{"id":227935,"date":"1959-05-05T00:00:00","date_gmt":"1959-05-04T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/the-associated-cement-companies-vs-its-workmen-another-on-5-may-1959"},"modified":"2018-12-08T09:42:05","modified_gmt":"2018-12-08T04:12:05","slug":"the-associated-cement-companies-vs-its-workmen-another-on-5-may-1959","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/the-associated-cement-companies-vs-its-workmen-another-on-5-may-1959","title":{"rendered":"The Associated Cement Companies … vs Its Workmen & Another on 5 May, 1959"},"content":{"rendered":"
Supreme Court of India<\/div>\n
The Associated Cement Companies … vs Its Workmen & Another on 5 May, 1959<\/div>\n
Equivalent citations: 1959 AIR 967, \t\t 1959 SCR Supl. (2) 925<\/div>\n
Author: P Gajendragadkar<\/div>\n
Bench: Das, Sudhi Ranjan (Cj), Bhagwati, Natwarlal H., Das, S.K., Gajendragadkar, P.B., Wanchoo, K.N.<\/div>\n
           PETITIONER:\nTHE ASSOCIATED CEMENT COMPANIES LTD.,DWARKA CEMENT WORKS, DW\n\n\tVs.\n\nRESPONDENT:\nITS WORKMEN & ANOTHER\n\nDATE OF JUDGMENT:\n05\/05\/1959\n\nBENCH:\nGAJENDRAGADKAR, P.B.\nBENCH:\nGAJENDRAGADKAR, P.B.\nDAS, SUDHI RANJAN (CJ)\nBHAGWATI, NATWARLAL H.\nDAS, S.K.\nWANCHOO, K.N.\n\nCITATION:\n 1959 AIR  967\t\t  1959 SCR  Supl. (2) 925\n CITATOR INFO :\n R\t    1959 SC1081\t (12)\n F\t    1959 SC1089\t (9)\n R\t    1959 SC1114\t (6,8,9)\n F\t    1959 SC1276\t (5,8)\n F\t    1959 SC1317\t (3)\n F\t    1960 SC  12\t (23)\n R\t    1960 SC 571\t (5,6)\n R\t    1960 SC 826\t (10)\n R\t    1960 SC1003\t (5)\n F\t    1960 SC1025\t (8)\n F\t    1960 SC1346\t (5)\n F\t    1961 SC 867\t (2,4,7,9)\n R\t    1961 SC 941\t (2,7,9)\n RF\t    1961 SC 977\t (7,9)\n RF\t    1961 SC1165\t (2,5,6)\n R\t    1961 SC1191\t (3)\n RF\t    1961 SC1200\t (13)\n R\t    1962 SC1221\t (4)\n R\t    1962 SC1255\t (1,5,7)\n R\t    1963 SC 474\t (4)\n R\t    1963 SC1007\t (6,12,13)\n RF\t    1963 SC1710\t (5)\n R\t    1964 SC1766\t (13)\n RF\t    1967 SC 691\t (7,11,22)\n R\t    1967 SC1222\t (5)\n R\t    1967 SC1450\t (5)\n R\t    1968 SC 538\t (2,10,12,25,32)\n R\t    1968 SC 963\t (2,3,11,12,25,26,28,29,30,31)\n RF\t    1969 SC 530\t (8)\n RF\t    1969 SC 612\t (23)\n RF\t    1969 SC 976\t (13)\n R\t    1971 SC2521\t (8,16,18)\n RF\t    1971 SC2567\t (1)\n RF\t    1972 SC  70\t (15,21)\n R\t    1972 SC 330\t (7,18)\n RF\t    1972 SC1954\t (15,23)\n RF\t    1973 SC 353\t (22)\n\n\nACT:\nIndustrial Dispute-Bonus-Available surplus-Determination of-\nFull Bench formula-Basis-Applicability-Revision if  required\n-Prior\t  Charges-Mode\t of    calculation-Gross    Profits,\nascertainment  of-Rehabilitation  charges,  how\t determined-\nGratuity  fund,\t whether  can be claimed  as  Prior  charge-\nDistribution  of surplus--Overtime Payment, if can be  taken\ninto consideration in awarding bonus.\n\n\n\nHEADNOTE:\nFor  the  year\t1953-54, the employers\tpaid  bonus  to\t the\nworkmen\t equal\tto  three months'  wages,  but\tthe  workmen\ndemanded  bonus\t equivalent to seven months and\t six  months\nbasic\twages  with  dearness  allowance.    The   employers\ncontended that after making deductions for the prior charges\nfrom  the  gross  profits in  accordance  with\tthe  formula\nevolved\t by the Full Bench of the Labour Appellate  Tribunal\nin  Mill Owners Association, Bombay v. The  -Rashtriya\tMill\nMazdoor\t Sangh, (1950) L.L.J. 1247, there was  no  available\nsurplus left and consequently the\n926\nworkmen\t could claim no bonus.\tThe workmen  countered\tthat\nthe formula required revision as the employers were becoming\nincreasingly   more  rehabilitation  conscious\t and   their\nappetite  for  the  provision for  rehabilitation  was\tfast\ngrowing\t with the result that in most cases, after  allowing\nfor  rehabilitation,  there  was no  surplus  left  for\t the\npayment of bonus and the main object of the formula was thus\nfrustrated.  The workmen further contended that the whole of\nthe  rehabilitation expenses should not be provided for\t out\nof  trading  profits and that the claim\t for  rehabilitation\nshould\tbe  fixed at a reasonable amount  and  the  industry\nshould be required to find the balance from other sources:\nHeld,  that though there may be some force in the plea\tmade\nfor  the  revision of the Full Bench  formula,\tthe  problem\nraised\tby the said plea is of such a character that it\t can\nbe   appropriately   considered\t only  by   a\thigh-powered\ncommission  and not by this Court while hearing the  present\ngroup of appeals.  Besides the Full Bench formula had on the\nwhole  worked  fairly satisfactorily in a  large  number  of\nindustries  all\t over the country, and the claim  for  bonus\nshould be decided by Tribunals on the basis of this  formula\nwithout\t attempting to revise it.  The formula\twas  elastic\nenough\tto  meet reasonably the claims of the  industry\t and\nlabour\tfor fair play and justice.  If the content  of\teach\nitem specified in the formula was determined objectively  in\nthe light of all relevant and material facts, the  Tribunals\nwould\tgenerally  find\t it  possible  to  make\t  reasonable\nadjustments between the rival claims and provide for a\tfair\ndistribution of the available surplus.\nMuir  Mills  Co. Ltd. v. Suti Mills Mazdoor  Union,  Kanpur,<\/a>\n[1955]\t1  S.C.R. 991, Baroda Borough  Municipality  v.\t Its\nWorkmen,<\/a>  [1957]  S.C.R. 33, Sree Meenakshi  Mills  Ltd.  v.\nTheir Workmen,<\/a> [1958] S.C.R. 878 and The State of Mysore  v.\nThe Workers of Kolar Gold Mines,<\/a> [1959] S.C.R. 895, referred\nto.\nThe  formula  was based on two considerations:\tfirst,\tthat\nlabour was entitled to claim a share in the trading  profits\nof the industry, because it had partially contributed to the\nsame; and second, that labour was entitled to claim that the\ngap  between  its actual wage and the  living  wage  should,\nwithin reasonable limits, be filled up.\t In dealing with the\nclaims\tfor  bonus, the two-fold basis of the  formula\tmust\nalways be kept in mind.\t Further, it was not necessary\tthat\nthe  workmen must actually manufacture or produce the  goods\nbefore they become entitled to claim any bonus.\nBurma Shell Oil Storage & Distributing Co. of India Ltd.  v.