{"id":196043,"date":"1971-08-16T00:00:00","date_gmt":"1971-08-15T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/bareilly-electricity-supply-co-vs-the-workmen-ors-on-16-august-1971"},"modified":"2017-11-06T08:37:57","modified_gmt":"2017-11-06T03:07:57","slug":"bareilly-electricity-supply-co-vs-the-workmen-ors-on-16-august-1971","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/bareilly-electricity-supply-co-vs-the-workmen-ors-on-16-august-1971","title":{"rendered":"Bareilly Electricity Supply Co. … vs The Workmen & Ors on 16 August, 1971"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Bareilly Electricity Supply Co. … vs The Workmen & Ors on 16 August, 1971<\/div>\n
Equivalent citations: 1972 AIR 330, \t\t 1972 SCR (1) 241<\/div>\n
Author: P J Reddy<\/div>\n
Bench: Reddy, P. Jaganmohan<\/div>\n
           PETITIONER:\nBAREILLY ELECTRICITY SUPPLY CO.\t LTD.\n\n\tVs.\n\nRESPONDENT:\nTHE WORKMEN & ORS.\n\nDATE OF JUDGMENT16\/08\/1971\n\nBENCH:\nREDDY, P. JAGANMOHAN\nBENCH:\nREDDY, P. JAGANMOHAN\nMITTER, G.K.\n\nCITATION:\n 1972 AIR  330\t\t  1972 SCR  (1) 241\n 1971 SCC  (2) 617\n CITATOR INFO :\n RF\t    1973 SC2394\t (15)\n\n\nACT:\nIndustrial   Dispute-Bonus-Available   surplus-Full    Bench\nformula--Documents filed before Industrial Tribunal  whether\nrequire\t formal proof-Depreciation for\tdouble\tshift-Allow-\nances  for  income-tax, computation  of--Return\t on  working\ncapital-Amounts required for rehabilitation-Contingency\t and\nDevelopment reserves-Financial capacity.\n\n\n\nHEADNOTE:\nThe  appellant\twas  an\t electricity  supply  company.\t The\ndispute\t between the appellant and its workmen\trelating  to\nthe  bonus payable for the year 1960-61 was referred to\t the\nIndustrial  Tribunal.  The case ,of the appellant  was\tthat\nafter  allowing for prior charges no available\tsurplus\t was\nleft  for  the\tpayment of  bonus.   The  Tribunal  however,\ncomputed  the available surplus at Rs. 1,29,248 and  out  of\nthis awarded three months' bonus amounting to Rs. 730,00  to\nthe  workmen.  In appeal to this court it was  contended  on\nbehalf\tof the appellant that the Tribunal was in  error  in\ndisallowing (a) depreciation on account of double shift, (b)\nincome-tax, (c) return on working capital, (c)\t  amounts\nrequired  for  rehabilitation, (e) contingency\treserve\t and\n(f)development\treserve,  the  latter  two  of\twhich\twere\nstatutory  reserves  which the undertaking  had\t to  provide\nunder the schedule to the Electricity Supply Act 1948. Inter\nalia the appellant contended that since the Evidence Act  as\na whole was not applicable to industrial proceedings certain\ndocuments such as balance sheet should have been accepted by\nthe Tribunal without formal proof.\nHELD:\t  (i)  In  earlier cases decided by  this  Court  in\nwhich  the  Full  Bench\t formula  of  the  Labour  Appellate\nTribunal had been considered by this Court with reference to\nElectricity  Undertakings  and\tother  wise,  the  following\nprinciples were laid down for the purpose of working out the\navailable  surplus:  (1)  first gross  profits\thave  to  be\nascertained  and  for  that purpose  balance-sheet  and\t the\nprofit and losses count as required under the Companies\t Act\nhave  to be looked into.  If the entries are contested\tthey\nhave  to  be proved like any other contested fact;  (2)\t The\nrelevant  year\tfor  which  bonus  is  claimed\tis  a\tself\nsufficient unit and the appropriate accounts have to be made\non  the notional basis in respect of the said year; (3)\t The\nascertainment of depreciation is according to the Income-tax\nAct  and  what is allowed as a prior charge  is\t the  annual\nnotional normal depreciation and not the actual depreciation\nwhich  is in fact allowed.  Apart from the  notional  normal\ndepreciation the depreciation allowable under Income-tax Act\nfor multiple shift is also allowable; (4) In calculating the\nincome-tax  for\t deduction as a prior charge it is  not\t the\nnotional  normal depreciation alone that has to be  deducted\nbut the statutory -depreciation namely the concessions given\nunder  the  Income-tax\tAct to\tthe  employers\twhich  would\ninclude\t the depreciation for multiple shifts, if -any,\t and\nthereafter the income-tax\n242\nwill  have to be calculated; (5) Return on paid\t up  capital\nallowable  for\tdeduction from the gross profits  is  6%;  a\nslightly   higher   percentage\tmay  be\t allowed   in\trisk\nundertakings  like plantations; (b) In regard to  return  on\nworking\t capital,  if it is, shown that\t the  reserves\twere\navailable and were actually used as working capital, whether\nthe  reserves  utilised were depreciation  reserves  or\t any\nother, a return from 2% to 4% is allowable according to\t the\nindustry,    taking   into   consideration    any    special\ncircumstances  which  may  justify  a  claim  for  a  higher\ninterest; (7) Rehabilitation reserve has to be provided\t for\nin  order  to  keep the original  capital  of  the  business\nintact.\t  It is necessary in the interest of labour as\twell\nas capital to Provide for depreciation of the assets  yearly\nand   also  to\tprovide\t for  rise  of\tprices.\t   For\t the\ndetermination  of  this\t receive it is\tsuggested  that\t the\nundertaking be first divided into blocks such as 'plant\t and\nmachinery'  on\tthe  one band and other\t assets\t like  Road,\nBuildings,  Railways, sidings etc. on the other.   Then\t the\ncost  of  these separate blocks has to\tbe  ascertained\t and\ntheir  probable future life has to be estimated.  Once\tthis\nestimate   is  made  it\t becomes  possible   to\t  anticipate\napproximately  the  year when the plant\t or  machinery\twill\nrequire\t replacement; and it is the probable price  of\tsuch\nreplacement  on\t a future date that decides  the  amount  to\nwhich  the employer is entitled by way of replacement  cost.\nThe   claim  for  rehabilitation  includes  the\t claim\t for\nreplacements  and  modernization.   The\t probable  cost\t  is\nreached by adopting a multiplier based on the ratio, between\nthe  cost price of the plant and machinery and the  probable\nprice  which  may have to be paid  for\tits  rehabilitation,\nreplacement   or  modernization.   After  ascertaining\t the\nmultiplier,  a divisor has to be adopted in respect of\teach\nblock  in order to ascertain the annual requirement  of\t the\nemployer  in  that behalf year after year;  (8)\t In  Mathura\nParshad Srivastava's case the claim for contingency  reserve\nand  development  which\t have  to  be  provided\t under\t the\nElectricity  (Supply)  Act was upheld though  these  do\t not\nconstitute  prior charges like items (3), (4), (5), (6)\t and\n(7)  above.  The Tribunal cannot fix such a high  figure  of\nbonus  as  to leave insufficient funds in the bands  of\t the\ncompany\t and  make  it difficult to provide  for  these\t two\nstatutory reserves.  Various factors including the financial\ncapacity  of the undertaking to pay, have to be\t taken\tinto\naccount in fixing bonus. [251 C.-254 G]\nMill  Owners  Association, Bombay v. The  Rashtriya  Mazdoor\nSargh,\tBombay\t& Anr., [1950] L.L.J. 1247, Muir  Mills\t Co.\nLtd.,  v. Suti Mill Mazdoor Union, Kanpur,<\/a> [1951]  1  S.C.R.\n991, U.P. Electricity Supply, Co.  Ltd.,, v. Their  Workmen,<\/a>\n(1952)\t2 L.L.J. 43 1, Shree Meenakshi Mills Ltd.  v.  Their\nWorkmen,<\/a>  [1968]  S.C.R.  878,\tTinavelly-Tuticorn  Electric\nSupply\tCo.  Ltd.,  v. Their Workmen,<\/a> [1960],  3  S.C.R.  68\nAhmedabad   Miscellaneous   Industrial\tWorkers\t  Union\t  v.\nAhmedabad  Electricity\tCo.  Ltd.,<\/a>  [1962]  2  S.C.R.\t934,\nAssociated  Cement  Companies Ltd., v. Its  Workmen,<\/a>  [1959]\nS.C.R. 925 Surat Electricity Co. Ltd., Staff Union v.  Surat\nElectricity Co. Ltd.,<\/a> [1957] 2 L.L.J. 648, Hamdard Dawakhana\nWakf v. Its Workmen & Ors., [1962] 2 L.L.J. 772, Workmen  v.\nHindustan  Motors  Ltd.,<\/a>  [1968] 2 S.C.R.  311\tand  Mathura\nParshad Srivastava v.\t Sagour Electric Supply Co. [1966] 2\nL.L.J. 307, referred to.