PETITIONER: BINNY LTD. Vs. RESPONDENT: THEIR WORKMEN DATE OF JUDGMENT15/02/1972 BENCH: VAIDYIALINGAM, C.A. BENCH: VAIDYIALINGAM, C.A. DUA, I.D. MITTER, G.K. CITATION: 1973 AIR 353 1972 SCR (3) 462 ACT: The Payment of Bonus Act, 1965. ss. 17 and 19--Direction to pay half yearly bonus--If justified--Payment of additional bonus--Method of calculation. HEADNOTE: The appellant company was making two payments of bonus every year one for the half year ending 30th June and the other for the half year ending 31st December. The payment was on the basis of profits earned by it and the payment was not a condition of service and had nothing to do with any custom or festival. When the Payment of Bonus Act, 1965 came into force, the appellant issued a circular that as bonus was payable under law only within a period of 8 months from the end of the, accounting year (the appellant's accounting year was the calendar year), no bonus was payable for the accounting year 1965 until the accounts for the year are closed, and the announced payment of one month's basic wages as advance against wages for the half year ending 30th June 1965. The questions, (1) whether the appellant was justified in announcing the payment as advance against wages instead of as advance bonus, and (2) whether the respondents were justified in claiming bonus for the years 1962 and 1963, in addition to what had already been paid by the appellant were referred to the Industrial Tribunal. On the first question the Tribunal held. that the appellant was not justified in announcing the payment towards advance wages and directed the appellant to pay profit bonus in two installments one as advance against the final declaration of bonus, and the balance, if any, as the second instalment. On the second question the Tribunal held that the question of bonus payable was to be calculated in accordance with the Labour Appellate Tribunal Full Bench Formula approved in Associated Cement Companies Ltd. v. Workmen, r 19591 S.C.R.25; that in calculating the return on Reserves the claim of the appellant to include in the working capital the amounts sunk in (a) fixed assets and (b) capital work in progress should be disallowed; and that the claim of the appellant for a provision for rehabilitation should be rejected. In appeal to this Court. HELD : (1) (a) Under the Act, bonus for a particular accounting year will have to be computed in accordance with the provisions of the Act on the basis of the gross profits determined at the close of the accounting year. The Act makes provision as to how the gross profits, available and allocable surplus are to be calculated, and s. 19 prescribes 8 months from the close of the accounting year as the period within which the bonus was to be normally paid. The scheme of the Act shows that a claim for bonus can be made only after the close of-the accounting year, because., gross profits and the available and allocable surplus can be worked out only at the end of the accounting year and not earlier, whereas the direction given by the Tribunal requires the employer to make two computations at the end of each half year. [469 E-H; 470 A-B] 463 (b) The direction given by the Tribunal making it obligatory on the management to make half yearly payments of bonus apart from being opposed to the scheme of the Act, runs counter to s. 19. Under the section, whether it is the minimum bonus of 4% under s. 10 or the maximum bonus of 20% under s. 11, they have to be paid only within a period of 8 months from the closing of the accounting year. [470 C-E] (c) Section 17(b) is an enabling section in favour of the employer in that it visualizes a situation when he may have paid during the accounting year a part of the bonus payable under the Act, before the date on which such bonus becomes payable. If the payment was by way of profit bonus, he is entitled to deduct it from the final amount that may be payable under the Act. But that provision does not give a right to an employee to claim payment of bonus by way of part payment during the currency of the accounting year. Therefore, the mere fact that the appellant has been making payments on previous occasions half yearly, does not confer a right on the employee to have such payments by way of bonus in the same manner after the Act has come into force. Hence, the Tribunal had no jurisdiction to give a direction to the appellant to, pay bonus at the end of each half year. [471 A-C] (2) (a) In considering the claim for return on working capital two questions have to be kept in view : (i) whether Reserves were available, and (ii) whether they were used as working capital, and if so, what was, the amount used. 1477 GI In the present case, the Tribunal has correctly kept the two principles in view in arriving at the amount of Reserves used as working capital and on which a return is to, be allowed. The balance sheets of the appellant do not have any figures from which the Tribunal would be able to, draw a conclusion. The Tribunal, therefore, while accepting the statements. of account filed by the appellant for the two years, for showing how it had calculated the amount of Reserves utilized as working capital, held, that the two items should be deducted; because, working capital represents the funds required for day-to-day Work of the company and cannot include,, fixed assets, and the capital works in progress. [477 G-H; 478 A-C] Workmen of M/s. Hindustan Motors Ltd. v. M/s. Hindustan Motors Ltd. & Anr. [1968] 2 S.C.R. 311 and M/s. Aluminium Corpn. of India v. Workmen, [1969] 3 S.C.R. 832, referred to. Therefore, the contention that the Tribunal had committed a mistake in calculating the amount of Reserves used as working capital cannot be accepted. [478 D-E] (b) A company should build up rehabilitation reserve taking into consideration the increase in price in plant and machinery which has to be replaced at a future date. But since it is a substantial item which goes to reduce the available surplus and as a result, affects the right of the employees to bonus, the employer will have to place all relevant material, before the Tribunal for its scrutiny. The burden of proof is on the employer to prove the price of the plant and machinery, its age, the period during which it requires replacements, the cost of replacement, the amount standing in the Debenture and Reserve Funds and to what extent the funds at its disposal would meet the cost of replacement. If the employer fails to lead satisfactory evidence on these points his claim for rehabilitation will be rejected. Also, if a company has no scheme for rehabilitation then its claim on that bead must be rejected. [479 A-E; 481 B-C] 464 Azam Jahi Mills Ltd. v. Workmen, [1967] 2 L.L.J. 18 and National Engineering Industries Ltd. v. Workmen, [1968] 1 S.C.R. 779, referred to. in the present case, the averment in the written statement of the respondents, that the appellant's machinery was among the most modern and no provision for rehabilitation was necessary, was not controverted by the appellant. The balance sheets for the two years showed that some amounts were spent on machinery. But when the respondents were contesting the claim of the appellant on the ground that it had no scheme of rehabilitation and that it had not spent any amount by way of replacement, it was the duty of the appellant to have made a proper claim and to adduce evidence regarding that aspect. Mere production of balance sheets and profit and loss accounts and adding a note in the statements, of account filed that the figure is 'subject to claim for rehabilitation' will not entitle the appellant to sustain its claim for rehabilitation. Moreover, the appellant had large Reserves to meet rehabilitation expenses. It had also 'Boated a debenture for buying new machinery. [481 G-H; 482AC, D] Further, in determining the claim of an employer far rehabilitation, two, factors are essential to be ascertained, namely, (i) the multiplier, which has to be done by reference to the purchase price of the machinery and the price which has to be paid for replacement; and (ii) the divisor, which has to be done by deciding the probable life of the machinery. [479 E-F] Honorary Secretary, South India Millowners' Assn. v. Secretary Coimbatore District Textile Workers' Union, [1962] Supp. 2 S.C.R. 926 and M/s. Gannon Dunkerley & Co. v. Their Workmen, A.I.R. 1971 S.C. 2567, referred to. In the present case no material was placed before the Tribunal by the appellant from which the multiplier and divisor can be properly worked out. [481 E-F] Therefore, the Tribunal was justified in holding that the appellant had not made out its claim for making provision for rehabilitation. [482 C-D] (c) The equitable method of allocating the available surplus between the company and its workmen is to distribute 60% as bonus to the workmen leaving the remaining 40% to the company. In the present case, the method of calculation adopted for 1962, by the Tribunal, shows that the amount of bonus awarded by the Tribunal together with the amount already paid by the appellant exceeded 60% and the award of the excess was not justified. [484 A-C] M/s. Gannon Dunkerley & Co. v. Their Workmen, A.I.R. 1971 S.C. 2567. referred to. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1291 and
1292 of 1967.