\nTheir Workmen,<\/a> (1953) 2 L.L.J. 246, applied.\nThe  working of the formula begins with the figure of  gross\nprofits,  taken from the profit and loss account, which\t are\narrived at after payment of wages and dearness allowance  to\nemployees\n927\nand other items of admissible expenditure.  It would be open\nto  the\t Tribunal to examine the accounts  and\tto  disallow\ndeliberate  and mala fide debit entries made to\t reduce\t the\namount\tof gross profits.  It would likewise be open to\t the\nparties to claim the exclusion of items, credit or debit, on\nthe ground that they were patently and obviously  extraneous\nand  entirely unrelated to the trading profits of the  year.\nBut  the Tribunal must resist the temptation  of  dissecting\nthe balance-sheet too minutely or attempting to\t reconstruct\nit.\nJ.f. K. Cottton Manufacturers Ltd., Kanpur v. Their Workmen,<\/a>\n(1954) L.A.C. 716, applied.\nThe  formula  deals with the claims for bonus on  the  basis\nthat  the  relevant year is a self-sufficient unit  and\t the\nappropriate  accounts have to be made on the notional  basis\nin  respect of the said year.  Hence, the refund  of  excess\nprofits\t  and\tthe  adjustment\t of  the   previous   year's\ndepreciation  and  losses cannot be made against  the  bonus\nyear's profits.\nModel  Mills  etc.  Textile Mills, Nagpur v.  The  Rashtriya\nMills Mazdoor Sangh<\/a> (1955) 1 L.L.J. 534; Bennett Coleman and\nCo. Ltd. v.    Their  Workmen, (1955) 2 L.L.J. 60,  referred\nto.\nAfter  ascertaining the amount of gross profits,  the  first\nitem  of deduction therefrom relates to\t depreciation.\t The\ndepreciation which has to be deducted from the gross profits\nshould\tbe the notional normal depreciation as explained  in\nthe case of Surat Electricity Co. Ltd., (1957) 2 L.L.J. 648,\nand   should   not  include  the  initial   and\t  additional\ndepreciation allowable under the Income-tax Act.\nU.P. Electric Supply Co. Ltd. v. Their Workmen,<\/a> (1955)\t2\nL.L.J.\t431; Surat Electricity Co's.  Staff Union  v.  Surat\nElectricity Co.\t Ltd.,<\/a> (1957) 2 L.L.J. 648, referred to.\nThe  second item of deduction is on account  of\t income-tax.\nOn  the\t balance obtained after deducting  the\tdepreciation\nfrom  the  gross profits the tribunal has to  calculate\t the\namount of income-tax payable for the bonus year.  In  making\nthis  calculation  it would not be reasonable to  allow\t the\nemployer to claim under the item of income-tax an additional\namount in respect of the two further depreciations which are\nexpressly  authorised under s. 10(2)(vi) of  the  Income-tax\nAct.   Therefore  the  two concessions\tthus  given  by\t the\nIncome-tax   Act  should  not  be  taken  into\taccount\t  in\ndetermining the amount of income-tax under the formula.\nSree  Meenakshi Mills Ltd. v. Their Workmen,<\/a>  [1958]  S.C.R.\n878, explained and followed.\nThe third item of deduction under the formula relates to the\nreturn\ton paid up capital as well as working capital.\t The\nformula provides generally for the payment of interest at 6%\n118\n928\nper  annum  on\tthe paid up capital and\t at  2%\t on  working\ncapital.   These  rates\t are not inflexible  and  will\tvary\naccording to the circumstances of each case.\nWorkmen of Assam Co. Ltd. v. Assaam Co. Ltd., [1959]  S.C.R.\n327  ;\tRustom\tand Hoynsby (India) Ltd.  v.  Their  Workmen\n(1955):I L.L.J. 73, Mill Owners Association, Bombay  v.\t The\nRashtriya  Mill Mazdoor Sangh, (1952) 1 L.L.J. 518, Tea\t and\nCoffee Workers Union v. Brooke Bond (India) (Private)  Ltd.,<\/a>\n(1956) 1 L.L.J. 645, U. P. Elcctric Supply Co. Ltd. v. Their\nWorkmen,<\/a> (1955) 2 L.L.J. 4I3, referred to.\nThe fourth item of deduction is on account of rehabilitation\nwhich\tincludes  replacement  and  modernisation  but\t not\nexpansion.   Rehabilitation  has to be\tcalculated  for\t the\nplant and machinery as well as the buildings.  The whole  of\nthe  rehabilitation charges have to come out of the  trading\nprofits\t as this guarantees the continuance of the  industry\nto  the\t benefit  both\tof the\temployer  and  labour.\t The\nTribunal has to estimate the probable cost of replacement of\nplant and machinery at the time when such replacement  would\nbecome\tdue.  In determining such cost, the Tribunal has  to\nproject the price level into the future, determined not only\nin the light of the prices prevailing during the bonus year,\nbut  also of subsequent price levels.  The decision  on\t the\nquestion  of the probable cost of rehabilitation  is  always\nreached by adopting a suitable multiplier.  This  multiplier\nis  based on the ratio between the cost price of  the  plant\nand  machinery and the probable price which may have  to  be\npaid  for its rehabilitation, replacement or  modernisation.\nAs  there  has\tbeen  a continuous  rise  in  the  price  of\nindustrial  plant and machinery, the older the\tplant  which\nneeds rehabilitation, the higher is the multiplier.  If\t the\nemployer  has  deliberately  or\t mala  fide  refrained\tfrom\nrehabilitating\this  old machinery with a view\tto  claim  a\nhigher multiplier, his conduct may be taken into account  in\ndetermining the multiplier and the amount of  rehabilitation\npayable\t to him.  Once a proper multiplier is  adopted,\t the\nprobable cost of rehabilitation can be easily determined  by\nmultiplying  the original cost by the multiplier.   At\tthis\nstage  the divisor steps in.  The total amount required\t for\nrehabilitation\thas to be divided by a suitable\t divisor  in\norder to ascertain the annual requirement of the employer in\nthat behalf year by year.\nBefore\t awarding  an  appropriate  amount  in\trespect\t  of\nrehabilitation\tfor  the bonus year, deductions have  to  be\nmade, first on account of the break-down value of the  plant\nand machinery which is usually calculated at the rate Of  5%\nOf  the\t cost price, secondly the depreciation\tand  general\nliquid resources available to the employer other than  those\nearmarked   for\t  specific   purposes,\t thirdly   all\t the\nrehabilitation\tamounts which may have been allowed  to\t the\nemployers in the previous years, but had remained unused  in\nthe meanwhile.