Jurisdiction exceeded; rent wrongly taxed; income inclusion upheld. No costs awarded.

The Tribunal exceeded its jurisdiction by enhancing a disallowance without a cross-appeal, leading to a negative answer on Question 1. Regarding Question 2, the Tribunal erred in including rent as taxable income under the cash system, as the assessee could choose different accounting methods for various income sources. Thus, the answer to Question 2 is also negative. However, the inclusion of the assessee's share of income from another firm was upheld based on factual findings, resulting in an affirmative answer to Question 3. Consequently, the parties' success being divided, no costs were awarded.

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Issues Involved:
1. Competence of the Tribunal to direct the Income-tax Officer to calculate interest and pass a fresh assessment order.
2. Inclusion of Rs. 15,000 as taxable income from rent under the cash system of accounting.
3. Inclusion of Rs. 2,181 as the assessee's share of income in another firm.

Detailed Analysis:

Issue 1: Competence of the Tribunal to Direct Fresh Assessment Order
The Tribunal directed the Income-tax Officer to recalculate the amount of interest and amend the assessment order, resulting in a disallowance of Rs. 36,000 instead of Rs. 30,000. The court analyzed the powers of the Tribunal under section 33(4) of the Indian Income-tax Act, 1922, which allows the Tribunal to "pass such orders thereon as it thinks fit." However, the term "thereon" restricts the Tribunal's jurisdiction to the subject-matter of the appeal. The Tribunal cannot enhance an assessment or give a finding adverse to the assessee without a cross-appeal or cross-objection by the department. Citing precedents from the Madras, Bombay, and Mysore High Courts, the court concluded that the Tribunal overstepped its jurisdiction by enhancing the disallowance without a cross-appeal. Therefore, the answer to Question No. 1 is "No."

Issue 2: Inclusion of Rs. 15,000 as Taxable Income from Rent
The assessee leased a factory for Rs. 15,000 annually but claimed it should be taxed on this income only when actually realized, following the cash system of accounting for this source. The Tribunal included the rent in taxable income, reasoning that the assessee followed the mercantile system for interest on loans to the same party. The court clarified that under section 13 of the Act, the assessee has the option to adopt different accounting systems for different sources of income. Since the lease income falls under section 12 (income from "other sources"), the assessee could validly follow the cash system for this income while following the mercantile system for business income under section 10. The Tribunal's approach was incorrect, and thus, the answer to Question No. 2 is "No."

Issue 3: Inclusion of Rs. 2,181 as Assessee's Share of Income in Another Firm
The Income-tax Officer included Rs. 2,181 as the assessee's share of income from another firm, Gopal & Co., based on the finding that two partners were benamidars of the assessee. Despite the assessee's contention that it was not a partner and that the finding was made without notice, the Tribunal upheld the inclusion. The court noted that the Tribunal's finding that the partners were benamidars is a finding of fact, which cannot be challenged unless based on no material. The Appellate Assistant Commissioner based this finding on several relevant circumstances, such as the original capital being supplied by the assessee-firm and the inconceivability of transferring a lucrative business without consideration. Since these circumstances are relevant, the Tribunal's finding stands, and the answer to Question No. 3 is "Yes."

Conclusion:
- Question No. 1: No.
- Question No. 2: No.
- Question No. 3: Yes.

As the success of the parties is divided, there is no order as to costs.

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