\n(ii) Even if all the technicalities of the Evidence Act\t are\nnot  strictly applicable except so far as Section It of\t the\nIndustrial  Disputes  Act  1947\t and  the  rules  prescribed\ntherein permit it, it is inconceivable that\n 243\nthe  Tribunal  can  act\t on what is  not  evidence  such  as\nhearsay, nor can it justify the Tribunal in basing its award\non  copies  of\tdocuments when the originals  which  are  in\nexistence are not produced and proved by one of the  methods\neither by affidavit or by witnesses who have executed  them,\nif  they  are alive and can be produced.  Again if  a  party\nwants an inspection it is incumbent on the Tribunal to\tgive\ninspection  in\tso far as that is relevant to  the  enquiry.\n[259-D F]\nThe application of the principle of natural justice does not\nimply  that what is not evidence can be acted upon.  On\t the\nother hand what it means is that no materials can be relied.\nupon  to establish a contested fact which are not spoken  to\nby  persons  who are competent to speak about them  and\t are\nsubjected  to  cross-examination by the party  against\twhom\nthey are sought to be used. [258 H]\nWhen the appellant in the present case produced the  balance\nsheet and profit and loss account of the company, it did not\nby its mere production amount to proof of it or of the truth\nof the entries therein. If these entries are challenged\t the\nappellant must, prove each of such entries by producing\t the\nbooks  and  speaking from the entries made  therein.   If  a\nletter or other document is produced to establish some\tfact\nwhich is relevant to the enquiry the writer must be produced\nor his affidavit in respect thereof be filed and opportunity\ngiven  to the opposite party who challenges this fact.\t[259\nB-D]\nIndian Hume Pipe Co. Ltd., v. Their Workmen,<\/a> [1959] 2 L.L.J.\n357  Khandesh  Spinning\t and Wag.  Mills Co.  Ltd.,  v.\t The\nRashtriya  Grin Kamgar Sangh  Jalgaon,<\/a>[1960],2S.C.R.841,Anil\nStarch\tProducts  Ltd.,v. Ahmedabad Chemical  Workers  Union\nCivil  Appeal No. 684 of 1957, Petlad Turkey Red  Dye  Works\nLtd., v. Dves and Chemicals Workers Union, Petlad,<\/a> [1960]  2\nS.C.R.,\t 906,  Management  of  Trichinopoly  Mills  Ltd.  v.\nNational  Cotton Textiles Mills Workers Union<\/a>; Civil  Appeal\nNo.  309 of 1957, Bengal Kagazkal Mazdoor Union v.  Titaghur\nPaper Mills Co. Ltd.,<\/a> [1964] 3 S.C.R. 38 and Union of  India\nv. Verma,<\/a> [1958] 2 L.L.J. 259, referred to.\n(iii)\t  In view of the unsatisfactory oral and documentary\nevidence  the Tribunal was justified in rejecting the  claim\nfor depreciation on the basis of double shift.\tIt could not\nbe  assumed that in an Electric Undertaking the boilers\t and\nturbines must be working throughout, at any rate more that 8\nhours.\tIn view of disallowance the amount to be, allowed as\nprior  charge towards depreciation will have to be  computed\nafter allowing for the notional depreciation. [260 F, 261B]\n(iv) The  computation  of income-tax by the  Tribunal  after\ndeducting the statutory depreciation was in accordance\twith\nthe decisions of this Court and could not be assailed.\t[262\nC-D]\nBurm  and  Co.\tLtd., v. Its Workmen,  [1954]  5  S.C.R.  82\nreferred to.\n(v)  In\t considering a claim for return on  working  capital\ntwo questions must be kept in view; whether the reserve were\navailable  and\tif  they were, whether\tthey  were  used  as\nworking\t capital and if so, what is the amount.\t  These\t are\nquestions of fact and if the employer fails to establish  by\nsatisfactory evidence the claim will have to be rejected.\n244\nIn this case there was no proof that any of the reserves had\nbeen utilised. The claim in   this  respect  was   therefore\nrightly rejected by the Tribunal.\n[263 D-E]\n(vi) The  letters filed by the appellant in support  of\t the\nreplacement  cost had not been proved by any of the  persons\nwho  wrote them or any of the representatives of  the  firms\nwhose letters they were.  There was no oral evidence of\t the\nprecise\t requirement for rehabilitation.  The  Tribunal\t was\njustified in holding that the appellant had failed to  prove\nthe original cost of the machines, plant and machinery,\t its\nage,   the   probable  requirement  for\t  replacement,\t the\nmultiplier  and\t the divisor.  In these\t circumstances\tthis\nclaim also had been properly disallowed.\n[264 C-G]\n(vii)\t  The\tprovision   for\t contingency   reserve\t and\ndevelopment  reserve  has been made  under  the\t Electricity\n(Supply)  Act for a special purpose, namely to work out\t the\ncharges to be recovered from the consumers for the supply of\nElectricity but that does not mean that these are not to  be\ntaken into consideration in declaring bonus though they have\nnot  been treated as prior charges.  In these  circumstances\nthe amount of Rs. 55,233 had to be provided for.  Except for\nthis amount the computation made by the Tribunal\t for\nascertaining the available surplus was justified. [265C-D]\n(viii)\t  The  available surplus found by the  Tribunal\t was\nRs. 1,29,248.. If Rs. 55,233 is to be provided for  contain-\nenvy reserve and development reserve there will be available\nsurplus\t of Rs. 74,015.\t The Tribunal awarded  three  months\nbonus  amount  to Rs. 73,000 which works to Rs.\t 24,333\t per\nmonth.\t Having\t regard to the financial  capacity  of\tthis\nUndertaking one month's bonus which will leave a surplus for\nthe  working  of  the Undertakings will\t meet  the  ends  of\njustice. [265 E-F]\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  1254  of
\n1966.\n<\/p>\n
Appeal\tby special leave from the Award dated  November\t 15,
\n1965   of  the\tIndustrial  Tribunal  (111),  Allahabad\t  in
\nAdjudication Case No. 10 of 1962.\n<\/p>\n
G.   B. Pai and H. K. Puri, for the appellant.\n<\/p>\n
J.   P.\t Goyal and M. V. Goswami, for respondent No. 1.
\nP.   N. Tiwari, for respondent No. 2.\n<\/p>\n
The Judgment of the Court was delivered by
\nP.   Jaganmohan\t Reddy\tJ.-The Appellant is  an\t Electricity
\nSupply\tCo., and in this Appeal by Special Leave  challenges
\nthe Award made against it, by the Industrial Tribunal  (111)
\nat Allahabad on 15th November 1965.  The dispute between the
\nAppellant  and\tits  Workmen is one relating  to  the  bonus
\npayable\t for  the year 1960-61.\t As an\tamicable  settlement
\ncould not be arrived at, the
\n 245<\/span>
\nState  of  U. P. by its order dated 24-1-1962  referred\t the
\nfollowing dispute for adjudication to the Tribunal:\n<\/p>\n
\t      “Should the employers be required to pay bonus
\n\t      to their workmen for the year 1960-61 ? If so,
\n\t      at what rate and with what details ?”\n<\/p><\/blockquote>\n
The case of the Appellant was that after allowing for  prior
\ncharges\t no  available surplus was left for the\t payment  of
\nbonus  to workmen.  According to the Company a gross  profit
\nof Rs. 6,06,684\/- was earned for the year ending 31st March,
\n1961,  but the Tribunal added to it a sum of Rs. 9,949\/-  as
\nrepresenting extraneous income and consequently computed the
\ngross profit at Rs. 6,16,633\/-.\t The following prior charges
\nwere  claimed  by  the Appellant and we\t have  indicated  as
\nagainst\t each one of these in the opposite columns what\t the
\nTribunal has awarded and disallowed:-\n<\/p>\n
————————————————————\n<\/p>\n
\t  Amount\t\t\t    Amount\n\t  claimed by\t\t\t allowed by\n\t  the Appell-\t\t\tthe Tribunal\n\t  ant\n<\/pre>\n
————————————————————–\n<\/p>\n
Expenses as per profit and\tRs.\t       Rs.\n     loss account:\t       1,32,156\t    1,32,156\nDepreciation:\n\t\t    Rs.\n     Normal\t 2,02,814     Notional normal:\t  2,02,814.\nDouble shift.\t 28,413\t      Double shift:Nil.\n\t\t 2,31,227     2,31,227\nIncome Tax\t\t      1,09,485\t     1,04    4155\nContingency Reserve\t\t32,900\t     Nil.\nDevelopment Reserve\t\t22,333\t     Nil.\nReturn on share capital\t\t48,000\t\t    48,000\nReturn on working capital\t60,540\t     Nil.\nRehabilitation requirement    15,66,497 Nil.\n\t\t     Total    22,03,138\t\t   4,87,385\n<\/pre>\n
————————————————————
\nAfter  making the necessary allowance as  aforesaid  towards
\ndeductions claimed as prior- charges from the gross,  profit
\n(Rs. 6,16,633\/- minus Rs. 4,87,385\/-) the Tribunal  computed
\nthe available surplus at Rs. 1,29,248\/-.  Out of this amount
\nof available surplus three months bonus which amounts to Rs.