Appeals by special leave from the award dated June 30 1967
of the Additional Industrial Tribunal, Bangalore in A.I.D.
Nos.6 ‘,and 8 of 1966.
O. P. Malhotra and D. N. Gupta, for the appellant.
I. N. Keshava and K. Rajendra Chowdhary, for respondents
Nos.2 and 3.
Vineet Kumar, for respondents Nos. 4 to 10.
465
The Judgment of the Court was delivered by
Vaidyalingam These two appeals, by special leave, are
directed against the common Award,, dated June 30, 1970 of
the Additional Industrial Tribunal, Bangalore, in two
References, A.I.Ds. 6 and 8 of 1966.
On December 8, 1965, the Government of Mysore referred to
the Industrial Tribunal for adjudication the following
question
“Is the Management of the Bangalore Woollen,
Cotton and Silk Mills Company Limited,
Bangalore, justified in announcing payment of
one month’s basic wages as advance against
wages for the half-year ending June 1965
instead of declaring this payment as an ad-
vance against payment of bonus as was being,
done all these years ?
If not, what other relief the workers are
entitled to. This was numbered as Reference
No. A.I.D. 6 of 1966. Civil Appeal No. 1291
of 1967 is directed against that part of the
order of the Tribunal regarding this
Reference.
On March 5, 1966, the Government of MysorE
referred to the same Tribunal for adjudication
the following question
“Whether the demand of the workers of
Bangalore Woollen, Cotton and Silk Mills Co.,
Ltd., Bangalore, for additional bonus for the
year 1962 and 1963 at the rate of 2 months
additional bonus and4 months additional
bonus on total wages respectively is
justified.
If not, to what other relief or reliefs are
the workmen entitled ?”
This Reference was numbered as A.I.D. 8 of 1966. Civil
Appeal No. 1292 of 1967 is directed against that part of the
order of the Tribunal regarding this Reference. Both the
appeals are by the Company.
We will first take up Civil Appeal No. 1291 of 1967.
appellant was making two payments of bonus every year, one
for the half-year ending 30th June and half-year ending 30th
December. The accounting year is the Calendar year. The
half yearly payments were unilaterally declared by the
appellant and not on the basis of any agreement between the
parties. The quantum of bonus that was paid for each half-
year was also not constant. Half-yearly payments were made
at the end of the half-year when
466
the working result of the said year was known and if there
was sufficient profit to pay bonus. The payment of bonus
for the half years also depended upon the approximate
estimate that the Directors used to make about their
prospective future earnings for next half-year. According
to the appellant the bonus amounts were paid out of profits.
As the Payment of Bonus Act, 1965 (hereinafter to be
referred as the Act) had come into force on August 28, 1965,
the appellant issued a circular to the effect that for the
half-year ending June 30, 1965, payments will be made as
advance of wages equivalent to 1/6th of the basic earnings
of the employees. In this circular there is a reference to
the Payment of Bonus Ordinance 1965, promulgated on May 29,
1965 and that under the terms of the Ordinance, bonus is
payable only within a period of 8 months from the end of
the-accounting year. The circular further states that no
bonus is payable for the accounting year 1965 until the
accounts for the year are closed. It was further mentioned
that the amounts are paid as advance wages in view of the
representations made by the employees. The circular further
mentioned that the amounts paid as advance wages will be set
off against the bonus that may be found payable for the ac-
counting year 1965 and that if no bonus is payable, the
amount paid will be adjusted against the wages due for any
month after March, 1966.
The issue of the above circular led to the Unions concerned
raising a dispute with the Management that the payment of
bonus at the end of each half-year has become a condition of
service of the workmen as the same was being paid for
several decades without any relation to profits. The
appellant was charged by the Unions of having changed the
conditions of service by offering to make payments as
advance against wages instead of payment by way of bonus.
As conciliation proceedings failed, the workmen resorted to
a strike in December 1965, which led to the Reference being
made by the State Government on December 8, 1965, No. A.I.D.
6 of 1966.
The short stand taken by, the appellant before the Tribunal
was that the payments were being made as bonus at the end of
each half-year on the basis of the profits earned by the
Company. Such payment was a voluntary act of the appellant
and related to profit and it had not become a condition of
service of the employees. The further case of the appellant
is that as the Act had come into force, bonus is governed by
the provisions of the Act and that bonus is to be paid only
within eight months after the close of the year of account,
i.e., December 31, 1965.
The Unions pleaded that the payment of bonus at the end of
each half-year, which was being done for a long number of
years,
467
has become a condition of service and the amounts paid were
not related to the profits earned by the Company. The
Unions further contended that the Act has not in any manner
affected the right of the employees getting bonus in the
manner paid by the appellant namely , at the end of every
half-year.
