Interest under section 220(2) applies only for the period a valid tax demand actually remains unpaid.

Interest under section 220(2) of the Income-tax Act, 1961 arises only when a valid demand remains unpaid after the statutory period. Where the original demand notice had been fully satisfied, a later restoration of the assessment did not revive that demand retrospectively, so interest could not be levied from an anterior date and a fresh demand notice was required for the revived liability. Where any part of the demand remained outstanding, or payment was delayed beyond time, interest was recoverable only for the period of actual default. The levy was therefore confined to the period during which the demand was genuinely unpaid.

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Issues: Whether interest under section 220(2) of the Income-tax Act, 1961 could be levied from the date immediately following the original demand notice where the demand had been satisfied and later partly restored, and how such interest was to be worked where the demand was not paid within the statutory time or remained unpaid only for part of the period.

Analysis: The controversy arose in rectification proceedings under section 154, so the matter had to be tested on settled law. Interest under section 220(2) is attracted only when there is a valid demand notice and a default in payment. Where the original demand notice has been fully satisfied within time, a later restoration of the assessment does not revive the old demand from an anterior date, and a fresh notice of demand is required for recovery of the subsequently revived demand. However, where the original demand was not fully discharged, or where payment was delayed beyond the prescribed period, interest can be levied only for the period during which the demand actually remained unpaid or outstanding.

Conclusion: Interest under section 220(2) was not payable from an anterior date in respect of demand already satisfied and discharged, but it was recoverable for the period during which any part of the demand actually remained unpaid. The interest, if any, was directed to be worked accordingly, in favour of the assessee to that extent.

Final Conclusion: The appeals were disposed of by limiting the levy of interest to the period of actual outstanding demand and excluding any anterior levy after full discharge of the original demand.

Ratio Decidendi: Interest under section 220(2) of the Income-tax Act, 1961 arises only for the period during which a valid demand actually remains unpaid, and a fully satisfied demand is not revived retrospectively by a later appellate restoration.

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