\n73,000\/-  was awarded as bonus leaving sufficient funds\t for
\nthe Company to run its undertaking.\n<\/p>\n
246<\/span><\/p>\n
On behalf of the Appellant it is contended that the Tribunal
\nwas  in error in disallowing depreciation on account of\t (a)
\ndouble shift, (b) Income-tax, (c) return on working capital,\n<\/p>\n
(d)  amounts  required for rehabilitation,  (e)\t contingency
\nreserve and (f) development reserve, the latter two of which
\nwere  statutory\t reserves  which the  under  taking  had  to
\nprovide for, under the schedule to the Electricity  (Supply)
\nAct.\n<\/p>\n
The reasons given by the Tribunal for disallowing the double
\nshift depreciation was that the Company did not produce\t any
\ndocuments to, show the total running hours of each boiler or
\nturbine,  that\tin  any case the evidence  relating  to\t the
\nrunning of each of the boilers and turbines does not justify
\nthe  claim  for\t depreciation for the double  shift  on\t the
\nentire\tplant  and machinery; that the\tCompany\t could\tonly
\nclaim\tdouble\tshift  allowance  with\tregard\tto   certain
\nspecified  machinery and that in the previous years  it\t had
\nnot  claimed  double shift allowance nor did  it  claim\t any
\ndeductions before the Income-tax authorities for the year in
\nquestion.  For these reasons it held that the Appellant\t was
\nnot  entitled to claim the double shift depreciation  during
\nthe  year  in  dispute.\t The  contingency  reserve  and\t the
\ndevelopment  reserve were disallowed as in the view  of\t the
\nTribunal  they\twere  not  a charge  on\t the  profits.\t The
\nrehabilitation requirements were rejected on the ground that
\nthe  Company  had failed to prove the original cost  of\t the
\nplant  and machinery; that it had failed to show the  actual
\namount spent on rehabilitation of plant and machinery either
\nin  the year in dispute or in any subsequent year;  that  no
\nrehabilitation\tallowance was claimed in the previous  year;
\nthat the cost of the assets of the Company had not been duly
\nproved as engineers were not called and that the  quotations
\nproduced  by  the  Company could not be\t relied\t upon.\t The
\nreturn\ton  working capital was disallowed on  two  grounds;
\nnamely that the calculation of the working capital has\tbeen
\nmade  on the basis of the assets and rehabilitation as\tthey
\nstood on the closing day of the year 1960-61 namely on 31-3-
\n61  Which  is a mistake because whatever may have  been\t the
\nassets and liabilities at the end of the year they would not
\nbe  the same at the beginning of the year nor could they  be
\napplied\t as the working capital.  The second ground is\tthat
\non the evidence it cannot be established that
\n247<\/span>
\nany reserves were utilised as working capital, nor was there
\nany necessity to do so.\n<\/p>\n
Before\tus the learned Advocate of the Appellant  has  urged
\nthat  the  Tribunal  was  not  justified  in  rejecting\t the
\nmaterial placed before it, from which the several deductions
\nclaimed\t by it ought to have been allowed in  computing\t the
\navailable surplus.  It will be convenient to deal with\teach
\nof  the items separately but before doing so we wish to\t set
\nout  several  factors and certain essential  features  which
\nhave  to  be  taken into consideration\tin  claims  made  by
\nworkmen\t for  bonus.  The basic assumption  which  has\tbeen
\naccepted  by this Court approving the first and second\tFull
\nBenches\t of the Labour Appellate Tribunal is that the  award
\nof  bonus  is  not by way of an\t ex-gratia  payment  but  in
\nfurtherance  of\t social\t justice the claim  of\tcapital\t and
\nlabour\twhich contribute to the earnings of  the  industrial
\nconcern,  make it equitable to grant labour the\t benefit  of
\ntheir  efforts if there is a surplus.  The first full  Bench
\nin  the\t Mill Owners Association, Bombay  v.  The  Rashtriya
\nMazdoor\t Sangh, Bombay and Anr.(i), had laid down a  general
\nformula applicable for determining the available suprplus of
\nan Industrial undertaking for the purposes of awarding bonus
\nto  its\t workmen.   The first step in  this  regard  is\t the
\nascertainment  of the gross profits of a concern, which\t are
\narrived at after payment of wages and dearness allowances to
\nthe employees and other items of expenditure.  The next step
\nis to ascertain what are the prior charges which have to  be
\ndeducted  from the gross profits in order to arrive  at\t the
\navailable surplus.\n<\/p>\n
The  Full  Bench formula concerns the claim of\tcapital\t -to
\nprior charges which have to be taken into account to give  a
\nfair  return to the investor and also to keep  the  industry
\nworking efficiently which in the long run will inure to\t the
\nbenefit\t of labour.  The items considered as  prior  charges
\nare  : (1) fair return on-(a) paid up capital;\t(b)  working
\ncapital;  (c)  reserves utilised as  working  capital  which
\nobviates  the  necessity  to  borrow  at  higher  rates\t  of
\ninterest.  (2)\tAmount of money\t required  for\treplacements
\nrehabilitation\tand  modernization  of\tmachinery.  (3)\t De-
\npreciation allowed by the Income-tax authorities being\tonly
\na percentage of the Written down value, the fund set apart
\n(1) [1950] L.L.J. 1247.\n<\/p>\n
17-M 1245 Sup.\tCl\/71
\n248<\/span>
\nyearly for depreciation and designated under that head would
\nnot  be\t sufficient for these purposes, so an  extra  amount
\nwould  have  to\t be annually set  apart\t under\tthe  heading
\nreserves  to make up the deficit.  The question what is\t the
\nratio  of the available surplus which could be awarded as  a
\nbonus  was  also considered.  The Full Bench felt  that\t the
\nanswer\twas not an easy one, but essentially the quantum  of
\nbonus  must  depend  upon the  relative\t prosperity  of\t the
\nconcern\t during the year under review which is reflected  in
\nthe amount of surplus; the needs of labour at existing wages
\nis also a consideration of importance.\tIt observed in\tpara
\n37:\n<\/p>\n
\t      “……..\t but  we should make it\t plain\tthat
\n\t      these    are   not   necessarily\t the\tonly
\n\t      considerations;  for  instance  no  scheme  of
\n\t      allocation of bonus could be completed if\t the
\n\t      amount  of  which\t bonus\tis  to\tbe  paid  is
\n\t      unrelated to the employees” efforts; and\teven
\n\t      when    we    have   mentioned\tall    these
\n\t      considerations  we must not be deemed to\thave
\n\t      exhausted the subject”.\n<\/p><\/blockquote>\n
This Court in Muir Mills Co. Ltd. v Suti Mill Mazdoor Union,
\nKanpur(1), generally accepted as sound the view of the\tFull
\nBench, that since labour and capital both contribute to\t the
\nearnings  they should derive benefit, if there is a  surplus
\nafter meeting the four prior or necessary charges  specified
\nin  the formula.  However, neither the priority\t as  between
\nthe four prior charges and their relative acceptance nor the
\nconditions upon which they were allowed was examined by this
\nCourt, but it was nevertheless held that bonus is neither  a
\ngratuity  nor  gift  nor  can it  be  regarded\tas  deferred
\npayment.  The principles enunciated by the First Full  Bench
\nhad  been approved in U. P. Electricity Supply Co.  Ltd.  v.
\nTheir  Workmen<\/a>(2)  as being also applicable  to\t Electricity
\nUndertakings.\tIt was pointed out that in  determining\t the
\navailable  surplus  it is not the profits that\thave  to  be
\ndetermined as required under the Electricity (Supply) Act 54
\nof  1948, which had to be, considered but the gross  profits
\nas  computed  from  the balance sheet and  profit  and\tloss
\naccount\t to be prepared under the Companies Act, subject  to
\nscrutiny if challenged.\t The reason for
\n(1) [1955] (1) S.C.R. 991.\t       (2) [1952].(2) L.L.J.\n<\/p>\n
431…\n<\/p>\n
 249<\/span><\/p>\n
non-applicability of the Electric (Supply) Act according  to
\nthis  Full  Bench was that the object of ‘the Act  being  to
\nreduce the price of electricity which was affected by fixing
\na  maximum above which the profits of the concern shall\t not
\nrise, the formula of the first Full Bench which was intended
\nto do social justice was at variance with the purpose  which
\nthe Electricity (Supply) Act was intended to subserve.\t The
\nTribunal said at page 4381:\n<\/p>\n
\t      “There  is therefore no basis between the\t two
\n\t      for  any convergence on the point of bonus  as
\n\t      now  understood;\tit  is\tnot  permissible  to
\n\t      inject   the   Full  Bench  items\t  into\t the
\n\t      Electricity (Supply) Act and on the other hand
\n\t      the accounting under the Electricity  (Supply)
\n\t      Act  is  at variance  with  normal  commercial
\n\t      practice under the Companies Act and with\t the
\n\t      basis  of\t our Full Bench\t decision.   In\t the
\n\t      result we have come to the conclusion that our
\n\t      Full Bench decision must reapplied as a  whole
\n\t      for  the\tascertainment  of  bonus  of   these
\n\t      concerns.\t  This, however, does  not  preclude
\n\t      consideration    of   the\t  suggestions\t for
\n\t      clarification and modification…………..”\n<\/p><\/blockquote>\n
This decision was approved by this Court in Shree, Meenakshi
\nMills  Ltd.  v.\t Their Workmen<\/a>(1) but that was\tnot  a\tcase
\ndealing\t with  an Electricity undertaking.  The\t case  which
\ndealt\tdirectly   with\t an  Electricity   Undertaking\t was
\nTinavelly-Tuticorn  Electric Supply Co. Ltd. (also  referred
\nto  as\tT. T. E. Supply Co.) v. Their Workmen.<\/a>(2),  In\tthis
\ncase  also this Court held that the Full Bench\tformula\t was
\napplicable  to\telectrical undertakings and to\tthe  formula
\nrelating to the statutory depreciation except for additional
\nand  initial  depreciation-though there was  nothing  in  it
\nwhich would indicate whether the depreciation deductible was
\naccording to the Electricity (Supply) Act or the  Income-tax
\nAct.   There  is  however,  no\tdoubt  that  in\t the  U.  P.