The Tribunal has recorded the following findings : The pay-
ment of bonus was not a settled condition of service, but is
dependent upon the profits earned during the half-year.
Payments made by the appellant at the close of the half-year
cannot be considered as customary or festival bonus and that
the appellant has made no change in the conditions of
service of the workmen by altering the quantum of bonus.
Though bonus was paid at the close, of each half-year, the
quantum of such bonus varied depending upon the profits
earned by the Company. The Company has no doubt been paying
for a long time profit bonus in two instalments, namely, in
the month of August for the half year ending 30th June and
in the month of March or April of the succeeding year for
the half-year ending 31st December. The coming into force
of the Act has, not created any right in the appellant to
withhold the payment for each half-year as it used to do.
The appellant will be entitled to deduct the amount of bonus
paid for the first half year from the amount of bonus
payable to its, employees under the Act in respect of the
accounting year and the employees will be entitled to
receive only the balance for the second half-year. On these
findings the Tribunal held that the appellant was not
justified in announcing the payment of the amount towards
advance wages under the circular dated August 28, 1965. In
the end the Tribunal gave a direction to the effect that the
appellant is liable to pay profit bonus in two instalment as
advance against the final declaration of bonus to be paid
during the last week of August or first week of September
and the balance, if any, was to be paid in the month of
March or first week of April of the succeeding year. It
further gave a direction that the first payment that is to
be paid is to be as advance against payment of bonus and not
as against wages.
Mr. Malhotra, learned counsel for the appellant, has chal-
lenged the above directions given by the Tribunal. The
counsel pointed out that after the coming into force of the
Act, the rights and liabilities of the parties, regarding
bonus, are governed by its provisions. Under the Act, the
computations of the available and allocable surplus have to
be made on the basis of the gross-profits ascertained at the
end of the relevant accounting year and the payment of bonus
has to be made within eight months of the close of the
accounting year. As the Act envisages payment of only one
bonus, at the end of the accounting year, after computation
of the amount as per the Act, the direction given by the
Tribunal
468
regarding payment of half-yearly bonus is illegal and
contrary to the provisions of the Act. This direction, the
counsel pointed-out, given by the Tribunal, will apply not
only to the year 1965, but also to all succeeding years.
On the other hand, Mr. H. K. Puri, learned counsel for the
respondents Nos. 2 and 3, whose contentions have been
accepted by the, counsel for the other respondents, urged
that the Act does not prohibit an employer from paying bonus
at the end of each half-year. The appellant has been paying
bonus in two installments, namely, at the end of each half-
year. It is always open to the appellant, both by virtue:
of the provisions of the Act and the direction given by the
Tribunal to deduct when paying final bonus at the end of the
accounting year, any amounts that may have been paid for the
first half-year. Therefore, according to Mr. Puri, the
directions given by the Tribunal are neither illegal nor
contrary to the provisions of the Act.
We are not inclined to accept the contention of Mr. Puri.
We have already referred to the findings of the Tribunal to
the effect that the amount that was paid by the appellant as
bonus at the end of each half-year was on the basis of the
profits earned by it The Tribunal has rejected the claim of
the Unions that the payment of bonus, in the manner claimed
by them, was not a condition of service and that the payment
had nothing to do with any custom or festival. These
findings have not been and in fact could not be challenged
by the respondents. There is also no controversy that
payment of bonus for the accounting year 1965 is governed by
the provisions of the Act. If so, the question is whether
the directions given by the Tribunal and referred to above,
can be supported by the provisions of the Act.
The Act has come into force with effect from August ‘-IS,
1965. As provided under sub-section (4) of section 1, it
applies to all accounting years commencing on any day in the
year 1964 and in respect of every subsequent accounting
year. Section 2 defines amongst others the expressions,
“accounting year”, “allocable surplus”, “available surplus”
and “gross profits” Section 4 deals with the computation of
gross-profits. So far as the appellant is concerned; under
s. 4, cl. (b) the gross-profits are to be calculated in the
manner specified in the Second Schedule. Section 5 provides
for computation of available surplus. It is to be
ascertained after deducting from the gross-profits the
various items, referred to in S. 6. Section 6 deals with the
items to be deducted as prior charges from the gross-
profits. Section 10 makes it obligatory on an employer to
pay minimum bonus to the employees in an accounting year of
4% of his salary or wages or Rs. 40/- whichever is higher.
This payment is irrespective of the
469
fact whether a Company has or has not earned profits in an
accounting year. But this provision is subject to the
provisions of ss. 8 and 13. Section 11 provides for payment
of bonus subject to a maximum of 20% of the salary or wages,
if the conditions mentioned therein are satisfied. Section
17 enables an employer, who has paid during any accounting
year Puja Bonus, or other customary bonus or a part of the
bonus payable under the Act before the due date, to deduct
the amount so paid from the amount of bonus payable by him
to an employee under the Act in respect of that accounting
year. It further provides that under such circumstances the
employee will be entitled to receive only the balance.
Section 19 fixed the time limit for payment of bonus. If
there is a dispute regarding payment of bonus pending before
any authority, the bonus will have to be paid within a month
from the date, on which the Award becomes enforceable or the
settlement comes into operation. In any other case the
bonus will have to be paid within a period of eight months
from the close of the accounting year. Under the proviso to
s. 19, power is given to the appropriate Government to
extend the period of eight months in accordance with the
provisions contained therein. Section 34 provides that the
Act except as otherwise provided in the section, shall have
effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or in
the terms of any Award, agreement, settlement or contract of
service made before May 29, 1965.
We have referred to some of the relevant provisions of the
Act. From a perusal of the scheme of the Act, it is clear
that the bonus for a particular accounting year will have to
be computed in accordance with the provisions of the Act on
the basis of the gross-profits which are determined at the
close of the accounting year. The Act itself provides as to
how the gross-profits are to be calculated and the available
and allocable surplus arrived at The Act also provides the
outer limit, the period within which bonus has to be paid.
It further gives the employer a right to deduct any amount
that any have been paid during the accounting year as part
of the bonus payable under the Act.
It will be seen from the scheme of the Act that the claim
for bonus can be made only after the close of the accounting
year and in accordance with the provisions of the Act. The
gross-profits can be calculated only at the end of the
accounting year and the available and allocable surplus can
also be worked out only at the end of the accounting year.