\n929\nIt is only after all the prior charges have thus been deter-\nmined and deducted from the gross profits that the available\nsurplus\t can  be  ascertained for  payment  of\tbonus.\t The\nprocedure  adopted by some Tribunals of\t nationally  working\nout  the amount of bonus and then giving it priority in\t the\ncalculations  before  the determination\t of  the  income-tax\npayable\t   inevitably\t lessens   the\t amount\t   of\t tax\nproportionately,  and should be deprecated.   Rehabilitation\ncannot\tbe given priority before the income-tax\t payable  is\nascertained and deducted from the gross profits.\nNo addition should be made to the list of prior charges\t re-\ncognised  by the formula even with respect to the  employers\nclaim for deductions on account of gratuity fund created for\nthe benefit of the workmen.  But the Tribunal ought to, when\nthe available surplus is determined, take into account\tsuch\na  claim  and  reasonable  amount  of  allowance  should  be\ndefinitely  borne  in mind in finally fixing the  amount  of\nbonus.\nM\/s.   Metro Motors v. Their Workmen, (1952) 2\tL.L.J.\t205,\nreferred to.\nWhen  the  available  surplus has  been\t ascertained,  three\nparties\t are  entitled to claim shares\ttherein\t :  labour's\nclaim  for  bonus, the industry's claim for the\t purpose  of\nexpansion  and other needs and the share-holders' claim\t for\nadditional  return  on the capital invested  by\t them.\t The\nratio  of  distribution would obviously\t depend\t on  several\nfactors:  such as the gap between the actual wages  and\t the\nliving\twages, the setting apart of a gratuity fund  by\t the\nemployer and the amount thereof, the extent of the available\nsurplus,  the  dividends actually paid by the  employer\t and\nthose  paid  by comparable concerns,  the  probabilities  of\nexpansion,  the general financial condition of the  employer\nand his necessity to meet urgent liabilities.\nIt would be wrong on principle to take overtime payment into\naccount\t in calculating the bonus payable to  each  workman.\nOnce the total amount payable as bonus is determined on\t the\nprinciples  as indicated, the question of  overtime  payment\nbeing taken into account can no longer be a dispute  between\nthe  employer  and his workmen but one between\tthe  workmen\ninter se.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 459 and 460
\nof 1957.\n<\/p>\n
Appeals\t by special leave from the judgment and order  dated
\nthe 30th November, 1956, of the Industrial Tribunal, Bombay,
\nin Reference 1. T. Nos. 10 and 13 of 1956.\n<\/p>\n
R.H.  Kolah,  Dadachanji  and  S.  N.  Andley,\tfor   the
\nappellant.\n<\/p>\n
930<\/span><\/p>\n
C.L.  Dudhia and I. N. Shroff, for the respondents in  C.
\nA. No. 459 of 1957.\n<\/p>\n
A.S. R. Chari and 1. N. Shroff, for the respondents in C.
\nA. No. 460 of 1957.\n<\/p>\n
1959.  May 5. The Judgment of the Court was delivered by
\nGAJENDRAGADKAR\tJ.-These two appeals arise out of  a  demand
\nfor  bonus made against the appellants by their workmen\t for
\nthe  year  1953-54.  The Associated Cement  Companies  Ltd.,
\nBombay,\t the Cement Marketing Company of India Ltd.,  Bombay
\nand  the Concrete Association of India, Bombay,\t were  faced
\nwith a demand of their workmen employed in their offices  at
\nBombay\tfor  bonus equivalent to seven months’\tbasic  wages
\nwith dearness allowance.  The industrial dispute arising out
\nof this demand was referred by the Government of Bombay\t for
\nadjudication  before the Industrial Tribunal, Bombay,  under
\ns. 10 of the Industrial Disputes Act and it was numbered  I.
\nT.  No. 10 of 1956.  The Associated Cement  Companies  Ltd.,
\nDwarka\tCement\tWorks, Dwarka, was similarly  faced  with  a
\ndemand\tof its workmen for bonus equivalent to 50% of  total
\nearnings  or six months’ total earnings.  This\tdispute\t was
\nreferred to the same tribunal and was numbered 1. T. No.  13
\nof  1956.   By consent of parties both the  references\twere
\nheard  together\t and  evidence was  recorded  and  documents
\ntendered in the first reference.  By its award delivered  on
\nNovember  30, 1956, the tribunal directed the  companies  to
\npay their workmen drawing a basic pay or wages up to Rs. 500
\nper  month bonus equivalent to 1\/3 of their basic  wages  or
\npay  (less bonus already paid for the year 1953-54)  subject
\nto  the\t conditions specified in the award.  It\t is  against
\nthis award that the respective companies have preferred\t the
\ntwo  appeals  by special leave.\t In this judgment  the\tsaid
\ncompanies  will hereafter be described as the appellant\t and
\ntheir workmen as respondents.\n<\/p>\n
The  A.\t C.  C. is the principal company  concerned  in\t the
\ndispute.  The Cement Marketing Company of
\n931<\/span>
\nIndia  Ltd.,  (hereafter  -called the C.  M.  I.)  has\tbeen
\nseparately  registered under the Indian Companies Act  as  a
\nJoint  Stock  Company;\tbut  it\t is  a\thundred\t per   cent.
\nsubsidiary  of\tthe  A. C. C. The C. M.\t I.  are  the  Sales
\nManagers  of the A. C. C. while the Concrete Association  of
\nIndia (hereafter called the C. A. I.) is merely a department
\nof the C. M. 1. As a result of the agreement which came into
\noperation  from’ August 1, 1953, all financial\ttransactions
\nof the C. M. 1. in relation to sales now find a place in the
\naccounts  of the A. C. C. Similarly all of its fixed  assets
\nhave been taken over and appear in the balance-sheets of the
\nA.  C.\tC.  All the three concerns have a  common  staff  in
\nBombay.\t  The  A. C. C. had already paid  to  its  employees
\nbonus  equivalent to three months’ basic wages for the\tyear
\n1953-54 and so had the C. M. I. to its workmen.\t It  appears
\nthat the C. M. I., including the C. A. I., undertakes to pay
\nto  its employees the same amount of bonus as has been\tpaid
\nor awarded to the employees of the A. C. C.\n<\/p>\n
There is no dispute that the A. C. C. is the biggest amongst
\nthe companies in India which manufacture cement.  It owns 15
\ncement\tfactories  at  different places in India  and  2  in
\nPakistan.  Out of the total quantity of cement despatched by
\nall  the cement factories in India in 1953-54 the A.  C.  C.
