Partial setting aside of assessment keeps original demand alive for section 220(2) interest from the original notice.

Where an assessment is only partly set aside or varied on appeal, the original demand survives for the purpose of section 220(2) interest, and the interest continues to run from the due date in the original demand notice with reference to the tax finally determined. The protection against revival of the original demand applies only when the assessment is wholly cancelled or fully set aside and that setting aside attains finality. On the stated facts, the assessee had defaulted in payment of the original demand, so interest under section 220(2) remained chargeable from the original notice rather than only from the consequential assessment order.

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Issues: Whether interest under section 220(2) of the Income-tax Act, 1961, was chargeable with reference to the original demand notice or only from the date of the consequential assessment order passed after the appellate order partly set aside the original assessment.

Analysis: The appellate order did not cancel the entire assessment. It set aside only certain issues and affirmed the assessment on other matters. Circular No. 334 clarifies that where an assessment is only varied or partly set aside, interest under section 220(2) is computed with reference to the due date under the original demand notice and with reference to the tax finally determined. The protection against revival of the original demand on a fresh order applies only where the assessment is wholly cancelled or set aside and that setting aside attains finality. On the facts, there was default in payment of the original demand and the Validation Act applied.

Conclusion: Interest under section 220(2) was correctly chargeable from the original demand notice and not merely from the consequential order. The assessee's contention failed and the Revenue succeeded.

Final Conclusion: In a case of partial setting aside of assessment, the original demand survives for the purpose of charging interest under section 220(2), and the liability is worked out with reference to the tax finally determined.

Ratio Decidendi: Where an assessment is only partly set aside or varied and the assessee had defaulted in complying with the original demand, interest under section 220(2) of the Income-tax Act, 1961, remains chargeable from the original demand notice with reference to the tax finally determined.

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