There is no question of an employer computing the gross-
profits,, available and allocable surplus in the middle of
an accounting year or at any time before the close of the
relevant accounting year. The direction given by the
Tribunal really amounts to the employer having to make, two
831 Sup CI/72
470
computations at the end of each half-year. No doubt the
Tribunal has given a direction to the effect that any amount
paid for the first half-year can be deducted when the final
bonus is paid at the, end of the accounting year.Even
without any such consideration being shown by the
Tribunalallowing an employer to so deduct section 17gives
such a right to an employer. We are not impressed with
thecontention of Mr. Puri that as there is no prohibition
in theAct against an employer making the payment by way
of bonus at the end of a half year, the direction given by’
the Tribunal can be sustained.
Mr. Puri referred us particularly to the provisions
contained in s. 17 of the Act. He pointed out that though a
time limit is fixed by s. 19, the Act itself as is evident
from s. 17, clearly envisages payment of bonus at the end-of
each half year. We are not inclined to accept this
contention of Mr. Puri. The direction given by the Tribunal
making it obligatory on the Management to make half yearly
payment of bonus apart from being opposed to the scheme- of
the Act, also runs counter to the provisions of s. 19.
Whether it is the minimum bonus of, 4% under s. 10 or’ the
maximum bonus of 20 % under s. 11, they have to be paid, as,
is made clear by s’ 19, only within the period mentioned
therein.’ It may be that an employer voluntarily pays amount
during the accounting year by way of part bonus which he is
entitled to take into account and adjust when making final
payment at the close of the accounting year. It is one,
thing to say that an employer can make voluntary payment,
but it is- a different thing for the Tribunal to give a
direction to that effect.
Section 17 on which reliance, is placed by
Mr. Puri is as follows:
“Where in any accounting year–
(a) an employer has paid any paid bonus or
other customary bonus to an employee; or
(b) an employer has paid a part of the bonus
payable under this Act to an employee before
the date on which such bonus becomes payable,
then, the employer shall be entitled to deduct
amount of bonus so paid from the amount of
bonus payable by him to the employee under
this Act in respect of that accounting year
and the employee shall be entitled to receive
only the; balance.
Clause (a)has no application as the Tribunal has categori-
cally held that there is question of any payment by way of
puja bonus, or other customary bonus. Even then if any such
bonus
471
has been paid the employer is entitled to deduct the same
from the amount of bonus payable under the Act. Clause (b)
is an enabling section in favour of the employer in that it
visualizes a situation or contingency where he may have paid
during the accounting year a part of bonus payable under the
Act “before date on which such bonus becomes payable”. If
an employer has paid any amount during an accounting year by
way of part of the bonus, he, is entitled lo deduct the same
from the final amounts that may be payable under the Act.
That provision does not give a right to an employee to claim
payment of bonus even by way of part payment during the
currency of the accounting year. If so, the Tribunal has
also no jurisdiction to give a direction to an employer to
pay bonus at the end of each half-year.
In this case,it is no doubt, seen that the appellant has
been paying bonus atthe end of each half-year. But the
Tribunal has found that suchpayment has not become a
condition of service. Therefore by the mere fact that the
appellant has been making payments on previous occasions
every half-yearly, does not confer a right on the employee
to have such payments by way of bonus in the same manner
even after the Act came into force,..
From the above discussion it follows that the directions
given, by the Tribunal in A.I.D. No. 6 of 1966 have to be
set aside.
Now coming to Civil Appeal No. 1292 of 1967, as mentioned
earlier, it is against that part of the Award of the
Tribunal in A.I.D. No. 8 of 1966. The question that was
referred to the Tribunal has also-been extracted in the
earlier part of the judgment. That relates to a claim for
additional bonus for the years, 1962 and 1963, There is no
controversy that the appellant has already paid for the year
1962, three months basic wages as bonus. Similarly for the
year 1963 also four months basic wages as bonus has already
been paid. The claim was for, two months total wages as
additional bonus for the year 1962 and four months’ total
wages as additional bonus for the year 1963. The findings
recorded by the Tribunal in A.I.D. No. 6 of 1966 regarding
the nature of bonus paid to the employees have been adopted
for this reference also. The respondents-Unions do not
challenge those findings. Therefore, even in respect of the
years 1962 and 1963, what is payable is only profit bonus.
There is also no controversy that for these two years the
quantum of bonus payable has to be calculated in
accordance. with what is known as the Labour Appellate
Tribunal Full Bench Formula, which has been approved by this
Court in The Associated Cement Companies Ltd. Dwarka Cement
Works, Dwarka v. Its Workmen and Another(1). Both the
parties have filed statements of calculations according to
(1) [1959] S.C.R. 925.
472
the said Formula. The statements Exs. M. 1 and M.2 filed
by the Management represent the computation of available
surplus for the years ended December 31, 1962 and 1963
respectively. Ex. M. 1 is as follows-:
“THE BANGALORE WOOLLEN, COTTON & SILK MILLS CO. LTD.
Statement showing the computation of available surplus for
the year ended 31st December, 1962
(Under L.A. T. Formula)
Profit as per profit and loss Account6801756 Add:
Provision for Bonus 1614000
Depreciation on Fixed Assets 1696481
Donations 107362
Additional Bonus for 1961 146000
3563843
----------
10365599
.Less:
Profit on sale of assets 1745426
8620173
Less
Normal Depreciation and Shift Allowance1465812
7154361
Less:
Tax Liability
Profit as above 7154361
Less
-Development Rebate 586415
6567946
Income-tax Liability at
50 Y. on Rs. 65534083276704
Income-Tax at
25 % on Rs.145383635
65679463280339
Super Profits Tax on Rs. 6553408409158
3689497
Return on Capital employed
Preference Share Capital
78 %. on Rs. 60000046800
ordinary Share Capital 729000
6% on Rs. 12150000
Reserves employed in the business
4% on Rs. 469379 471787 3325545336244030
Available Surplus.Rs. 910331
Subject to claim for rehabilitation.
473
We have prepared the above statement from the audited
accounts of the Company and is in accordance therewith. The
return on Capital and Reserves is as claimed by the Company.
