Section 220(2) interest survives temporary appellate relief when an income-tax demand is later restored in appeal.

Interest under section 220(2) of the Income-tax Act remained chargeable on unpaid demand where the assessment was later restored in appeal. The proviso reduces interest only if the tax payable is finally reduced by an appellate or revisional order; a temporary reduction by the first appellate authority did not extinguish the original demand during the appeal period. The demand was treated as suspended, not cancelled, and was revived when the assessment was restored. The validating effect of section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 supported continuation of recovery on the original demand without a fresh notice. Cases involving full payment followed by refund were distinguished.

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Issues: Whether interest under section 220(2) of the Income-tax Act, 1961 was chargeable for the period during which the first appellate authority had reduced the assessed demand, and whether the assessee could avoid interest for that interregnum once the assessment was later restored in appeal.

Analysis: Section 220(2) fastens interest on the amount demanded by a notice under section 156 if it is not paid within time, and the proviso reduces interest only when the amount on which tax is payable is finally reduced by an appellate or revisional order. The original demand does not disappear during the pendency of appeals; it remains in suspension and is revived when the assessment is ultimately restored. The validating legislation under section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 supports continuation of recovery on the original demand without a fresh notice. Authorities dealing with cases where the entire demand had been paid and later refunded were distinguished, because here the assessee had not discharged the full demand raised under the assessment order.

Conclusion: Interest under section 220(2) was leviable on the unpaid tax from the original demand period, and the temporary reduction granted by the first appellate authority did not wipe out the liability for interest once the assessment was restored.

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