\ndespatched 55.46 %. The A. C. C. came into existence in 1936
\nas  a  result  of the merger of\t four  important  groups  of
\ncompanies engaged in the manufacture of cement.\t These\twere
\nF. E. Dinshaw, Tatas, Killick Nixon and Khatau, groups.\t  It
\nappears that 11 companies in all merged with the A. C. C.
\nBefore\tthe tribunal the case for the respondents  was\tthat
\nthe  appellant\theld a position of monopoly  in\t the  cement
\nindustry  and  was  easily in a position to  pay  the  bonus
\nclaimed\t by them.  Their allegation was that  the  appellant
\nhad  inflated the capital invested by the merging  companies
\nwhile taking them over in 1936; it had set up new  factories
\nout  of\t the  profits earned by\t it  without  raising  fresh
\ncapital\t and  thereby had used profits for  the\t purpose  of
\nexpansion.  In the year 195354 the appellant had capitalised
\nthe full amount
\n932<\/span>
\nstanding to the credit of the premium-on-shares account\t and
\nhad  transferred a part of the reserves for taxation to\t the
\ncapital account thus increasing the aggregate capital.\t The
\nemoluments  of the workers were inadequate and so they\twere
\nentitled  to the bonus claimed by them in order to  fill  up
\nthe gap between the actual wage paid to them and the  living
\nwage  due to them.  The respondents also contended that\t the
\nclaim\tmade  by  the  appellant  for\trehabilitation\t and
\nreplacement in the dispute for the year 195152 included\t not
\nonly the amount required for rehabilitation and\t replacement
\nbut also expansion; and so, according to them, the appellant
\nwas  not entitled to any amount for rehabilitation  purposes
\nin  the\t year  in  dispute.   They  also  alleged  that\t the
\nappellant  was not entitled to claim. interest at more\tthan
\n4% on paid-up capital and 2 % on working capital.  Thus\t the
\nrespondents  urged that if all the relevant facts are  taken
\ninto account it would be found that the claim for bonus made
\nby  them  in  the two respective  references  was  just\t and
\nproper.\t  In  support of their case  the  respondents  filed
\nseveral statements which, they claimed, had been prepared in
\naccordance with the Full Bench formula, and they also cross-
\nexamined  Mr. Tongaonkar who gave evidence on behalf of\t the
\nappellant.\n<\/p>\n
This  claim was resisted by the appellant.  It was urged  on
\nits behalf that the points raised by the respondents in\t the
\npresent references bad been heard and finally decided in the
\nprevious  adjudication (Ref.  I. T. No. 115 of\t1953)  which
\ndealt with their claim for bonus for the preceding year; and
\nit was alleged that the respondents were barred from raising
\nthe  same questions over again in the present  adjudication.
\nThe cement machinery, though heavy, is subject to rigours of
\nextremely  tough and heavy duties and the machinery  has  to
\nrun  ceaselessly  day and night throughout  the\t year.\t The
\nappellant  contended  that,  having regard  to\tthe  special
\nfeatures  of  the cement industry, the machinery had  to  be
\nkept  on  the highest standards of  maintenance\t and  needed
\nfrequent  replacement and rehabilitation.  A cement  factory
\nis  a very expensive industrial proposition.  The  appellant
\ndenied that
\n933<\/span>
\nit  was\t in  a monopolistic position and  pleaded  that\t its
\nobject\twas to deliver cement as cheaply as possible to\t the
\nconsumers.   The  respondents’ allegation that there  was  ”
\npuffing\t up  of block capital at the time of the  merger  in
\n1936  ” was denied by the appellant and it was not  admitted
\nthat  ever  since its inception it had\tsteadily  made\thuge
\nprofits.   The appellant also denied the allegation  of\t the
\nrespondents that the profits, coming out of the business had
\nbeen  used  in\texpanding its factories.  It  had  used\t all
\navailable resources including premium on issue of shares and
\ndepreciation   fund  for  replacement,\trehabilitation\t and
\nmodernisation.\tIt was not true that the appellant had built
\nhuge  reserves and that the wages paid by the  appellant  to
\nits employees were inadequate; on the contrary they compared
\nvery  favourably with those in other comparable\t industries.
\nThe  appellant denied the statement of the respondents\tthat
\nno plant reinstatement reserve over and above the  deprecia-
\ntion  allowance\t was necessary in the current  year  and  it
\nurged that the calculations made by the respondents  alleged
\nto be in terms of the Labour Appellate Tribunal formula were
\ninaccurate.  In its turn the appellant claimed more than  6%
\ninterest  on  paid-up capital and more than 4%\tinterest  on
\nworking capital.  The appellant also emphasised that it\t had
\nalready\t paid  to  the respondents bonus  for  three  months
\nthough the strict working out of the formula would show that
\nthere was no available surplus for the relevant year and  so
\nthe respondents would not be entitled to any bonus at all.
\nIn  support  of its case the appellant examined\t Mr.  G.  R.
\nTongaonkar, its controller of planning and development,\t and
\nproduced a statement (Ex.  C-2) showing the original cost of
\nthe  blocks to be replaced and the  approximate\t replacement
\ncost.  It also produced amongst other documents a  statement
\n(Ex.   C-10) showing the cost of the assets of\tthe  merging
\ncompanies  on July 31, 1936, as taken over by the  appellant
\nand   the   statement  (Ex.   C-29)  showing   the   capital
\nexpenditure   from   1936-37  to   1953-54   on\t  expansion,
\nmodernisation,\trehabilitation, replacement, sundry  capital
\njobs, etc.
\n934<\/span>
\nIn addition a statement was filed by the appellant (Ex.\t  C-\n<\/p>\n
23) showing that the calculations made under the Full  Bench
\nformula\t would\tshow a substantial deficit  and\t that  would
\nsupport its case that there was no available surplus for the
\nrelevant  year from which any bonus could be claimed by\t the
\nrespondents.\n<\/p>\n
Ex.  C-2 is a statement prepared by Mr.\t Tongaonkar  showing
\nthe  original  cost  of the block to  be  replaced  and\t the
\napproximate  replacement  cost.\t  This\tstatement  has\tbeen
\nprepared  on  the  basis that the approximate  cost  to\t the
\nmerging\t companies of their assets as on 31-7-1936 was\t5.73
\ncrores.\t  It  is  admitted that this  statement\t has  lumped
\ntogether all the properties of the appellant including plant
\nand  machinery,\t as well as buildings,\troads,\tbridges\t and
\nrailway-sidings\t  and\thas  classified\t  them\t into\tfour
\ncategories.   The statement contains 9 columns.\t  The  first
\ncolumn\tgives  the year or years of purchase  of  machinery.
\nThis  could  classifies the four categories  of\t the  blocks
\naccording to their respective years of purchase.  The  first
\ncategory consists of blocks purchased up to 1939, the second
\npurchased between 1940-44, the third purchased between 1945-
\n47  and the last purchased between 1949-54.  Column 2  gives
\nthe  original cost of the said categories as  on  31-7-1954.