Sd/Illegible
Chartered Accountants.”
Similarly Ex. M2 regarding the year 1963 is as follows :
“THE BANGALORE WOOLLEN, COTTON & SILK MILLS CO. LTD.
Statement showing the computation of available surplus for
the
year ended 31st December 1963
(Under L. A. T. Formula)
Profit as per Profit and Loss Account 5239220
ADD :
Provision for Labour Bonus 2245000
Depreciation on Fixed Assets 1733719
Donations 8804
Provision for Taxation 8110000 12097523
----------
17336743
LESS:
Profit on Sale of Assets 83093
Excess Provision of Electricity charges and interest
written back 675184 758277
16578466
LESS:
Normal depreciation and Shift Allowance 1647555
14930911
LESS
Tax Liability
Profit as above 14930911
Less
Development Rebate 460548
14470363
Income-tax Liability at
50% on Rs. 14455825 7227912
25 % on Rs. 145383635
Dividend-tax 164025
Companies (Profit) Surtax
Liability on Rs. 1445582 51786212
9181784
Return on Capital Employed
Preference Share Capital
7 .8 % on Rs. 600000 46800
Ordinary Share Capital
6 Y. on Rs. 12150000 729000
Reserves employed in the business
4 % on Rs. 46937947 .1877518265331811835102
————————–
Available surplus 3095809
Subject to claim for rehabilitation.
474
We have prepared the above statement from the audited
accounts of the company and certify that it is in accordance
therewith. The return on capital and reserves is, as
claimed by the company.
Sd. illegible Chartered Accountants.
The Tribunal has accepted as correct the gross-profits as
given by the appellant in these, two exhibits for the two
years in question. Even though the Unions contested the
return on Preference Share Capital at 7.8%, the Tribunal has
rejected their objections. it has held that under the
Preference Share Regulations Act, the Company is bound to
pay 7.8% on Preference Share Capital. Ile Workmen did not
raise any controversy regarding the return on Ordinary Share
Capital at 6%. The Tribunal, therefore, accepted the
figures given in both Exs. M. 1 and M. 2 and to the return
of Ordinary Share Capital. But the controversy arose about
the claim made by the appellant regarding return on Reserves
employed during the two years. It will be noted that
neither in Ex. M. 1 nor in Ex. M. 2 the appellant has made
any claim for rehabilitation excepting adding a note to the
statement that they are subject to a claim for
rehabilitation.
The two points in controversy between the parties regarding
these two years were (1) The claim for Return on Reserves
and (2) Provision for Rehabilitation.
We will first take up the question regarding the claim of
the appellant for return on Reserves. In Ex. M. 1, the
appellant has claimed a sum of Rs. 178733.00 as 4% return on
Rs. 44468315.00 being the amount employed in business.
Similarly in Ex. M.2, for the year 1963, it had claimed Rs.
1877518.00, being 4% return on Reserves on Rs. 46937947.00,
employed in the business. The Unions contested the claim of
the appellant on the ground that they are not entitled to
any return on Reserves. The appellant had filed two
statements Exs. Ml (a) and M.2(a) for the years 1962 and
1963 respectively, showing how the amounts claimed as
Reserves employed in business have been arrived at Ex. M. 1
(a). for the year 1962 is as follows
THE BANGALORE WOOLLEN, COTTON & SILK MILLS CO. LTD.
Year ended 31st December 1962.
Reconciliation of Capital employed in the business during
the year ended 31st December. 1962.
475
“As at 31-12-1961:
Fixed Assets and Capital Works 43139570
in Progress
Investments 595216
Interest accrued on Investments 17477
Stores and Spare parts 6179042
Raw Materials 6886058
Process Stocks 5053558
Finished Stocks 1381082
Sundry Debtors 2473722
Advances 2768233
Balance with Railway and
Excise Authorities 292529
Deposits 18993 68806470
——————-
LESS
Sundry Creditors 7077709
Due to Directors 63744
Unclaimed Dividends 18257
Provision for Taxation 1057850
Proposed Dividends 1481400
Provision for Gratuity 1860431
Officer's Retiring Fund 26764
(Fund loss investments) 11588155
-------------
57218315
LESS:
Share Capital
12750000
Rs. 44468315"
Exhibit M.2(a) for the year 1963 is as follows
“THE BANGALORE WOOLLEN, COTTON & SUR MILLS CO. LTD.
Year ended 31st December, 1963.
Reconciliation of Capital employed during the year ended 31-
12-1963.
As at 31-12-1962 45229453
Investments 548575
Interest accrued on Investments 8703
Stores and Spare Parts 6553343
Raw Materials 4701434
Process Stocks 7285534
Finished Stocks 1688931
Sundry Debtors 3429299
Advances 3165324
Balances with Railway and Excise Authorities 346450
.Deposits 24234
————-
729811280
476
LESS:
Sundry Creditors 7686123
Due to Directors 65278
Unclaimed Dividends 22837
Provision for Taxation 2305645
Proposed Dividends 1481400
Provision for Gratuity1 706251
Officers Retiring Fund 25799
(Fund less investments) 13293333
--------------------
59687947
Less Share Capital 12750000
Rs. 46937947"
It will be seen that the last figures shown in both the
statements have been claimed by the appellant as Reserves
employed in business for each of these two years.
The Tribunal after a reference to the evidence of the Char-
tered Accountant,, M.W.1, has held that the amounts which
should have been used as Working Capital are those mentioned
in Exs. M.1(a) and M.2(a), less the fixed assets and
capital works in progress. The Tribunal has further held
that the working capital cannot include fixed assets nor the
capital works in progress, as they represent the funds
required for day to day work of the Company. According to
the Tribunal these fixed assets have been accumulated over
years and they cannot form part of-the working capital.
However, the Tribunal accepted the claim of the appellant
that the other items in Exs. M.1(a) and M.2(a), namely,
investments, interest accrued on investments, stores and
spare parts, raw materials, process stocks, finished stocks,
sundry debtors, advances etc. are the amounts available to
be used as working capital. On this reasoning the Tribunal
held that in calculating the return on working capital, the
amounts mentioned in Ex.M.1(a) and M.2(a) less the amount
sunk in fixed assets and working capital in progress, have
to be deducted. On this basis it deducted from Rs.
