Gulati, J. - (1.) THIS is a reference under Section 66(2) of the Indian Income-tax Act, 1922. It is a consolidated reference relating to assessment years 1940-41 to 1946-47. The question No. 1 relates to the assessment year 1940-41 alone. The question No. 2 relates to all the assessment years while question No. 3 relates to assessment years 1940-41 to 1944-45. The questions are : " 1. Whether, in the circumstances of the case, the Tribunal was competent to direct the Income-tax Officer to calculate the amount of interest again and to pass a fresh assessment order so as to disallow out of interest a sum in excess of Rs. 30,000, when the assessee appealed against the disallowance of Rs. 30,000 ? 2. Whether, in the circumstances of the case, the Tribunal was right in including in the taxable income of the assessee the sum of Rs. f 5,000, due as rent from M/s. J. N. Cocolas and Co. Ltd. when the assessee's case was that in respect of that source of income it followed the cash system of accounting and not the mercantile system which it followed in respect of its business income ? 3. Whether, in the circumstances of the case, the Tribunal was right in including in the assessable income of the assessee a sum of Rs. 2,181, as the assessee's share of income in another firm of the name and style of Gopal and Co. ? "
(2.) THE facts giving rise to question No. 1 are these. While examining the account books of the assessee relating to assessment year 1940-41, the Income-tax Officer found that out of its borrowed capital, the assessee-firm had advanced a sum of about Rs. 9 lakhs to its partners but did not charge any interest on such advances. Out of the total interest claimed by the assessee as a deduction, the Income-tax Officer disallowed a sum of Rs. 30,000, representing the interest on the advances made to the partners on the ground that the capital advanced to the partners had not been utilised for business purpose. THE assessee's appeal on this point was rejected by the Appellate Assistant Commissioner of Income-tax. THE assessee then appealed to the Income-tax Appellate Tribunal. THE Tribunal found that out of the total borrowings amounting to Rs. 83,39,903 a sum of Rs. 11,25,572 was advanced to the partners and, as such, the assessee was entitled to a deduction of 72.5/83.3 of the total interest paid and the balance was to be disallowed. THE Tribunal accordingly directed the Income-tax Officer to work out the amount of disallowable interest according to this formula and to amend the assessment order accordingly. THE disallowance in this manner works out to Rs. 36,000 as against Rs. 30,000 disallowed by the Income-tax Officer. THE question No. 1 is as to whether the Tribunal was competent to issue such a direction to the Income-tax Officer. Under Section 33(4) of the Indian Income-tax Act, 1922, the powers of the Income-tax Appellate Tribunal in disposing of an appeal are stated in very wide terms. It can " pass such orders thereon as it thinks fit". However, the word " thereon " restricts the jurisdiction of the Tribunal to the subject-matter of appeal and the subject-matter of appeal is stated in the original grounds of appeal and such additional grounds as may be raised by leave of the Tribunal. It is not open to the Tribunal to adjudicate or give a finding on a question which is not in dispute and which does not form the subject-matter of appeal. Unlike an Appellate Assistant Commissioner, who has been specifically authorised under Section 31 to enhance an assessment, the Tribunal, in the absence of a cross-appeal or a cross-objection by the department, cannot enhance an assessment on an appeal by an assessee. Similarly, it is not open to the Tribunal to give a finding adverse to the assessee, which does not arise from any question raised in the appeal nor is it open to it to raise any ground which would work adversely to the appellant and pass an order which makes his position worse than it was under the order appealed against. The Madras High Court in V. Ramaswamy Iyengar v. Commissioner of Income-tax, 1960 40 ITR 377 has held that in such cases the Tribunal cannot exercise the power of remand with a view to enhancing the assessment. In Puranmal Radhakishan and Co. v. Commissioner of Income-tax, 1957 31 ITR 294 the Bombay High Court has taken a similar view. In that case the assessee had claimed a loss on the sale of certain shares on the basis of the difference between cost price and sale price of the shares. The Income-tax Officer and the Appellate Assistant Commissioner held that the assessee was entitled to claim loss on the basis of the difference between the market price on the date of purchase and the sale price. The market price was determined at Rs. 715 per share. The Income-tax Appellate Tribunal on appeal by the assessee gave a finding that the market price was at Rs. 524-6-0. The Bombay High Court held that the Tribunal has no jurisdiction to give such a finding. In Pathikonda Balasubba Setty v. Commissioner of Income-tax, 1967 65 ITR 252 Mys. the Mysore High Court has held that the powers of the Tribunal are limited to the subject-matter of appeal and that the Tribunal had no jurisdiction to make an enhancement beyond the figure fixed by the Income-tax Officer.
(3.) DR. Misra, the learned counsel for the department, contends that the powers of the Income-tax Appellate Tribunal are subject to no limitations and, as such, should be treated to include the power of enhancement. He has relied on three cases. The first case is that of Hukumchand Mills Ltd. v. Commissioner of Income-tax, [1967] 63 I.T.R. 232 ; [1967] 1 S.C.R. 463 (S.C.) It is difficult to appreciate how that case supports the contention of the learned counsel. There the Supreme Court, after stating that the powers of the Tribunal in dealing with appeals are expressed in Section 33(4) in the widest possible term, went on to observe at page 237: " The word ' thereon' of course restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words ' Pass such orders as the Tribunal thinks fit' include all the powers (except possibly the power of enhancement) which has been specifically conferred on the Appellate Assistant Commissioner by Section 31 of the Act." The next case relied upon by the learned counsel is that of New India Assurance Company Ltd. v. Commissioner of Income-tax, 1957 31 ITR 844. There the Bombay High Court held that the Appellate Tribunal has power to give, leave to the appellant to raise a new ground and in that connection it was stated that the position of the Appellate Tribunal was the same as that of a court of appeal under the Code of Civil Procedure. The Bombay High Court nowhere says that the Tribunal has the power of enhancement.;