\nElectricity  case  the\tFull Bench did\tin  fact  apply\t the
\nincome-tax   Rules   for  ascertaining\t depreciation.\t  In
\nAhmedabad   Miscellaneous   Industrial\tWorkers\t  Union\t  v.
\nAhmedabad  Electricity\tCo. Ltd.<\/a>(1) the Full  Rench  formula
\napplying the Income-tax Act rules to ascertain\tdepreciation
\nas  a prior charge was approved.  It was also observed\tthat
\nit was not open to the Appellant to raise the question that
\n(1) [1958] S.C.R. 87
\n(2) [1960](3) S.C.R. 68.\n<\/p>\n
3 [1962] 2 S.C.R. 934.\n<\/p>\n
25 0
\nthe  provisions of the seventh schedule to  the\t Electricity
\n(Supply)  Act should be applied for purposes of\t calculating
\ndepreciation  in  preference  to  the  income-tax  rules  in
\nworking ,out the Full Bench formula.  Even on the assumption
\nthat  the question was still open, because as  Wanchoo,\t J.,\n<\/p>\n
-observed  “it was never directly raised in this  Court\t and
\nspecifically decided” they were of opinion that the  Income-
\ntax rules should be applied in preference to the  provisions
\nof  the\t Seventh Schedule to the Electricity  (Supply)\tAct.
\nThe  reasons  for arriving at that conclusion are  given  at
\npages  939-941.\t In Associated Cement Companies Ltd. v.\t Its
\nWorkmen<\/a>(1),  Gajendra gadker, J., (as he then was)  said  at
\npage 944 with reference to Muir Mills Company case that:\n<\/p>\n
\t      “neither\tthe propriety nor the order  of\t the
\n\t      priority as between the four prior charges and
\n\t      their  relative importance nor  their  content
\n\t      was  examined by this Court in that case;\t and
\n\t      though  the  formula  has\t :subsequently\tbeen
\n\t      generally\t accepted by this Court\t in  several
\n\t      reported\tdecisions…… the  question  about\n<\/p><\/blockquote>\n
\t      -the  adequacy, propriety or validity  of\t its
\n\t      provisions  has not been examined nor had\t the
\n\t      general  problem\t,as to whether\tthe  formula
\n\t      needs any variation, change ,,or addition been
\n\t      argued  and considered.  It is for  the  first
\n\t      tinge since 1950 that in the present  appeals,
\n\t      we  are  ,called upon to examine\tthe  formula
\n\t      carefully\t and  express our  decision  on\t the
\n\t      merits of its specific provisions.”\n<\/p><\/blockquote>\n
Having examined the several aspects of the formula in  great
\n,detail\t and  if  we  may say  so  with\t respect  with\tsome
\nthoroughness  the  various  matters dealt with\tby  the\t two
\nTribunals  -in\trespect\t of the prior  charges\trelating  to
\ndepreciation, incometax; fair return on capital, fair return
\non  reserves  utilised -as working capital  and\t any  amount
\nrequired  in excess ,of the depreciation for the purpose  of
\nrehabilitation, replacement and modernization of  machinery,
\nthe  formula  evolved there in has been\t approved.   In\t the
\napplication  of\t the formula for determining  the  available
\nsurplus, the balance sheet and profit and loss account of an
\nundertaking are important documents.  At any rate the  proof
\nof  the\t various  prior\t charges  has  to  be  given,  after
\naffording an
\n(1)  1959 S.C.R. 925.\n<\/p>\n
 251<\/span><\/p>\n
opportunity to the workmen, if need be, by the cross -exami-
\nnation to contest it.\n<\/p>\n
The  formula of the Full Bench both in the Textil  case\t and
\nits  application to the Electricity Undertakings as held  in
\nthe  U.\t P. Electricity case has now been accepted  by\tthis
\nCourt  in  several  cases  with\t further  clarification\t and
\nelucidation.\tWe  can\t therefore  deduce   the   following
\nprinciples  for\t ascertainment of the available\t surplus  in
\nrespect\t of an Industrial undertaking and\/or an\t Electricity
\nUndertaking:\n<\/p>\n
\t      (1)First\t gross\tprofits\t have  to  be\ta
\n\t      scertainad  and for that purpose the  balance-
\n\t      sheet  and  the  profit and  loss\t account  as
\n\t      required\tunder  the Companies Act has  to  be
\n\t      looked  into.   If the entries  are  contested
\n\t      then  they  have to be proved like  any  other
\n\t      contested fact.\n<\/p><\/blockquote>\n
\t      (2)The  relevant\tyear  for  which  bonus\t  is
\n\t      claimed  is  a self sufficient  unit  and\t the
\n\t      appropriate  accounts have to be made  on\t the
\n\t      notional\tbasis in respect of the\t said  year.
\n\t      ‘Once  the bonus year is taken as a Unit\tself
\n\t      sufficient  by  itself  the  decision  of\t the
\n\t      Labour  Tribunal\tin regard to the  refund  of
\n\t      excess  profits tax and the adjustment of\t the
\n\t      previous\t years\tdepreci-ation\tand   losses
\n\t      against  the  bonus  year’s  profit  must\t  be
\n\t      treated as logical and sound.’
\n\t      (3)The   ascertainment  of   depreciation\t  is
\n\t      according\t to the Income-tax Act and  what  is
\n\t      allowed  as  a  prior  charge  is\t the  annual
\n\t      notional\tnormal\tdepreciation  and  not\t the
\n\t      actual depreciation which is in fact  allowed.
\n\t      The  formula  of the Full Bench  in  the\tU.P.
\n\t      Electricity case as explained and clarified in
\n\t      Surat  Electricity”Co.  Ltd.  Staff  Union  v.
\n\t      ‘Surat Electricity Co.  Ltd., (1) was approved
\n\t      in  the  Ahmedabad  Miscellaneous\t  Industrial
\n\t      Workers Union case and in the case in  Hamdard
\n\t      Dawakhana\t Wakf v. Its Work-. men &  Ors.\t (2)
\n\t      Apart  from the notional\tnormal\tdepreciation
\n\t      the  depreciation allowable  under  Income-tax
\n\t      Act for multiple shift is also allowable.
\n\t      (1) [1957] (2) L..LJ. 648.\n<\/p><\/blockquote>\n
\t      (2) [1962] (2) L.L.J. 772-\n<\/p><\/blockquote>\n
\t      25 2
\n\t      (4)In calculating the Income-tax for deduction
\n\t      as prior charge it is not the notional  normal
\n\t      depreciation alone that has to be deducted but
\n\t      the   statutory\tdepreciation   namely\t the
\n\t      concessions given under the Income-tax Act  to
\n\t      the   employers\twhich  would   include\t the
\n\t      depreciation  for multiple shifts if any,\t and
\n\t      thereafter  the  Income-tax will\thave  to  be
\n\t      calculated.\n<\/p><\/blockquote>\n
\t      (5)   Return on paid up capital allowable\t for
\n\t      deduction from the gross profits is 6%.\tThis
\n\t      ‘is generally the formula adopted by the\tFull
\n\t      Bench  for Industrial Undertakings  though  it
\n\t      has  been\t known to have\tallowed\t a  slightly
\n\t      higher   percentage   of\t return\t  in   risky
\n\t      undertakings like plantations.
