before levying such interest.

Analysis: Section 220(2) fastens liability to simple interest where the amount specified in a notice of demand under section 156 is not paid within the prescribed time, and its proviso adjusts the interest if the demand is later reduced by appellate or revisional orders. Section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 preserves the continuity of recovery proceedings during pendency of appeals and provides that, where demand is reduced, no fresh notice of demand is necessary and proceedings may continue from the existing stage. On that scheme, the original notice of demand issued pursuant to the assessment order does not lose its force during appellate proceedings, and on finality of those proceedings the demand relates back to the original notice as modified by the final appellate order.

Conclusion: Interest under section 220(2) was leviable on the basis of the original notice of demand as ultimately reduced by the final appellate order, and no fresh notice under section 156 was required. The contention of the assessee failed and the levy was upheld.

Ratio Decidendi: For the purpose of section 220(2), the original notice of demand survives appellate proceedings and, on final determination of the demand, interest is chargeable with reference to that original demand as finally modified, without requiring a fresh notice under section 156.

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