\nColumn 3 gives particulars of such portions of the blocks as
\nhave  been discarded, scrapped or sold.\t In this column\t the
\nyears  in which the blocks were discarded, scrapped or\tsold
\nare indicated and their original cost is me
\n935<\/span>
\nfigures mentioned in col. 5 for 1939 and 1940-44 blocks have
\nbeen arrived at by reducing the corresponding figures  given
\nin  col. 4 by 20%.  Column 6 gives the\tapproximate  present
\nlife of the machinery and plant mentioned in col. 4; col.  7
\nsets out the breakdown value of the machinery referred to in
\ncol.  4,  whilst  col.\t8  gives  the  approximate  cost  of
\nrehabilitation\tof  machinery  as  shown  in  col.  5\tless
\nbreakdown  value as shown in col. 7. The last  column  works
\nout  the annual requirements of the appellant in respect  of
\nthe  rehabilatation of the four categories of  blocks.\t The
\nfigures\t in  this  column are arrived  at  by  dividing\t the
\namounts\t mentioned  in\tcol. 8 by  the\trespective  divisors
\nmentioned  in  col. 6. The total annual requirement  of\t the
\nappellant  in respect of rehabilitation is shown as  of\t the
\norder of Rs. 3,29,61,752.\n<\/p>\n
Ex.  C-23 is a statement prepared by Mr. Tongaonkar to\tshow
\nthe  deficiency\t in  profits  in  relation  to\tpayment\t  of
\nadditional   bonus  claimed  by\t the  respondents  for\t the
\naccounting  year 1953-54.  This statement has been  prepared
\nalternatively\ton  the\t basis\tof  statutory\tdepreciation
\nallowable by income-tax authorities and also on the basis of
\nstraight  computation at ordinary rates.  The  first  method
\nresults in a deficit of Its. 107.20 lakhs, while the  second
\nin  a deficit of 97.86 lakhs.  In working out the  provision
\nfor   rehabilitation,\tthis  statement\t first\t takes\t the
\nreplacement  cost of block up to 1939 as per Ex.  C-2 to  be
\nRs. 1601.19 lakhs.  From this amount the available  reserves
\nas on 1-8-1953 which are of tile order of Rs. 311 lakhs\t are
\ndeducted, leaving a balance of Rs. 1290.19 lakhs.  Then\t the
\nreplacement  costs  of\tthe three  remaining  categories  of
\nblocks\tare taken into account and all the said amounts\t are
\ndivided\t by the appropriate divisors mentioned in col. 6  of
\nEx.   C-2.  The result is the sum of Rs. 284.48\t lakhs,\t and
\nthat  is  claimed  by the appellant  as\t the  provision\t for
\nrehabilitation under the formula.\n<\/p>\n
In his evidence Mr. Tongaonkar has given reasons in  support
\nof the respective multipliers and divisors adopted by him in
\nmaking his calculations in Ex.\tC-2. 119
\n119<\/span>
\n936<\/span>
\nHe  has also given several details on all the  relevant\t and
\nmaterial   points  in  support\tof  the\t appellant’s   case.
\nNaturally the respondents have cross-examined him at length.
\nOne  of the questions in controversy between the parties  in
\nthe  present appeals centres round the appreciation  of\t Mr.
\nTongaonkar’s  evidence and the value to be attached  to\t the
\nstatements prepared by him.\n<\/p>\n
On  the\t contentions  raised by the parties  before  it\t the
\ntribunal framed ten issues for determination and it has made
\nits  findings on them in the light of the  evidence  adduced
\nbefore it.  It has held that the appellant had not  inflated
\nthe  capital invested by the merging companies while  taking
\nthem over in 1936.  It has allowed 6% interest on the entire
\npaid-up capital of Rs. 1267.59 lakhs, and 4% interest on the
\nworking\t capital.  In regard to the claim  for\tdepreciation
\nthe  tribunal  has  held that  it  was\tnormal\tdepreciation
\ncalculated  according  to  the straight\t line  method  which
\nshould\tbe  allowed.   On the question\tof  income-tax,\t the
\ntribunal  has  allowed the same at 83.4 pies in a  rupee  as
\nclaimed\t by  the  appellant on its  net\t profits.   It\thas,
\nhowever, rejected the appellant’s case that the income\tfrom
\ninvestments  in shares and securities received by it  should
\nbe  excluded for the purpose of bonus; while it has  allowed
\nthe sum of Rs. 10 lakhs provided by the appellant as  annual
\ncontribution  to  the  reserve for  gratuity,  as  also\t the
\nexpenditure   on   the\tcost   of   dismantling\t  buildings,
\nprospecting   expenses,\t  etc.\t It  did  not\taccept\t the
\nrespondents’  case that the bonus paid by the  appellant  to
\nits officers should be reduced or wholly disallowed for\t the
\npurpose\t of  calculations  under the formula;  and,  on\t the
\nquestion  as to whether overtime payment should be  included
\nin  the\t payment of bonus, it has  upheld  the\trespondents’
\ncontention and allowed the inclusion of the said payment.
\nHaving disposed of these minor issues, the tribunal examined
\nat  length the claim made by the appellant in regard to\t the
\nprovision for rehabilitation, replacement and modernisation.
\nIndeed\tthis  was  the\tmost  controversial  and  the\tmost
\nimportant issue raised
\n937<\/span>
\nbefore\tit.   The  tribunal examined  the  evidence  of\t Mr.
\nTongaonkar as well as Ex.  C-2 and other documents  produced
\nby him, and came to the conclusion that ” Ex.  C-2  presents
\nan  incorrect  and  exaggerated\t picture  of  the   A.C.C.’s
\nrequirements  of rehabilitation and replacement” and  so  it
\ncannot\tbe  relied  upon.  According  to  the  tribunal\t the
\nmultiplier  4.28  adopted by Mr. Tongaonkar  was  itself  an
\ninflationary  figure; and it thought that ” the\t consequence
\nof  applying  it  not  to the  original\t price\tbut  to\t its
\nincreased  price  paid by the A.C.C. would be to  obtain  an
\ninflationary  result.\tIt  appears that  the  tribunal\t wag
\ninclined to hold that 2.7 was a fair multiplier representing
\nthe price increase over the pre-war base.  The tribunal\t was
\nalso not satisfied with Mr. Tongaonkar’s evidence in  regard
\nto the life of plant and machinery ; and so it held that the
\nperiod\tof  life  given\t in col. 6 of  Ex.   C-2  cannot  be
\naccepted as correct.  While dealing with the question  about
\nthe rise in prices, the tribunal has held that it was  usual
\nto  take the average level of prices prevailing in a  period
\nof  about five years in preference to the prices  prevailing
\nin  a  particular year as was done by Mr.  Tongaonkar.\t The
\ntribunal subjected Mr. Tongaonkar’s evidence on the question
\nof replacement, rehabilitation and modernisation to a  close
\nexamination  and  held\tthat  the  method  adopted  by\t Mr.