\n\t      (6)   Return on working capital.\tThis  amount
\n\t      is  also\tallowed but at a  lower\t rate.\t The
\n\t      formula  as approved by this Court is that  if
\n\t      it  is shown that the reserves were  available
\n\t      and  -were  actually used as  working  capital
\n\t      whether\t the\treserves    utilised\twere
\n\t      depreciation  reserves or any other, a  return
\n\t      from  2% to 4% is allowable according  to\t the
\n\t      industry,\t  taking  into\t consideration\t any
\n\t      special  circumstances  which  may  justify  a
\n\t      claim for a higher interest.  The\t utilisation
\n\t      of  the  reserves\t obviate  the  necessity  to
\n\t      borrow  from  outside sources and\t pay  higher
\n\t      interest\twhich  will be to the  detriment  of
\n\t      labour  as the available surplus is likely  to
\n\t      be  less on this account,Workmen v.  Hindustan
\n\t      Motor Ltd.(1)
\n\t      (7)Rehabilitation\t reserve  also\thas  to\t  be
\n\t      provided\tfor  in order to keep  the  original
\n\t      capital of the business in tact because assets
\n\t      of  an Undertaking waste -and or lost  by\t the
\n\t      end  of a particular period depending  on\t the
\n\t      nature of the Undertaking and its asset.\t The\n<\/p><\/blockquote>\n
\t      -only  value of such assets at the end of\t the
\n\t      period is , the scrap value.  It is  therefore
\n\t      necessary in the interest of labour as well as
\n\t      capital  to provide for depreciation  of\tsuch
\n\t      assets  yearly and also to take  into  account
\n\t      and provide for the rise in prices after-\t the
\n\t      war.  The determination of this reserve  poses
\n\t      problems,\t  but  it  was\tsuggested   that   a
\n\t      reasonable method would be first to divide the
\n\t      undertaking into
\n\t      (1)   [1968] (2) S.C.R. 311 340, 342, 344.\n<\/p><\/blockquote>\n
\t       253<\/span><\/p>\n
\t      blocks  such as “Plant and machinery”  on\t the
\n\t      one   hand  and  other  assets   like   Roads,
\n\t      Buildings, Railway sidings etc. on the  other.
\n\t      Then the cost of these separate blocks has  to
\n\t      be ascertained and their probable future\tlife
\n\t      has  to be estimated.  Once this\testimate  is
\n\t      made   it\t becomes  possible   to\t  anticipate
\n\t      approximately  the  year\twhen  the  Plant  or
\n\t      machinery\t would need replacement; and  it  is
\n\t      the  probable’ price of such replacement on  a
\n\t      future date that ultimately decides the amount
\n\t      to  which the employer is entitled by  way  of
\n\t      replacement     cost.\tThe    claim\t for
\n\t      rehabilitation  includes\talso the  claim\t for
\n\t      replacements  and modernization.\tIt is  quite
\n\t      conceivable  that certain parts  of  machines,
\n\t      which    constitute   a\tblock\t may\tneed
\n\t      rehabilitation  though  the block\t itself\t can
\n\t      carry on for a number of years.  This  process
\n\t      of  rehabilitation is a continued process\t and
\n\t      unlike replacement, its date cannot always  be
\n\t      fixed  or anticipated.  So with  modernization
\n\t      all  these  three items are  included  in\t the
\n\t      claim  for  rehabilitation.  It  is  therefore
\n\t      necessary for tribunals to exercise their dis-
\n\t      cretion in admitting all available evidence to
\n\t      determine\t this  difficult  question.   For  a
\n\t      fuller  discussion  in  see:  The\t  Associated
\n\t      Cement  Companies case at pages 966-968.\t The
\n\t      probable\t cost  is  reached  by\tadopting   a
\n\t      multiplier based on the rates between the cost
\n\t      price  of\t the  plant and\t machinery  and\t the
\n\t      probable\tprice which may have to be paid\t for
\n\t      its     rehabilitation,\t  replacement\t  or
\n\t      modernization.   The  older  the\tplant,\t the
\n\t      higher  the multiplier and hence the  area  of
\n\t      conflict between the employer and employees is
\n\t      larger,  the  former  allowing  the  asset  to
\n\t      become  older to get a higher  multiplier\t and
\n\t      the latter feeling aggrieved because of it  as
\n\t      the   provision  made  therefor  reduces\t the
\n\t      available surplus in the bonus year.  After as
\n\t      curtaining the multiplier, a divisor has to be
\n\t      adopted  in respect of each block in order  to
\n\t      ascertain\t  the  annual  requirement  of\t the
\n\t      employer\tin that behalf year after year.\t  As
\n\t      this  provision  constitutes  a  large  amount
\n\t      which eats into the gross profits and reduces  the
\n\t      surplus  the  Tribunals  must  call  for\t all
\n\t      relevant\tmaterial evidence from the  employer
\n\t      and   the\t employees  should  be\tallowed\t  to
\n\t      properly test it by cross-examination.<\/p><\/blockquote>\n
\t      25 4
\nThe  deductions\t specified in items (5), (6)  and  (7)\tlike
\nthose in items (3) and (4) are prior charges.\n<\/p>\n
\t      (8)In  Mathura  Parshad Srivastava  v.  Sagour
\n\t      Electric Supply Co (1)., at page 309 the claim
\n\t      for   contingency\t reserve   and\t development
\n\t\t\t    reserve  which  have to be provided\t u
\nnder  the
\n\t      Electricity  (Supply) Act was upheld.  It\t was
\n\t      observed that though these do not constitute a
\n\t      prior  charge  they  have\t to  be\t taken\tinto
\n\t      consideration,  to  arrive at  the  figure  of
\n\t      bonus   after   ascertaining   the   available
\n\t      surplus.\tThe Tribunal cannot fix such a\thigh
\n\t      figure of bonus as to leave insufficient funds
\n\t      in  the  hands  of the  Company  and  make  it
\n\t      difficult\t to provide for these two  statutory
\n\t      reserves.\t    After    taking    these\tinto
\n\t      consideration  the ratio of available  surplus
\n\t      for  distribution as bonus would depend  on  a
\n\t      number  of factors and is not  susceptible  to
\n\t      any general formula.  What these\t  factors
\n\t      are were posed in the form of series of  questions
\n\t      by Gajendragadkar, J., at page 973-974   in
\n\t      the Associated Cement Co’s case, such as what   are
\n\t      the wages paid, what is the extent of the gap  betwe
\nen
\n\t      the  same and a living wage, has the  employer
\n\t      set  apart  any  gratuity fund,  what  is\t the
\n\t      extent  of the available surplus, what is\t the
\n\t      general financial\t   position of the employer,
\n\t      what are the dividends\tpaid  and  has\t the
\n\t      employer to meet any urgent liability    etc.
\n\t      The  fact that the employer would be  entitled
\n\t      to    a rebate of Income-tax on the amount  of
\n\t      bonus paid to his workmen has also to be taken
\n\t      into account    and  in many cases it plays  a
\n\t      significant part in the\tfinal  distribution.
\n\t      It  was also held that overtime payment  ought
\n\t      not to have been taken into account as part of
\n\t      the  basic wage in calculating bonus  payable.
\n\t      This  innovation\twould make  an\tunreasonable
\n\t      distinction     between workmen and workmen on
\n\t      the basis thatG\t   some\t  have\t contributed
\n\t      more and the others less to the\t  earning of
\n\t      profits.\n<\/p>\n
We  now\t propose  to  examine each  of\tthe  claims  of\t the
\nAppellants  in the light of our observations as to the\tfor-
\nmula  applicable in determining its validity  or  otherwise.
\nAt the outset it may be noted that on behalf of the Appel-
\n(1)  [1966] (2) L.L.J. 307.\n<\/p>\n
 255<\/span><\/p>\n
lant  only  a  solitary witness, M.  K.\t Ghosh\ta  Chartered
\nAccountant  of\tthe  Company who on his\t own  admission\t had
\njoined the Company six months prior to his giving_  evidence
\nwas produced.  Obviously this witness could not speak  about
\nthe  relevant matters from his personal’  knowledge.   Apart
\nfrom  this  infirmity  the Tribunal  has  characterised\t his
\neividence  as  contradictory,  evasive\tand  not   reliable.
\nInnumerable  statements, letters, balancesheet,\t profit\t and
\nloss  account  and other documents called for  or  otherwise
\nwere filed on behalf of the Appellants.\t It cannot be denied
\nthat the mere filing of any of the aforementioned  documents
\ndoes not amount to proof of them and unless these are either
\nadmitted  by the Respondents. or proved they do\t not  become
\nevidence in the case.\n<\/p>\n
On  this  aspect  it  was  observed  in\t Associated   Cement
\nCompanies case at page 956:\n<\/p>\n
\t      “As a general rule the amount of gross profits
\n\t      thus    ascertained   is\t accepted    without
\n\t      submitting  the, statement of the\t profit\t and
\n\t      loss  account to close scrutiny.\tIf  however,
\n\t      it   appears  that  entries  have\t been\tmade
\n\t      deliberately  and\t Male-fide  to\treduce\t the
\n\t      amount  of gross profits, it would be open  to
\n\t      the Tribunal to examine the question…….\n<\/p><\/blockquote>\n
The case of the Indian Hume Pipe Co., Ltd., v. Their Workmen<\/a>
\n(1)  however  seems to have given scope for  the  contention
\nthat the balance-sheet could be relied upon for proving that
\ncertain\t amounts  stated therein were available for  use  as
\nworking capital and that it showed that they wherein fact so
\nused.\tIn  fact  in  that case it  was\t conceded  that\t the
\nreserves were in fact used as working capital.\tBhagwati J.,
\nwho delivered the Judgment of the Court, presumably to\tmeet
\nthe  contention that the balance-sheet had not been  proved,
\nobserved at page 362 thus:\n<\/p>\n
“Moreover,  no objection was urged in this behalf,  nor\t was
\nany finding to the contrary recorded by the Tribunal.”