44468315, a sum of Rs. 43139570, and fixed a sum of Rs.
1328745, as Reserves employed in business during the year
ended December 31, 1962. On this amount it allowed a sum of
Rs. 53150/- as return on Reserves at 4% for the year 1962.
Similarly, for the year 1963, it deducted from Rs. 46937947
a sum of Rs. 45229423, and fixed a sum of Rs. 1708524/- as
Reserves employed in business during that year. On this
amount it allowed Rs. 68340/- as return on Reserves at 4%.
Mr. Malhotra, learned counsel for the appellant, while
accepting that the principle adopted by the Tribunal in this
regard is
477
correct, contended that it had made a mistake incalculation.
According to the learned counsel, the claim musthave been
allowed in the manner calculated by the appellant.In this
connection, the learned counsel pointed out that even in
cases where the evidence regarding the utilization of
Reserves as Working Capital as claimed by the Company, is
not very satisfactory, this Court,, on the basis of the
balance sheets, which indicated that some amount must have
been used as working capital has allowed such a claim. In
this connection, he relied on Workmen of M/s Hindustan
Motors Ltd. v. M/s Hindustan Motors Ltd., and Another(1) and
Messrs. Aluminium Corporation of India v. Their Workmen
(2).
We may straightaway say that these decisions do not assist
the appellant. In the case before us it is not necessary to
do any guess work as the appellants wants us to do. The
appellant has filed statements showing how it has calculated
the amount of Reserves utilized as working capital and we
have to find out whether the calculations made by it are
correct. In fact, Mr. Malhotra has not been able to point
out from the balance sheets, as to what amount, according to
the appellant, can be considerd to have been used as working
capital. In the two decisions,, relied on by him, the
company concerned was able to refer to the figures in the
balance sheets from which this Court was able to draw a
conclusion regarding the approximate amount that would have
been utilized as working capital. The position before us is
entirely different.
On the other hand, Mr. Puri” learned counsel for the respon-
dents, referred us to the balance sheets for the years in
question regarding the share capital of the company being
shown as Rs. 12750000/-. The counsel further pointed out
that the said share capital must have been sunk in acquiring
the fixed assets and for capital works in progress and,
therefore, the Tribunal was justified in deducting the
amount of fixed assets and capital works in progress shown
in Exs. M. 1 (a) and M.2 (a) from the total shown by the
appellant in those statements. The counsel further urged
that in considering the claim for return on working capital
two questions have to be kept in view: (1) Whether the
Reserves were available, and if they were (2) whether they
were used as working capital and if so what is that amount.
The Tribunal in our opinion, has correctly kept these two
principles in view in arriving at the amount of Reserves
used as working capital and on which a return is to be
allowed. We see no error committed by the Tribunal in the
calculation made for arriving at the, Reserves which must
have been used as working capital, especially as the
evidence on the side of the appellant was very
unsatisfactory. Even the appellant has deducted the amount
of share capital before
(1) [1968] 2 S.C. R. 311.
(2) [1969] 3 S.C.C. 832.
478
arriving at the final figures mentioned in Exs. M.1(a) and
M.2 (a). But the appellant was claiming the whole of the
final amount shown in these two statements as Reserves used
as working capital, which it was not certainly entitled to
in law.
We have already pointed out that the Tribunal has held that
the working capital cannot include fixed assets nor the
capital works in progress as it represents ‘the funds
required for day to day running of the Company. The,
Tribunal has further held that the appellant is entitled to
deduct investments, interest accrued on ,investments etc.
which have been shown in Exs. M 1 (a) and M.2(a) on the
ground that they must be considered to be the amounts
available to be used as working capital. These findings
have not been challenged by the learned counsel for the
appellant. The appellant has also filed details of Reserves
employed in the business during the years ended 31st
December, 1962 and 1963 as shown in Exs. M. 1 (b) and
M.2(b) respectively. Even ,there the appellant has deducted
the share capital before giving final figures.
Therefore, the contention of Mr. Malhotra that the Tribunal
‘has committed a mistake in calculating the amount of
Reserves used as working capital for these two years, cannot
be accepted. If so, it follows that the amount fixed by the
Tribunal as return ‘at 4% on Reserves used as working
capital for these two years, is correct.
The second question that arises for consideration is the
claim made by the appellant for provision for rehabilitation
for the two years and which claim has been rejected by the
Tribunal. The claim made by the appellant for provision
for rehabilitation for the year 1962 was Rs. 18030871.00 and
for the year 1963 Rs. 18062336.00. Thus the appellant was
claiming for each year provision being made of more than a
crore of rupees for rehabilitation. The appellant has filed
a chart Ex. M.8 giving the calculations for the year 1962,
its claim for rehabilitation for Rs. 18030871.00. If the
claim for rehabilitation is accepted, then the result will
be that there will be no profits at all from and out of
which any bonus can be paid for the years in question.
The claim of the appellant has been opposed by Mr. I. N.
Keshava, learned counsel for the first respondent and his
contentions have been adopted by the counsel appearing for
the other respondents-Unions. The claim of the appellant is
opposed mainly on two grounds, namely, (1) that the
appellant has no scheme for rehabilitation for the relevant
years and (2) in any event there were huge Reserves
available from which the, claim for rehabilitation can be
easily met. The Tribunal has rejected the claim for
rehabilitation both on the grounds that the appellant
479
has no scheme for rehabilitation and that the rehabilitation
claim can be adequately met with from the huge Reserves of
nearly four crores of rupees that the appellant had.
It must be noted that Rehabilitation Reserve is a
substantial item which goes to reduce the available surplus
and as a result affects the right of the employees to
receive the bonus. Hence the employer will have to place
all relevant materials and the Tribunal will have to
scrutinize them carefully and to be satisfied that the claim
is justified. It is no doubt true that it is but proper in
the larger interest of the industry as well as the employees
that proper rehabilitation Reserve should be built up taking
into consideration the increase in price in plant and
machinery which has to be replaced at a future date and by
determination of multiplier and its deviser. It is also
clear from the decisions of this Court that if a Company has
no scheme for rehabilitation, then of course, its claim on
that head must be rejected. [vide Azam Jahi Mills, Ltd. v.