\nTongaonkar  in\tdistinguishing\tbetween\t modernisation\t and
\nexpansion  was of a purely subjective estimate ” which\tdoes
\nnot  bear the scrutiny of an objective test “. On the  whole
\nthe  tribunal  was not prepared to accept  Mr.\tTongaonkar’s
\nevidence at its face value and it was not prepared to  treat
\nEx.   C-2  and consequently Ex.\t C-23 as  reliable.   It  is
\nrelevant  to point out at this stage that the  tribunal\t has
\nnot made any finding about the life of the machinery nor has
\nit recorded any conclusion as to a proper divisor.  In\tfact
\nit has completely left out of consideration Exs.  C-2 and C-
\n23 while determining the amount which should be allowed\t for
\nthe appellant’s claim for rehabilitation for the relevant
\nyear.\n<\/p>\n
The tribunal then examined the principle underlying the Full
\nBench formula and held that, it was not
\n938<\/span>
\nintended  to be worked out as a rigid mathematical  formula.
\n”  We  must make it “, says the tribunal, ” as\tflexible  as
\npossible  so as to do justice to everybody concerned in\t the
\nearning\t of  profits”.\tThe general question, which  it\t has
\nconsidered in this connection, is how far and to what extent
\nprofits\t of a concern should contribute to the\tsatisfaction
\nof  the claims of industry for\treplacement;  rehabilitation
\nand  modernisation.  It was impressed by the argument  that,
\nwhere  the requirements under these items are so huge as  to
\nbe  out\t of tune with the profits, it would be\topen  to  an
\nindustrial adjudicator to allow only a reasonable  provision
\nto  be made out of the profits for the said items and  leave
\nthe industry concerned to tap other resources to make up the
\nbalance.   In support of this conclusion it has referred  to
\nthe observations made by F.R.M. de Paula in his\t “Principles
\nof Auditing”, the report of the Taxation Enquiry  Commission
\nand  of the working party for the Cotton  Textile  Industry.
\nIt has also relied on a part of the speech delivered by\t Mr.
\nJ. R.D. Tata in addressing the annual general meeting of the
\nshareholders  of the Tata Iron and Steel Company  in  August
\n1950.\n<\/p>\n
In   this   connection\tthe  tribunal  has   expressed\t its
\napprehension that if all the money required for a continuous
\nprocess of modernisation and expansion is to come out of the
\nprofits\t made by the concern, labour will rarely see  a\t day
\nwhen  they will enjoy bonus granted to them out of  profits;
\nthough it has hastened to add that it was far from its\tmind
\nthat  a progressive concern like the A.C.C. should not\tkeep
\npace  with  time and modernise its machinery;  but  it\tonly
\nwished that it should give a fair deal to the workers in the
\ndistribution  of  the  profits.\t Having hold  that,  if\t the
\nclaims\tfor  rehabilitation turn out to be huge and  out  of
\ntune with the profits made by the industry, it would be open
\nto  the tribunal to grant the claim of the industry in\tthat
\nbehalf only to the extent that it deems to be reasonable and
\nfair,  it proceeded to consider how far and to\twhat  extent
\nthe  appellant’s  claim\t should be allowed  in\tthe  present
\nproceedings.\n<\/p>\n
It is necessary to mention that in dealing with this
\n939<\/span>
\nquestion  the  tribunal was considerably influenced  by\t the
\npast  conduct  of  the\tappellant.   It\t thought  that\t for
\nrehabilitation\tthe appellant had claimed no more  than\t Rs.
\n192  or 193 lakhs in the previous  adjudication\t proceedings
\nwhere the dispute for bonus had reference to the year  1951-\n<\/p>\n
52.   If  the claim then made by the appellant was  no\tmore
\nthan  Rs.  192 or 193 lakhs, the present claim for  Rs.\t 284
\nlakhs,\tthe  tribunal thought,’ was obviously  inflated\t and
\nunreal.\t Similarly the tribunal emphasised the fact that the
\nprogramme  earlier submitted by the appellant to the  Tariff
\nCommission  was in turn more modest than the claim  made  in
\nthe  said adjudication proceedings.  It appears that in\t the
\nsaid  programme\t the appellant had made out a case  for\t the
\nestimated expenditure of Rs. 18.36 crores to be spread\tover
\na  period of ten years from 1-8-1952 to 31-7-1962  and\tthat
\nworks  out approximately at the figure of Rs. 184 lakhs\t per
\nyear.\tIt was on these facts that the tribunal held that  ”
\nif   the  A.C.C.  estimated  its  annual   requirements\t  of
\nrehabilitation,\t replacement  and modernisation at  Rs.\t 192
\nlakhs  per  year during the period of ten  years  commencing
\nfrom  1-8-1952, 1 do not think that it should be allowed  to
\ndepart\tfrom  it  now”.\t  In  substance,  according  to\t the
\ntribunal, the present claim for rehabilitation was very much
\ninflated,  it  had  no relation to  realities,\tand  so\t the
\nappellant should not be allowed to make such a claim.\tThat
\nis  why it did not think it necessary to record any  finding
\nas to the proper divisor, and to determine, in the light  of
\nMr.  Tongaonkar’s  evidence, what approximately would  be  a
\nfair  or  reasonable  amount for  rehabilitation  under\t the
\nformula.\n<\/p>\n
It  is thus clear that in making its final calculations\t the
\ntribunal  has assumed that the claim made by  the  appellant
\nfor  rehabilitation, replacement and modernisation  must  be
\ntaken  to be no more than Rs. 192 or 193 lakhs, and on\tthat
\nassumption it has considered to what extent the claim should
\nbe allowed.  Ultimately the tribunal came to the  conclusion
\nthat  in the circumstances of the case it would be  fair  to
\nallow  the  appellant about Rs. 165 to 170 lakhs  as  annual
\nprovision for the said items.  In support of this conclusion
\n940<\/span>
\nthe  tribunal has relied on the fact that for the two  years
\n1952-53 and 1953-54 the appellant had spent about Rs. 339.76
\nlakhs  for the purpose of rehabilitation,  replacement\tland
\nmodernisation and that works at the average of Rs. 170 lakhs
\nper year.  The tribunal has then taken into account the fact
\nthat the appellant had a plant reinstatement reserve of\t Rs.
\n235  lakhs  and\t a general reserve of Rs. 76  lakhs  in\t the
\nbeginning of the year 1953-54.\tIf these amounts which would
\nbe available for rehabilitation are spread over the ten year
\nperiod of the tentative programme planned by the  appellant,
\nthe  annual  figure  would come to Rs. 31  lakhs;  and\tthis
\namount\twould have to be deducted from Rs. 165\tlakhs  which
\nthe  tribunal  was  inclined  to grant\tin  respect  of\t the
\nrelevant  item.\t  That\tis how the  tribunal  has  made\t the
\nappropriate  calculations under the formula, and  has  shown
\nthat, even after the payment of one month’s additional bonus
\nas directed by it, the appellant would still be left with  a
\nsurplus of Rs. 23.48 lakhs.  That in brief is the nature and
\neffect of the findings made by the tribunal.