\nThis  case was considered in Khandesh Spinning & Wvg.  Mills
\nCo. Ltd., v, the Rashtriya Girni Kamgar- Sangh, Jalgaon, (2)
\nit was pointed out that the observation is made;
\n(1) [1959] (2) L.L.J. 357.\n<\/p>\n
(2) [1960] (2), SC.R. 841.\n<\/p>\n
25 6
\nby  Bhagwati J, were not intended to lay down the  law\tthat
\nthe balance-sheet by itself was good evidence to prove as  ,
\nfact  the actual utilisation of reserves as working  capital
\nSubba  Rao J. (as he then was) in that case,  while  dealing
\nwith the importance or rehabilitation reserve in the calcula\n<\/p>\n
-tion  of  the\tavailable surplus pointed out  that  it\t was
\nnecessary  for\tTribunals  to  weigh  with  great  care\t the
\nevidence  -of both parties to ascertain every sub-item\tthat
\nwent  into or subtracted, from the item\t of  rehabilitation.
\nIf parties agreed figures could be accepted.  It they agreed
\nto  a decision of affidavits, that course could be  adopted.
\nBut in the absence of.agreement the procedure prescribed  by
\nOrder  XIX, Code of Civil Procedure had to be followed.\t  He
\nsaid at page 847:\n<\/p>\n
\t      “The  importance\tof  this  question  in\t the
\n\t      contestant  01 fixing the amount required\t for
\n\t      rehabilitation cannot be over-estimated.\t The
\n\t      item  of rehabilitation is generally  a  major
\n\t      item that enters into the calculations for the
\n\t      purpose\tof  ascertaining  the  surplus\t and
\n\t      therefore,  the  amount of bonus.\t  So,  there
\n\t      would  be\t a  tendency  on  the  part  of\t the
\n\t      employer\tto  inflate  this  figure  and\t the
\n\t\t\t    employees  to  deflate it.\tThe accoun
\nts  of\ta
\n\t      Company  are prepared by the management.\t The
\n\t      balance sheet and the profit, and loss account
\n\t      are  also prepared by the Company’s  officers.
\n\t      The labour has no concern in it.\tWhen so much
\n\t      depends on this item, the principles of equity
\n\t      and  ,justice demand that an Industrial  Court
\n\t      should  insist upon a clear proof of the\tsame
\n\t      and also give a real and adequate\t opportunity
\n\t      to  the Labour to canvass the  correctness  of
\n\t      the particulars furnished by the employer,”\n<\/p><\/blockquote>\n
At  Pages 847-850, the Indian Hume Pipe Co’s case  (citation
\ngiven  is incorrect–the -correct citation is 1959  (2)\t LLJ\n<\/p>\n
357)  -Tata Oil Mills Co. Ltd., Vs.. Its  Workmen  (citation
\ngiven in the report incorrect) and Anil Strach Products Ltd.
\nv. Ahmedabad Chemical Workers Union,<\/a> cases (1) were referred
\nto  and\t discussed.   It was pointed out  that\tAnil  Starch
\nProducts Ltd., again reinforced the view of this Court\tthat
\nproper\topportunity should be given  to the labour  to\ttest
\nthe correctness of the evidence given on
\n(1)  Civil Appeal No. 684 of 1957.\n<\/p>\n
 257<\/span><\/p>\n
affidavit on behalf of the management in regard -to the\t use
\nof the reserves as working capital.\n<\/p>\n
In  Petlad  Turkey Red Dye Works Ltd., v.  Dyes\t &  Chemical
\nWorkers Union, Petlad & Anr.<\/a> (1)., the question whether\t the
\nbalance-sheet can be taken as proof of claim as to a portion
\nof  the\t reserve that has been used as working\tcapital\t was
\nagain  considered.   The Khandesh Spinning & &\tWvg.   Mills
\ncase as well as the Management of Trichinopoly Mills Ltd. v.
\nNational  Cotton  Textile  Mills  Workers  Union<\/a>  (2)\twere
\nreferred to with approval.  The contention that Indian\tHume
\nPipe’s\tcase  held  otherwise  was pointed  out\t to  be\t not
\njustified for “If it had been intended to state as a  matter
\nof  law that the balance-sheet itself was good\tevidence  to
\nprove the fact of utilisation of a portion of the reserve as
\nworking\t capital it would have been unnecessary to make\t the
\nobservations referred to at page 362.\n<\/p>\n
In the Petlad Turkey Red Dye Works(1) case it was pointed by
\nreference to the Trichinopoly Mills (2) case that the  ques-
\ntion as regards the sufficiency of the balance sheet  itself
\nto  prove the fact of utilisation of any reserve as  working
\ncapital\t was  also  considered and it was  held\t “that\tthe,
\nbalance\t sheet\tdoes not by itself prove any such  fact\t and
\nthat  the  law requires that such an important fact  as\t the
\nutilisation  of a portion of the reserve as working  capital
\nhas  to\t be  proved by the employer  by\t evidence  given  on
\naffidavit  or otherwise and after giving an  opportunity  to
\nthe  workman to contest the correctness of such evidence  by
\ncross-examination”.\n<\/p>\n
In Bengal Kagazkal Mazdoor Union v. Titaghur Paper Mills Co.
\nLtd.<\/a> (3) Wanchoo J., (as he then was) observed at page 45 :\n<\/p>\n
\t      “It is now well settled that the balance-sheet
\n\t      cannot  be taken as proof of a claim  to\twhat
\n\t      portion of reserves has actually been used  as
\n\t      working capital and that the utilisation of  a
\n\t      portion  ‘of the reserves as  working  capital
\n\t      has  to be proved by the employer by  evidence
\n\t      on   affidavit  or  otherwise   after   giving
\n\t      opportunity  to  the workmen  to\tcontest\t the
\n\t      correctness   of\tsuch  evidence\t by   cross-
\n\t      examination
\n\t      (1)  [1960]2S.C.R.906.\t       (2) [1960]  2
\n\t      L.L.J. (S.C.) 46.\n<\/p><\/blockquote>\n
\t      (3)   [1964] 3 S.C.R. 38.\n<\/p><\/blockquote>\n
\t      258<\/span><\/p>\n
\t      (See Patlad Turkey Red Dye Works Ltd. v.\tDyes
\n\t      & Chemicals Workers’ Union)<\/a>“.\n<\/p><\/blockquote>\n
An  attempt is however made by the learned Advocate for\t the
\nAppellant  to persuade us that as the Evidence Act does\t not
\nstrictly  apply\t the calling for of  the  several  documents
\nparticularly  after the employees were given inspection\t and
\nthe reference to these by the witness Ghosh in his  evidence
\nshould\tbe  taken  as  proof  thereof  The  observations  of
\nVenkatram  lyer J, in Union of India v. Varma,<\/a> (1) to  which
\nour attention was invited do not justify the submission that
\nin  labour matters where issues are seriously contested\t and
\nhave to be established and proved the requirements  relating
\nto proof can be dispensed with.\t The case referred to  above
\nwas  dealing  with  an enquiry into the\t misconduct  of\t the
\nPublic\tServant in which he complained he was not  permitted
\nto cross-examine.  It however turned out that he was allowed
\nto  put questions and that the evidence was recorded in\t his
\npresence.  No doubt the procedure prescribed in the Evidence
\nAct  by first requiring his chief-examination then to  allow
\nthe delinquent to exercise his right to crossexamine him was
\nnot  followed,\tbut  that ,the Enquiry\tOfficer,  took\tupon
\nhimself to cross-examine the witnesses from the very  start.
\nIt  was\t contended that this method would violate  the\twell
\nrecognised  rules of procedure.\t In these  circumstances  it
\nwas observed at page 264:\n<\/p>\n
\t      “Now it is no doubt true that the evidence  of
\n\t      the Respondent and his witnesses was not taken
\n\t      in  the mode prescribed in the  Evidence\tAct;
\n\t      but  that Act has no application to  enquiries
\n\t      conducted by Tribunal even though they may  be
\n\t      judicial in character.  The law requires\tthat
\n\t      such Tribunals should observe rules of natural
\n\t      justice  in the conduct of the enquiry and  if
\n\t      they do so their decision is not liable to  be
\n\t      impeached\t on  the ground that  the  procedure
\n\t      followed was not in accordance with that which
\n\t      obtains in a Court of Law”.\n<\/p><\/blockquote>\n
But the application of principle of natural justice does not
\nimply  that what is not evidence can be acted upon.  On\t the
\nother hand what it means is that no materials can be  relied
\nupon to establish a contested fact which are not
\n(1)  [1958] 2 L.L.J. 259, 263-264.\n<\/p>\n
 259<\/span><\/p>\n
spoken\tto by persons who are competent to speak about\tthem
\nand are subjected to cross-examination by the party  against
\nwhom  they  are\t sought\t to be used.   When  a\tdocument  is
\nproduced  in  a\t Court\tor a  Tribunal\tthe  questions\tthat
\nnaturally  arise is, is it a genuine document, what are\t its
\ncontents  and  are the statements  contained  therein  true.
\nWhen the Appellant produced the balance-sheet and profit and
\nloss  account  of  the\tCompany, it does  not  by  its\tmere
\nproduction  amount to a proof of it or of the truth  of\t the
\nentries\t therein.   If\tthese  entries\tare  challenged\t the
\nAppellant  must prove each of such entries by producing\t the
\nbooks  and  speaking from the entries made  therein.   If  a
\nletter or other document is produced to establish some\tfact
\nwhich is relevant to the enquiry the writer must be produced
\nor his affidavit in respect thereof be filed and opportunity
\nafforded  to  the opposite party who challenges\t this  fact.