Their Workmen(1)]. Further, since it is the employer who
seeks replacement costs, it is for him to satisfy the
Tribunal as to what will be the overall cost of replacement
and in doing so, it is he who has to discharge, this burden
by adducing proper evidence and giving other party an
opportunity to test the correctness of that evidence by
cross-examination. [vide National Engineering Industries
Ltd. v. Its Workmen(2)].
It is also now well-settled that in determining the claim of
the employer for rehabilitation, two factors are essential
to be ascertained, namely, (1) the, multiplier, and that has
to be done by reference to the purchase price of the
machinery and the price which has to be paid for
rehabilitation or replacement; and (2) the determination of
the deviser and that has to be done by deciding the probable
life of the machinery. [vide The Honorary
Secretary, South India Millowners’ Association and others v
The Secretary Coimbatore District Textile Workers’ Union(3)
and M/s Gannon Dunkerley and Co. Ltd. and another v. Their
Workmen(4)].
Mr. Malhotra, learned counsel for the appellant, very
strongly relied on the statement Ex. M.S. as well as the
evidence of M.W. 2, the Mill Manager and M.W. 3, the
Assistant Officer, Efficiency Section of the Mill, in
support of his contention that the appellant has a scheme
for rehabilitation and that the claim made by the appellant
for making provision for rehabilitation is proper. The
counsel also pointed out that the evidence of these two
witnesses clearly establishes that most of the items of
machinery have long out lived, their normal age of 25 years
and
(1) [1967] 2 L.L.J. 18.
(2) [1968]1 S.C.R. 779.
(3) [1962] Supp. 2 S.C.R
(4) A.I.R. 1971 S.C. 2567.
480
therefore they require replacement in order to ensure proper
production. The counsel further pointed out that the
rejection by the Tribunal of the claim made by the
appellant, on the basis that the life of the textile
machinery is only 25 years, is not correct and that the view
of the Tribunal that the normal age is more than 25 years is
opposed to the decisions of this Court.
So far as the age of the machinery is concerned, it is no
doubt true that in The Honorary Secretary, South India
Millowners’ Association and others v. The Secretary
Coimbatore District Textile Workers’ Union(1), this Court,
after a reference to the evidence adduced confirmed the
findings of the Tribunal that the estimated life of the
textile machinery in question should be taken to be 25
years, but in the said decision itself it is observed ,is
follows
“We are not prepared to accept either argument
because, in our opinion, the life of the
machinery in every case has to be determined
in the light of evidence adduced by the
parties.”
But it is unnecessary for us to pursue this aspect further
as we are disallowing the entire claim for rehabilitation.
Mr. Malhotra, also criticized the view of the Tribunal that
in this case the evidence of the witnesses on the side of
the appellant clearly shows that the machines are working
very efficiently though they have been running for over 50
years. On the other hand, the counsel urged that the
principle to be borne in mind, when considering the claim
far rehabilitation, is that the life of the machinery is the
period during which it is estimated to work with reasonable
efficiency and not the period during which it has actually
been operated, that is, till it becomes too deteriorated for
use. No doubt the last proposition enunciated by the
counsel in the abstract is correct; but the question is
whether the appellant has discharged its burden of
satisfying the Tribunal that it had a scheme for
rehabilitation and whether it had placed the necessary mate-
rials for the purpose of working out the multiplier and the
deviser.
Mr. Keshava, learned counsel for the first respondent,
referred us to the written statement filed by one of the
Unions, Benny Mills Labour Association, wherein it has
specifically stated that the plant and machinery owned by
the Mills are amongst the most modem, machineries and that
no provision for rehabilitation is necessary. The
appellant, it is pointed out, in its reply statement did not
controvert these averments. EN-en in the statements Exs.
M. 1 and M. 2, filed by the appellant, no claim for
rehabilitation has been made. He also referred to the
evidence or
(1) [1962] Supp. 2. S.C. R. 926.
481
M.Ws. 2 and 3 and pointed out that their evidence does not
show that the Company had any scheme for rehabilitation. On
these grounds, the counsel pointed out that the appellant
has not placed sufficient materials before the Tribunal to
sustain its claim for rehabilitation.
It must be emphasized that in dealing with the claim of an
employer for rehabilitation, as pointed out earlier, the
onus of proof is on the employer. He has to prove the price
of the plant and the machinery, its age, the period during
which it requires replacement, the cost of replacement, the
amount standing in the Debentures and Reserve Funds and to
what extent the funds at its disposal would meet the cost of
replacement. If the, employer fails lo lead satisfactory
evidence on these points, the result will be that the claim
for rehabilitation will have to be totally rejected.
It is no doubt true that a chart Ex.M. 8 has been filed by
the appellant and M.W. 3, the Assistant Officer, Efficiency
Section, has spoken regarding the same. But he has admitted
that the original quotations received from the dealers
regarding the price of new machinery for the purpose of
replacement have not been produced before the Tribunal. He
has further admitted that the appellant has not produced the
letters written by it calling for quotations regarding the
price of the machinery. He has further admitted that no
charts have been produced to show the value of the
machineries in 1962. The multipliers, according to this
witness, have been adopted as advised by the appellant’s
Legal Adviser.
It is clear from the above answers of the witness that there
is no material placed before the Tribunal by the appellant
from which the multiplier and deviser can be properly worked
out for the purpose of considering the claim for
rehabilitation. In fact the Mill Manager, M.W. 2 has stated
that the company has floated a debenture for 1 1/2 crore for
buying new machinery. This clearly shows that the appellant
had no scheme for rehabilitation and that explains the
reason why it had not made any provision for rehabilitation.
Mr. Malhotra, then urged that at any rate the Tribunal
itself has proceeded on the basis that some amount for
rehabilitation is necessary to be provided for each year.
Based on this observation of The Tribunal, the counsel
pointed out that the appellant should be allowed at least
the amount that it has actually spent for replacement of
machineries in the years 1962 and 1963. According to him a
sum of Rs. 2619608 and Rs. 2124102 have been spent in the
years 1962 and 1963 respectively for machinery and plant
installed in those years. In this connection he referred us
to the balance sheet and profit and loss accounts for these
two years and stressed that the Tribunal has committed an
error in not
482
allowing at least these amounts by way of provision for
rehabilitation.
it is no doubt true that these amounts are shown in the
schedules to the balance sheets for the years concerned.
