Law:

Section:

Section 220(2), read with section 156, of the income-tax act, 1961-Recovery of tax-interest payable when assessee deemed in default-After completion of assessment, department issued demand notice under section 156-Assessee paid tax demanded within prescribed time but challenged assessment-Appeal was allowed by aac, tax was reduced and excess tax collected was refunded to assessee-On appeal by department, tribunal, however, restored original assessment order-Department, therefore, directed assessee to pay amount reduced and also interest thereon under section 220(2)-Whether said demand of interest was justified-Held, no Facts For the relevant assessment year, the assessment of the respondent-assessee had been completed. The department issued a demand notice under section 156. The assessee paid the demanded tax but challenged the assessment in appeal. The AAC allowed the assessec's appeal and the tax was reduced. The excess tax collected was, therefore, refunded to the assessee. The Tribunal, however, allowed the department's appeal against the AAC's order. Accordingly, the original assessment order was restored. The department directed the assessee to pay the amount reduced and also demanded interest on that amount under section 220(2). The assessee challenged the department's order to the extent it directed payment of interest. The single Judge allowed the assessee's claim. On writ by the department : Held Section 220(2), which provides for payment of interest, enjoins certain conditions for attracting the liability of payment of interest. The condition is that even after the notice of demand under section 156 and after a further period of 35 days as provided under section 220(1), the assessee should continue as a defaulter in the matter of payment of tax demanded. Only in case the assessee defaults payment of tax assessed 35 days after notice of demand under section 156, the liability to pay interest accrues. In the instant case, as the assessee had paid the tax when he received the demand notice under section 156, the requirement under section 220(2) for attracting the liability to pay interest was absent. Therefore, the department was not entitled to levy…

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