\nThis is both in accord with principles of natural justice as
\nalso  according\t to  the procedure -under  Order  XIX  Civil
\nProcedure   Code  and  the  Evidence  Act  both\t  of   which
\nincorporate  these  general principles.\t Even if  all  tech-
\nnicalities  of the Evidence Act are not strictly  applicable
\nexcept\tin so far as Section 11 of the\tIndustrial  Disputes
\nAct  1947  and\tthe rules prescribed therein  permit  it  is
\ninconceivable  that  the  Tribunal can act on  what  is\t not
\nevidence such as hearsay, nor can it justify the Tribunal in
\nbasing\tits award on copies of documents when the  originals
\nwhich are in existence are not produced and proved by one of
\nthe  methods  either by affidavit or by witnesses  who\thave
\nexecuted them, if they are alive and can be produced.  Again
\nif  a  party  wants an inspection, it is  incumbent  on\t the
\nTribunal to give inspection in so far as that is relevant to
\nthe enquiry.  The applicability of these principles are well
\nrecognised and admit of no doubt.\n<\/p>\n
We  now propose to examine the claim under each one ,of\t the
\nheads,\tnot-only those in respect of the prior\tcharges\t but
\nalso  in  respect of contingency  and  development  reserves
\nwhich  have to be taken into consideration  for\t determining
\nthe  amount  of bonus to be declared out  of  the  available
\nsurplus.\n<\/p>\n
The first claim is in respect of depreciation on account  of
\ndouble shift.  The Appellant did not claim any\tdepreciation
\nin respect of electric cables.\tThe only
\n2 6 0
\nwas  relating  to  plant and machinery\twhich  comprises  of
\nboilers\t and turbines.\tGhosh P. W. I stated that the  plant
\nand machinery worked more than double shift.  In support  of
\nhis  statement\the filed Exhibit E. 16 which he\t stated\t was
\ncorrect as he had verified it from the records.\t Exhibit E.-
\n16 is not a document prepared by the witness but appears  to
\nhave  been  prepared and signed by  the\t Resident  Engineer,
\naccording to which the total number of hours which the\tfour
\nboilers and the four turbines had worked during 1960-61.  So
\nfar  as boilers are concerned all of them are said  to\thave
\nworked 21,327 hours the average of which for each boiler for
\nthe  year  was\tcomputed at 5,331 8  hours.   Similarly\t the
\nturbines  worked 21,629 hours which works out to an  average
\nof 5412 -3 hours per turbine per year.\tIf the year is taken
\nas 365 days the average for the boiler and turbine works out
\nto  14.6 and 14.8 hours while if it is taken as 300 days  it
\nworks at 17.77 and 18.04 hours respectively.  The  Appellant
\ncontends that there is no cross-examination of witness Ghosh
\nnor   have   the  employees   challenged   this\t  statement.
\nAccordingly he submits that a sum of Rs. 28,413\/- should  be
\nallowed.   It  is however admitted that no  claim  was\tmade
\nbefore the Incometax Officer nor has any amount been allowed
\nin  the Company’s assessment for the relevant year (see\t Ex.\n<\/p>\n
11).   But  even  if the amount was not\t claimed  under\t the
\nIncometax  Act,\t that does not by itself  preclude  us\tfrom
\nallowing  dreciation  for double or multiple shifts  but  in
\nthis case thee difficulty is that there is no -proof as such
\nof  the\t plant and machinery working double shift.   We\t are
\nasked  to  assume that any an Elec tricity  Undertaking\t the
\nboilers and turbines must be working throughout at any\trate
\nmore  than 8 hours.  We however, do not know to what  extent
\neach  of these were working for how many days and  how\tmany
\nhours each day.\t The Resident Engineer was not produced\t nor
\nwas Ghosh in a position to speak to the facts of the  state-
\nment therein from his knowledge or in any a credible  manner
\nas to make his evidence acceptable.  The Tribunal said\tthat
\nthe  veracity  of  the statement Ex.  16  is  also  doubtful
\nbecause\t the employers have not produced anything before  it
\nto show the total running hours of the boilers or  turbines.
\nIt  further went on to say “The Statement of M. K. Ghosh  is
\nself  contradictory.  He has said one thing at one time\t and
\nquite another at another place in
\n 2 6 1.\n<\/p>\n
respect of the same matter.  The Tribunal had to put to\t the
\nwitness\t scores of questions in order to clarify orin  order
\nto  ascertain  which  of the two statements  made-,  by\t the
\nwitness could be taken to be correct”.\n<\/p>\n
We  think  the Tribunal was justified,\tin  rejecting  this.
\nclaim.\t In  view of this disallowance- the  amount  to\t be,
\nallowed as prior charge towards depreciation wil have to  be
\ncomputed after allowing for the notional depreciation.-
\nIn calculating the amount deductible from gross profits.  on
\naccount of Income-tax the learned Advocate of the  Appellant
\ncontends that the Tribunal’s calculations were: wrong.\tWhat
\nthe  tribunal  has done-is though it deducted  the  notional
\nnormal depreciation of Rs. 2,02,814\/- from the gross profits
\nit  had\t for  the  purposes  of\t computation  of’  Incometax
\ndeducted the statutory depreciation of Rs. 2,52,442\/- and on
\nthe balances of that figure namely Rs.. 2,32,035\/-  computed
\nIncome-tax  @  45% amounting to.  Rs.  1,04,415\/-.   If\t the
\ncontention  of the learned Advocate, for the  Appellant\t was
\naccepted  and only the notional nor-mal\t depreciation  alone
\nwas  deducted  for computing the Income-tax  the  Income-tax
\ndeductible  would  come to Rs.. 1,26,748\/-.   It  was  again
\nsought to be contended that the development rebate on  plant
\ninstalled  @  25  %  on, Rs.  1,28,513\/-  amounting  to\t Rs.
\n49,628\/- could not form. part of the statutory reserve which
\ntogether  with the notional normal depreciation came to\t Rs.
\n2,52,4421-.  It was submitted that development rebate is not
\none of the species of’ depreciation; that it is a rebate for
\ndevelopment which is, dehors depreciation and has nothing to
\ndo with the written down value of the asset for\t calculating
\ndepreciation.\tFrom  the Tribunal’s order it  would  appear
\nthat there was no dispute with respect to the provision\t for
\nIncome-tax  or\tits.  quantum because  after  deducting\t the
\namount\tof statutory depreciation the amount as computed  at
\n45 % is Rs. 1,04,415\/- which was the amount claimed by it as
\nstatutoryreserve  as per Ex.  E. 13.  That the deduction  of
\nstatutoryallowance  for\t computing Income-tax  is  the\ttrue
\nprincipleis borne out by the decisions of this, Court.\t The
\ncontention  that only notional normal depreciation  and\t not
\nstatutory,  depreciation  should be taken into\taccount\t was
\nraised in Bengal Kagazkal Mazdoor Union. v. Titaghur<\/a>  peper-
\nMills Co. Ltd., where Wanchoo J. (as he then was) at page:
\n2 6 2
\n44  negatived  it but nonetheless, because  the\t quantum  of
\nstatutory  depreciation\t was in controversy and it  was\t not
\npossible  to calculate the correct amount of Income’-tax  to
\nbe  calculated\tin  the absence of evidence,  the  case\t was
\nremanded  to the tribunal for further evidence for  arriving
\nat the correct statutory depreciation to compute the  Income
\nTax.   Reference was also made to the Meenakshi\t Mills\tcase
\nand  the  Associated Cement Companies case.  In\t the  latter
\ncase it was held at page 962 that in calculating the  amount
\nof tax payable for the bonus year the Tribunals should\ttake
\ninto account the concessions given by the Income-tax Act  to
\nthe employers under the two more depreciations allowed under
\nS.  10 (2) (vi) of the Income-tax Act.\tIn Burn & co Ltd.  v
\nits  Workmen(1) also it would -appear “that  the  Income-tax
\nafter  making the allowance for statutory  depreciation\t and
\ndevelopment rebate was computed”.  Though it is said that no
\nreasons\t were given ,this computation is in consonance\twith
\nthe  decisions of this Court.  In this view the\t computation
\nof Income-tax by the Tribunal after deducting the  statutory
\ndepreciation  cannot be assailed.  The amount deductible  on
\nthis account will be Rs. 1,04,415\/-.\n<\/p>\n
Two further items are sought to be deducted as prior charges
\nnamely\tthe  return  on\t working  capital  and\tthe  amounts
\nrequired for rehabilitation.  The claim of the Appellant for
\nreturn on working capital was Rs. 40,360\/which is 6 % on Rs.
\n10,09,000\/-  said to have been employed in the\tUndertaking.