Admittedly, there is, no such claim made in the written
statement filed by the appellant before the Tribunal. When
the Unions were contesting the claim of the appellant on the
ground that it has no, scheme for rehabilitation and that it
has not spent any amount by way of replacement of old
machinery, it was the duty of the appellant to have made a
proper claim and it should have adduced evidence regarding
that aspect before the Tribunal. Mere production of balance
sheet and profit and loss accounts by themselves will riot
entitle the appellant to sustain its claim for
rehabilitation.
For all the reasons given above, it is clear that the
Tribunal was justified in holding that the appellant has not
been able to make out its claim for making provision for
rehabilitation. In this view the Tribunal was justified in
rejecting this claim of the appellant.
We may also state that the Tribunal is also of the view
‘that the appellant has large Reserves with which it can
meet rehabilitation expenses of the machinery. In this
connection the Tribunal has also referred to the evidence on
the side of the appellant, that even according to the
appellant rehabilitation will have to be completed only
within eight years from 1962 and that only a sum of rupees
eighty lakhs will be required for each year. On ‘this
reasoning the tribunal has held that this amount of rupees
eighty lakhs can be easily met with from the large Reserves
available with the appellant. It is not necessary for us to
consider this aspect further because we have already agreed
with the findings of the Tribunal that the appellant has no
scheme for rehabilitation and that it has not placed any
satisfactory evidence before the Tribunal in support of its
claim.
The last point that arises for consideration is regarding
the available surplus for the years 1962 and 1963 as
calculated by the Tribunal and the award by it of 1/3rd of
the amount as additional bonus for the two years after
deducting the bonus already paid by the appellant. The
Tribunal, after rejecting the appellant’s claim for
rehabilitation and also allowing return on Reserves used as
working capital in the manner, already referred to, had
arrived at the available, surplus for the year 1962 in the
sum of Rs. 2635914 and for the year 1963 at Rs. 4904987.
The appellant filed a statement Ex. M. 4 showing the Amount
of bonus already paid for the years 1962 and 1963 to all
employees drawing a total of Rs. 500/- and less per mensem.
From that statement it is seen that for the year 1962 it had
paid a sum of Rs. 1441455 and for the year 1963 a sum of Rs.
1960795. On the basis of the available surplus worked out
for the years 1962 and 1963, the balance
483
available surplus after deducting bonus already paid will be
as follows:
1962
Rs.
Available surplus as worked out by the Tribunal2635914
Amount already paid as bonus by the appellant1441455
Balance . . . . . . . 1194459
1963
Available surplus as worked out by the Tribunal4904987
Amount already paid as bonus by the appellant1960795
Balance .. . . . . . 2944192
What the Tribunal has done is to distribute 1/3rd of the,
amount shown as balance above, for each of the years as
additional bonus. That results in the workmen getting Rs.
398153 representing 25 days basic wages as additional bonus
for the year1962. Similarly, the workmen get Rs. 981397
representing two months basic wages as additional bonus for
the year 1963.
Therefore, it will be seen that the total bonus thatthe
workmen will get for each of the years will be as follows
1962
Rs.
1. Amount already paid by the appellant 1441455
2. Additional amount awarded by the Tribunal 398153
TOTAL . . . . . . . . 1839608
From the available surplus of Rs. 2635914 in 1962, the work-
men will get a total sum of Rs. 1839608 as bonus for that
year which works out to more than 60% of the available
surplus..
Similarly for the year 1963 the figures are as follows
1963
Rs.
1. Amount already paid by the appellant 1960795
2. Additional amount awarded by the Tribunal981397
TOTAL . . . . 2942192
From the available surplus of Rs. 4904987 in1963, the
workmen will get a sum of Rs. 2942192 for that year
which works out more or less about 60% of the available
surplus, falling short by a sum of Rs. 800/-.
484
Mr. Malhotra, learned counsel for the appellant attacked the
method of calculation adopted by the Tribunal. According to
him the Tribunal should not have fixed more than 60% of the
available surplus as bonus payable for a year. On the other
hand, the amounts of bonus now awarded by the Tribunal and
already paid by the appellant exceed 60%. In our opinion,
there is considerable force in the contention of the learned
counsel. The available surplus, as found by the Tribunal
for the year 1962 is Rs. 2635914. Working out roughly 60%
of this surplus to be distributed as bonus to the workmen,
the amount of bonus will be about Rs. 1581600. The
appellant has admittedly paid a sum of Rs. 1441455. The
balance that the workmen will be entitled to will be Rs.
140145.00, whereas the Tribunal has directed the appellant
to pay for this year by its Award a sum of Rs. 398153. The
award of this amount is not-.justified.
So far as 1963 is concerned, the available surplus as found
by the Tribunal is Rs. 4904987. 60% of this available
surplus, to which the workmen will be entitled to will be
Rs. 2942992. On the other hand, the total amount that the
workmen will get as per the award including the amount
already paid by the appellant as bonus is Rs. 2942192. The
appellant will have to pay only an additional sum of Rs.
800/- to make up 60%. There is no appeal by the Unions and
therefore, the bonus awarded for the year 1963 does not
require any interference.
In allocating the available surplus between the company and
the workmen, it has been held by this Court that it will be
equitable if roughly 60% of the surplus is distributed as
bonus to the workmen and the Company is left with the
remaining 40%. The Company will get in addition to this
40%, the benefit of the Income-tax rebate on the 60% bonus
payable to the workmen. [vide M/s. Gannon Dunkerley and Co.
Ltd. and another v. Their workmen(1)]. We have ‘adopted the
same principle in the case on hand.
To conclude the Award of the Industrial Tribunal in A.I.D.
No. 6 of 1966 is set aside and Civil Appeal No. 1291 of 1967
is allowed. There will be no order as to costs.
The Award of the Industrial Tribunal in A.I.D. No. 8 of 1966
is modified to the following extent: For the year 1962 the
appellant will be liable to pay as additional bonus only a
sum of Rs. 140145 instead of a sum of Rs. 398153 as directed
by the Tribunal in the Award. To this extent Civil Appeal
No. 1292 of 1967 is allowed in part. In other respects, it
is dismissed. There will be no order as to costs.
V.P.S.
(1) A.I.R. 1971, S.C. 2567
485