\nBefore dealing with the merits of the points raised in these
\nappeals\t it would be convenient to refer to the genesis\t and
\nthe terms of the formula which has been evolved by the\tFull
\nBench  of the Labour Appellate Tribunal in the case  of\t The
\nMill  Owners  Association,  Bombay  v.\tThe  Rashtriya\tMill
\nMazdoor\t Sangh,\t Bombay (1) in 1950.  It appears  that\tfrom
\n1940  A.  D.  onwards  the claims  for\tbonus  made  by\t the
\nemployees  against their employers in  different  industries
\nwere  dealt  with  on an ad-hoe basis  from  case  to  case.
\nSometimes  the\temployers voluntarily paid  bonus  to  their
\nworkmen;  and where disputes arose they were decided by\t the
\ntribunals  in  the light of the circumstances of  each\tcase
\nwithout\t relying  on any broad consideration  of  policy  or
\nwithout\t attempting to lay down any general principles.\t  In
\n1948   a  bonus\t dispute  arose\t between  the  Mill   Owners
\nAssociation,  Bombay and its employees, and it was  referred
\nfor  adjudication to the Industrial Court.   In\t considering
\nthis dispute the Industrial Court went
\n(1)(1950) L.L.J. 1247.\n<\/p>\n
941<\/span><\/p>\n
elaborately  into the matter, laid down\t certain  principles
\nand awarded to the workmen bonus equivalent in amount to 3\/8
\nof  the\t total\tbasic earnings of each\tworkman\t subject  to
\ncertain conditions.\n<\/p>\n
     In the subsequent year a similar dispute arose  between
\nthe  same  parties;  and  it  was  again  referred  to\t the
\nIndustrial Court for adjudication.  The Court made its award
\non  July 7, 1950, directing 55 mills of the  Association  to
\npay to their workmen, whether permanent or temporary, 1\/6 of
\nthe basic earnings of each of them as bonus.  This award was
\nchallenged  by the Association before the  Labour  Appellate
\nTribunal.   It was urged on behalf of the  Association\tthat
\nthe wage structure in the textile industry had been  settled
\nby  standardisation  and  so bonus must\t be  regarded  as  a
\ngratuitous payment; and it was argued that at any rate grant
\nof  bonus  cannot be made for the purpose of making  up\t the
\ndeficiency  between  the  actual and  living  wages.   These
\ncontentions  were rejected by the Labour Appellate  Tribunal
\nand the question about the grant of bonus was considered  on
\ngeneral\t principles on the basis of which a formula,,  often
\ndescribed  as the First Full Bench Formula,  was  ultimately
\nevolved.   “As\tboth capital and labour\t contribute  to\t the
\nearnings of the industrial concern “, observed the appellate
\ntribunal,  ”  it  is fair that\tlabour\tshould\tderive\tsome
\nbenefit\t if  there  is\ta surplus  after  meeting  prior  or
\nnecessary charges “. The appellate tribunal was also of\t the
\nview that where the goal of living wages had been  attained,
\nbonus, like profit sharing, would represent more as the cash
\nincentive to better efficiency and production; but where the
\nindustry  had  not the capacity to pay a living\t wage  bonus
\nmust be looked upon as the temporary satisfaction wholly  or
\nin  part  of  the needs of the employee.   In  other  words,
\naccording to this decision, the award of bonus is based on a
\ntwo-fold  consideration.  It is made in recognition  of\t the
\nfact  that labour has made some contribution to\t the  profit
\nearned\tby  the industry, and so it is entitled to  claim  a
\nshare  in  it;\tand it is also intended to  help  labour  to
\nbridge\tor narrow down the gap, as far as may be  reasonably
\npossible,  between  the\t living\t wage  to  which  labour  is
\nentitled and the actual wage received by it.\n<\/p>\n
942<\/span><\/p>\n
Dealing\t with  the  problem  from this\tpoint  of  view\t the
\nappellate  tribunal  conceded  that  investment\t necessarily
\nimplies the legitimate expectation of the investor to secure
\nrecurring  returns  on\tthe money invested  by\thim  in\t the
\nindustrial undertaking, and so it held that it was essential
\nthat the plant and machinery should be kept continuously  in
\ngood working order for the purpose of ensuring that  return.
\nSuch   maintenance   of\t the  plant  and   machinery   would
\nnecessarily be to the advantage of labour because the better
\nthe  machinery the larger the earnings and the brighter\t the
\nchance\tof securing a good bonus.  On this consideration  it
\nwas  held that the amount of money that would  be  necessary
\nfor  rehabilitation,  replacement and modernisation  of\t the
\nmachinery  would be a prior charge on the gross\t profits  of
\nthe year.  Since the depreciation allowed by the  income-tax
\nauthorities  is only a percentage on the written-down  value
\nthe  depreciation fund set apart on that basis would not  be
\nsufficient  for the purposes of rehabilitation and an  extra
\namount would have to be annually set apart nationally  under
\nthe  heading  of ‘reserves’ to make up\tthe  deficit.\tThis
\nposition was apparently not disputed by the employees.
\nThe  claim  made by the industry that a fair return  on\t the
\npaid-up\t capital  must\tbe secured and\tthat  ordinarily  it
\nshould\tbe  paid at the rate of 6% per annum  was  also\t not
\ndisputed.   The employees, however, challenged the claim  of
\nthe  industry  that  reserves employed\tas  working  capital
\nshould carry any interest; but their objection was overruled
\nand it was held that working capital also would be  entitled
\nto  interest  though at a much lower rate than that  on\t the
\npaid-up capital.  Then the question of taxes was  considered
\nand it was agreed that a provision had to be made for  taxes
\nwhich  would  be  payable on  the  amount  determined  after
\ndeducting depreciation from the gross profits less any bonus
\nwhich may be awarded.  In the result the appellate  tribunal
\nlaid  down  the\t manner and method in  which  the  available
\nsurplus\t should be determined.\tThe notional accounting\t for
\nthis  purpose  starts with the figure of the  gross  profits
\nwhich are
\n943<\/span>
\narrived at after payment of wages and dearness allowance, to
\nthe employees and other relevant items of expenditure.\tThen
\na  deduction for depreciation is made, and on  the  notional
\nbalance\t thus  derived\ta provision  for  taxes\t payable  is
\nallowed.   Then\t follow\t the  provisions  for  reserves\t for
\nrehabilitation,\t return\t on paid-up capital  and  return  on
\nreserves employed as working capital.  That gives the amount
\nof  surplus if’ any.  Whenever the working of  this  formula
\nleaves\tan  amount  of available surplus,  labour  was\theld
\nentitled  to claim a reasonable share in this amount by\t way
\nof  bonus  for the current year.  This formula is  based  on
\nconsiderations of social justice and is intended to  satisfy
\nthe legitimate claims of both capital and labour in  respect
\nof  the profits made by the industry in a  particular  year.
