Deeming fiction for disclosed income sustains default interest from the deemed due date despite prospective commencement.

A deeming provision under section 46 treated unpaid tax on voluntarily disclosed income as tax due from the declarant from the day after the section 156 payment period expired, so the default-interest machinery in Chapter XVII-D, including section 220(2), applied from that deemed date. The note explains that the provision's commencement from 1 April 1967 did not confine interest to defaults occurring after that date, because the fiction gave retrospective legal effect to an earlier non-payment for the limited purpose of interest. A narrower reading would defeat the object of the deeming provision and the levy of interest for the earlier period was therefore valid.

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Issues: Whether interest under section 220(2) of the Income-tax Act, 1961 could be levied on tax payable on voluntary disclosure income for the period prior to 1 April 1967 after section 46 of the Finance (No. 2) Act, 1967 came into force.

Analysis: Section 46 created a legal fiction that unpaid tax on disclosed income would be deemed to be tax due from the declarant on the day following expiry of the payment period under section 156 of the Income-tax Act, 1961, and directed the application of Chapter XVII-D, including section 220(2). Once that fiction operated, the tax had to be treated as demand tax from the deemed date, and the statutory consequence of simple interest for default followed automatically. The commencement of section 46 from 1 April 1967 did not confine interest to the period after that date, because the provision was prospective in operation while still taking account of a past default for the purpose of its legal effect. A construction limiting interest to post-1 April 1967 would defeat the object of the deeming provision.

Conclusion: The levy of interest for the period prior to 1 April 1967 was valid and was not confined to the period after the commencement of section 46.

Final Conclusion: The challenge to the levy of interest failed, and the writ petition was dismissed.

Ratio Decidendi: Where a statute deems unpaid tax to be demand tax from an earlier date and applies the machinery provisions for default interest, the interest consequence follows from the deemed date even though the deeming provision itself comes into force prospectively.

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