Refund-linked interest under tax law turns on section 143(1) refund status and proper recomputation of revived demand interest.

Interest under section 220(2) on a revived income-tax demand is to be computed from the expiry of the original demand period until payment, but only after lawful adjustment of amounts already paid and without mechanically appropriating sums towards a disputed section 234D levy. Section 234D interest applies only where a refund was actually granted under section 143(1), and the charging period runs from the date of that refund up to the date of regular assessment under section 143(3). If no section 143(1) refund was granted, no section 234D interest arises. The matter therefore requires factual verification of the refund position and consequential recomputation of interest.

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Issues: (i) Whether interest under section 220(2) of the Income-tax Act, 1961 was leviable on the revived demand after the High Court's order and how the payments made by the assessee were to be adjusted; (ii) Whether interest under section 234D of the Income-tax Act, 1961 could be levied and for what period, particularly where the existence of a refund under section 143(1) was in dispute.

Issue (i): Whether interest under section 220(2) of the Income-tax Act, 1961 was leviable on the revived demand after the High Court's order and how the payments made by the assessee were to be adjusted.

Analysis: The revived assessment demand after the High Court's order was treated as giving effect to the original notice of demand, and the amended framework governing section 220(2) was applied. The Court held that the assessee remained liable for interest from the expiry of the period in the original notice of demand until payment. At the same time, the working of interest had to take into account the correct adjustment of payments. Since levy of interest under section 234D was itself under challenge, any amount collected could not be mechanically first appropriated towards that component if the levy ultimately failed. The outstanding demand and interest under section 220(2) had to be recomputed accordingly.

Conclusion: Interest under section 220(2) was held to be leviable in principle, but its computation was directed to be revised after proper adjustment of payments.

Issue (ii): Whether interest under section 234D of the Income-tax Act, 1961 could be levied and for what period, particularly where the existence of a refund under section 143(1) was in dispute.

Analysis: The charging provision for section 234D applies only where a refund is granted under section 143(1), and the interest runs from the date of grant of such refund to the date of regular assessment. The Court found that if no refund had in fact been granted under section 143(1), the levy itself would not arise. Even if a refund had been granted, the period of interest could extend only up to the date of regular assessment under section 143(3), not beyond. As the factual foundation regarding grant of refund required verification, the issue could not be finally closed without that inquiry.

Conclusion: The levy under section 234D was set aside for verification of whether a section 143(1) refund had been granted, and if so, interest was to be restricted to the statutory period.

Final Conclusion: The matter was sent back for factual verification and recomputation of interest, with relief available if no section 143(1) refund had been granted and consequential recalculation of section 220(2) interest.

Ratio Decidendi: Interest under section 234D can be charged only when a refund has been granted under section 143(1), and interest under section 220(2) on a revived demand must be recomputed after making lawful adjustments to payments and any deleted interest component.

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