\nThe Tribunal referred to Ex.  E. 17 in which details of\t the
\nreserves used as the working capital have been given as also
\nanother\t statement  Ex.\t E. 18 which showed details  of\t the
\napproximate   working  capital\trequired  for  running\t the
\nUndertaking.   Ex.  E. 6 is a statement. Showing the  annual
\nwages and salaries and E. 7 shows ,deficiency of surplus  of
\nfunds  for normal working of the Undertaking.  The  Tribunal
\nattached  no value to these -statements as the\tcalculations
\nof working capital was arrived at on the basis of assets  of
\nreserve as they stood on 31-3-61 i.e. on the closing day  of
\nthe  year 1960-61.  The ,learned Advocate for the  Appellant
\nhad  to\t concede that the ‘Tribunal was right  in  rejecting
\nthis  basis as the basis for working capital.  What he\tsays
\nshould\thave been done ,was to have taken the amount at\t the
\nbeginning of the year [1964] 5 S. C.R. 823.\n<\/p>\n
263<\/span><\/p>\n
namely\t1st April 1960 and to add to this amount the  amount
\nof  reserve  actually  utilised during\tthe  bonus  year  as
\nworking capital.  The evidence of Ghosh in this as in  other
\nmatters was of little assistance to the Appellant.  While he
\nstated\tthat Rs. 10,09,000\/- was the working capital of\t the
\nCompany\t during the year, in cross-examination\the  admitted
\nthat  the consumers deposits have been used in the  business
\nas working capital.  Later on he sought to explain it by  an
\napplication in which he said that what he meant was that the
\nconsumers  deposit had been invested in the  business.\t The
\nTribunal has carefully gone through this evidence and was of
\nthe  view  that\t Ghosh has  given  contradictory  and  false
\nstatements  in respect of the consumers deposits  not  being
\nused  as working capital.  This apart as already stated,  he
\nhas no personal knowledge.  In any case the Tribunal has  on
\nan examination of the Cash Book and profit and loss  account
\nEx.   W. 16 and E. I held that the receipts of\tthe  concern
\nare little more than two lacs a month which amount by itself
\nwould  be  sufficient to meet its day-to-day  expenses.\t  In
\nconsidering  a\tclaim  for return  on  working\tcapital\t two
\nquestions  must be kept in view; whether ‘the reserves\twere
\navailable  and\tif  they were, whether\tthey  were  used  as
\nworking\t capital and if so, what is that amount.  These\t are
\nquestions of fact and if the employer fails to establish  by
\nsatisfactory  evidence the claim will have to  be  rejected.
\nIn this case we may point out there is no proof, that any of
\nthe reserves have been utilised.\n<\/p>\n
 Lastly the claim for rehabilitation has also to be rejected
\non the same grounds.  We have already discussed the approach
\nthat  has  to  be  made\t in  considering  this\tclaim.\t  As
\nrehabilitation\treserve is a substantial item which goes  to
\nreduce\tthe available surplus and as a result,\teffects\t the
\nright  of  the employee to receive the bonus,  the  employer
\nwill have, to place all relevant materials and the ,Tribunal
\nwill  have  to scrutinise these carefully and  be  satisfied
\nthat the claim is justified At the same time it is equitable
\nalso  in the larger interest of the industry as well  as  of
\nthe  employees that proper rehabilitation reserve should  be
\nbuilt up taking into consideration the increase in prices in
\nplant  and  machinery which has to be replaced at  a  future
\ndate  and  by  the determination of  a\tmultiplier  and\t its
\ndivisor.  The case of the Appellant is that the\t requirement
\nof  the Undertaking in this regard is Rs. 15,66,496\/-..\t The
\nassets .\n<\/p>\n
MI245 SupCI\/71
\n26 4
\nrequired to be replaced have been divided into three  blocks\n<\/p>\n
-one  upto  31-12-59,  the  second  from  January,  1940  to
\nDecember  1947 and the third from January 1948 to March\t 31,
\n1961.  Certain statements were filed which were intended  to
\nshow  what  the\t yearly\t replacement cost  as  well  as\t the
\noriginal  cost\twas,  as  also\tthe  life  and\tthe   yearly
\nrequirements of all the assets, the multiplier and  divisor.
\nIn support of the replacement cost, quotation of prices\t Ex.
\nE. 21 to E. 24 have been filed.\t These are from M\/s.  Martin
\nBurn  Ltd.,  as Agents of M\/s.\tC. A. Pearson  &  Co.  Ltd.,
\nBabcocks  &  Willcox of India (P) Ltd.,\t -Indian  Cable\t Co.
\nLtd.,  representing British Insulated Calendar Cables  Ltd.,
\nand the Indian Iron & Steel Co. The first objection  against
\nthe  admissibility  of these letters is that they  have\t not
\nbeen proved by anyone of the persons who have written  these
\nletters\t or  any of the representatives of the\tfirms  whose
\nletters they are.  As has been noticed Ghosh is the  omnibus
\nwitness\t and he has no knowledge whatever in respect of\t any
\nof  the\t matters-  stated therein nor can he  speak  to\t the
\nprecise\t requirement  for  rehabilitation.   It\t is   rather
\nsurprising that the employer who is making such a big  claim
\nhave  not  called any one as a witness who  can\t speak\twith
\nknowledge of the age, the, requirements and the increase  in
\nthe  prices  of replacements.  The original cost  ,of  these
\nblocks\thas been prepared by Shri Chatterji (Ex.  E. 19\t and
\nEx. 20).  But he has, not been produced and an ,attempt\t was
\nmade  to  prove\t them through the evidence  of\tGhosh.\t The
\nTribunal  states that a number of questions were put to\t the
\nwitness\t to ascertain as to how he calculated  the  original
\ncost and his reply was that the same has been taken from the
\nbalance-sheet.\t The balance-sheets for ,earlier years\thave
\nalso  not been produced to show what the original cost\twas.
\nThe  Tribunal  has examined these matters and  the  evidence
\nrelating thereto in great detail ,and we agree with it\tthat
\nthe  Appellant has failed to prove the original cost of\t the
\nmachines,  plant  and  machinery,  its\tage,  the   probable
\nrequirements   for  replacement,  the  multiplier  and\t the
\ndivisor.   In these circumstances this claim also  has\tbeen
\nproperly disallowed.\n<\/p>\n
There  is  then\t the  claim  for  contingency  reserve\t and
\ndevelopment  reserve  which  it is not disputed\t has  to  be
\nprovided under the Electricity (Supply) Act amounting to Rs.
\n32,900\/- and Rs. 22,333\/- respectively in all Rs. 55,233\/-.\n<\/p>\n
 265<\/span><\/p>\n
The  Tribunal,\thowever, has disallowed this  claim  on\t the
\nround  that since they have been created under the  Electri-
\ncity  (Supply) Act which according to its  understanding  of
\nthe  legal  position,  could not  be  deducted.\t  These\t two
\nreserves it may be stated have to be created under the\tpro-
\nvisions of Clause V and Clauses V (a) of the Sixth  Schedule
\nof  the\t Electricity (Supply) Act, 1948.  The  Tribunal\t has
\ngone  into  the reason for the creation of  these  reserves,
\ntheir use etc.\tWe have already examined the legal  position
\nearlier\t and  have noticed that the provision for  the\tsaid
\nreserves  has  been  made under the statute  for  a  special
\npurpose namely to work out the charges to be recovered\tfrom
\nthe  consumers for the supply of Electricity but  that\tdoes
\nnot  mean that these are not to be taken into  consideration
\nin  declaring  bonus though they have not  been\t treated  as
\nprior  charges.\t  We have referred to the  case\t of  Mathura
\nPrashad\t Srivastava  as\t supporting  this  view.   In  these
\ncircumstances the amount of Rs. 55,233 \/- has to be provided
\nfor.   Except  for this amount the computation made  by\t the
\nTribunal  for ascertaining the available surplus is  in\t our
\nview  justified.  The amount found by the Tribunal  in\tthis
\nregard\tis  Rs.\t 1,29,248\/- and if Rs.\t55,233\/-  is  to  be
\nprovided there will be an available surplus of Rs. 74,015\/-.
\nThe  Tribunal  as  we  \/ said  awarded\tthree  months  bonus
\namounting to Rs. 73,000\/- which works out to Rs.  24,333\/per
\nmonth.\tWe think having regard to the financial capacity  of
\nthis  Undertaking  one\tmonth’s bonus  which  will  leave  a
\nsurplus\t for the working of the Undertaking, will  meet\t the
\nends  of justice.  We accordingly order the payment  of\t one
\nmonth’s\t wages\tas bonus.  Each party will  bear  their\t own
\ncosts in this Appeal.\n<\/p>\n
G.C.\t\t\t\t     Ordered accordingly.\n266<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Bareilly Electricity Supply Co. … vs The Workmen & Ors on 16 August, 1971 Equivalent citations: 1972 AIR 330, 1972 SCR (1) 241 Author: P J Reddy Bench: Reddy, P. Jaganmohan PETITIONER: BAREILLY ELECTRICITY SUPPLY CO. LTD. Vs. RESPONDENT: THE WORKMEN & ORS. DATE OF JUDGMENT16\/08\/1971 BENCH: REDDY, P. JAGANMOHAN BENCH: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-196043","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nBareilly Electricity Supply Co. ... vs The Workmen & Ors on 16 August, 1971 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/bareilly-electricity-supply-co-vs-the-workmen-ors-on-16-august-1971\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Bareilly Electricity Supply Co. ... vs The Workmen & Ors on 16 August, 1971 - 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