Section 220(2) interest on rectified demand starts only when the fresh demand is raised, not from an earlier date.

Interest under section 220(2) is chargeable only after a valid demand under section 156 is not paid within the time allowed under section 220(1). Where additional tax arises for the first time through appellate or rectification proceedings, the fresh demand does not relate back to the original assessment demand. The interest period therefore starts only from the date the new demand is raised, and no interest can be levied for any earlier period before that demand came into existence. The commentary relies on binding precedents supporting this condition-precedent approach to demand and default.

---

---

Issues: Whether interest under section 220(2) of the Income-tax Act, 1961 could be charged on an amount additionally assessed in rectification proceedings for a period prior to the fresh demand arising from the rectification order.

Analysis: The demand arising from the addition of excise duty did not form part of the original assessment demand and came into existence only after the later appellate and rectification proceedings. Interest under section 220(2) is attracted only when an amount specified in a notice of demand under section 156 is not paid within the time allowed under section 220(1). The requirement of a demand notice and default in payment is a condition precedent. Where the additional tax arises only on rectification, interest can run only from the date the new demand is raised, and the rectification order cannot carry interest for any earlier period. The binding precedents relied upon support this position.

Conclusion: Interest under section 220(2) could not be charged from the earlier date on the newly arising demand, and the deletion of such interest was .

---