Interest under section 220(2) cannot be levied absent default in paying a satisfied demand notice, even after assessment restoration.

Interest under section 220(2) of the Income-tax Act is attracted only when the amount specified in a demand notice under section 156 is not paid within the permitted time. Where the assessee had already complied with the original demand, later restoration of the assessment by the Tribunal and revival of the demand under validating legislation did not create a prior default. The statutory scheme did not permit levy of interest for a period when the demand had already been satisfied, and departmental circulars could not override the plain text of the Act. The levy of interest from the date of refund was therefore unsustainable.

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Issues: Whether interest under section 220(2) of the Income-tax Act, 1961 could be levied from the date of refund when the assessee had already paid the demand raised under section 156 and the original assessment was later restored by the Tribunal.

Analysis: Liability to pay interest under section 220(2) arises only if the amount specified in the notice of demand under section 156 is not paid within the period allowed under section 220(1). The assessee had complied with the original demand notice by paying the tax demanded. The later restoration of the assessment by the Tribunal did not create a default for the earlier period, and the revival of the original demand notice under the validating legislation did not alter the fact that there had been no non-compliance of that demand. The scheme of the Act and the validating provision did not authorise levy of interest where the demand had already been satisfied. Departmental circulars could not override the plain statutory language.

Conclusion: Interest under section 220(2) was not leviable for the period prior to the fresh demand notice, and the levy from the date of refund was unsustainable; the assessee succeeded.

Ratio Decidendi: Interest under section 220(2) is attracted only by default in payment of the amount demanded under section 156 within the statutory period, and not merely because the assessment is later restored after a refund has already been paid.

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