\nIt  takes the particular year’ as a unit and makes  all\t its
\nnotional  calculations\ton the basis of\t the  gross  profits
\nusually\t taken\tfrom the profit and loss  account;  in\tthis
\nparticular  case  the available surplus\t determined  by\t the
\napplication of the formula was found to be 2.61 crores;\t and
\nout  of\t this surplus 0.30 crores were awarded as  bonus  to
\nclerks and other staff and 1.86 crores was awarded as  bonus
\nto  the\t employees leaving a net notional  balance  of\t0.45
\ncrores.\n<\/p>\n
This Court had occasion to consider the said formula in Muir
\nMills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur<\/a> (1).\t The
\njudgment  in  that case indicates  that\t without  committing
\nitself\tto  the acceptance of the formula in  its  entirety,
\nthis Court in general accepted as sound the view that  since
\nlabour\tand capital both contribute to the earnings  of\t the
\nindustrial  concern,  it is fair that labour  should  derive
\nsome  benefit if there is a surplus after meeting  the\tfour
\nprior or necessary charges specified in the formula.  It  is
\nrelevant  to add that in dealing with the concept  of  bonus
\nthis Court ruled that bonus is neither a gratuitous  payment
\nmade  by the employer to his workmen nor can it be  regarded
\nas a deferred wage.  According to this decision, where wages
\nfall short of the living
\n(1) [1955] S.C.R. 991
\n120<\/span>
\n944<\/span>
\nstandard and the industry makes profit part of which is\t due
\nto  the\t contribution of labour, a claim for  bonus  can  be
\nlegitimately  made.  However, neither the propriety nor\t the
\norder  of  priority as between the four\t prior\tcharges\t and
\ntheir relative importance nor their content was examined  by
\nthis  Court  in\t that  case;  and  though  the\tformula\t has
\nsubsequently  been  generally  accepted\t by  this  Court  in
\nseveral\t reported decisions (Baroda Borough Municipality  v.
\nIts Workmen<\/a> (1), Sree Meenakshi Mills, Ltd. v. Their Workmen<\/a>
\n(2)  and  The State of Mysore v. The Workers of\t Kolar\tGold
\nMines<\/a>  (3) ) the question about the adequacy, propriety,  or
\nvalidity of its provisions has not been examined nor has the
\ngeneral\t problem  as  to  whether  the\tformula\t needs\t any
\nvariation,  change or addition been argued  and\t considered.
\nIt  is\tfor the first time since 1950 that, in\tthe  present
\nappeals, we are called upon to examine the formula carefully
\nand  express  our  decision on the merits  of  its  specific
\nprovisions.   As we have already indicated, in dealing\twith
\nthe  present dispute the tribunal has held that, in  working
\nout  the formula, it could relax its provisions even  though
\nthe proposed relaxation may mean a material variation of the
\nformula\t itself.  On behalf of the appellant Mr.  Kolah\t has
\ntaken  strong  exception to this approach.   He\t has  argued
\nthat,  in  the last eight years and more, on the  whole\t the
\nformula\t has  worked  fairly well in the  interest  of\tboth
\ncapital and labour, and so the tribunal was not justified in
\ndeparting  from\t it  in the  present  case.   This  argument
\nundoubtedly raises a question of considerable importance.
\nBefore examining this argument, however, it is necessary  to
\nconsider  one preliminary point: Was the tribunal  justified
\nin holding that the appellant could not be allowed to add to
\nits previous claim for rehabilitation ? The decision of\t the
\ntribunal  on this point seems to indicate that the  tribunal
\nthought that the appellant was estopped from making any such
\nclaim; and the correctness of this conclusion is  challenged
\nby the appellant.\n<\/p>\n
(1)[1957] S.C.R. 33, 39.\n<\/p>\n
(2) [1958] S.C.R. 878, 884.\n<\/p>\n
(3) [1959] S.C.R. 895.\n<\/p>\n
945<\/span><\/p>\n
It  is true that, in the report submitted by  the  appellant
\nbefore\tthe Tariff Commission in April 1953, it had set\t out
\nthe  details  of  its ten  year\t programme  which  included,
\nbesides\t  replacement,\trehabilitation,\t modernisation\t and
\nexpansion, mechanisation of quarries as well as construction
\nand improvement of houses for its labour staff.\t The  report
\nof the Tariff Commission (p. 30) shows that the cost of\t the
\nprogramme was’ estimated at Rs. 18.36 crores, excluding\t the
\ncost  of a new plant at Sindri, or about Rs. 184  lakhs\t per
\nannum.\t Subsequently in January 1954, when  Mr.  Tongaonkar
\ngave  evidence in the previous adjudication proceedings,  he
\nproduced  a  statement\t(Ex.  U-8) according  to  which\t the
\nappellant’s annual requirements for rehabilitation would  be
\nof the order of Rs. 192 or 193 lakhs, whereas in the present
\nproceedings the said claim is made at Rs. 284 lakhs.  A bare
\nstatement  of  these  facts prima facie\t suggests  that\t the
\nappellant’s  present  claim  for  rehabilitation  has\tbeen
\ngrowing\t from stage to stage, and in its present form it  is
\nvery  much inflated; and that is what the tribunal has\talso
\nassumed.   In  our  opinion this assumption  is\t not  wholly
\ncorrect.  Mr. Tongaonkar’s evidence shows that in the report
\nof the jobs submitted to the Tariff Commission the appellant
\nhad  not  included  all relevant  items\t of  rehabilitation,
\nreplacement  and  modernisation.  The report merely  gave  a
\nlist  of  the  jobs  which the\tappellant  had\tproposed  to
\nundertake  during the ten year period ending July 31,  1962.
\nIt  was\t in  no\t sense an  exhaustive  statement  about\t the
\nappellant’s requirements in regard to the rehabilitation  of
\nall  its blocks.  In fact, having regard to the\t nature\t and
\nscope  of  the\tenquiry before the  Tariff  Commission,\t the
\nreport\tmade  by the appellant had to be restricted  to\t the
\nurgent\tjobs which it wanted to undertake during the  execu-
\ntion  of  its  ten year programme; and so it  would  not  be
\nreasonable to hold that the figure of annual  rehabilitation
\nexpenses  which can be deduced from the said report has\t any
\nrelation  to  the  claim  for  rehabilitation  made  by\t the
\nappellant in terms of the working of the formula.
\nThen again the appellant’s claim for rehabilitation
\n946<\/span>
\nin  the\t earlier proceedings has  also\tbeen  satisfactorily
\nexplained  by Mr. Tongaonkar.  The respondents\thave  placed
\nconsiderable   reliance\t on  the  statement  filed  by\t Mr.
\nTongaonkar  in\tthe  said  proceedings\t(Ex.   U-8).\tThis
\ndocument has been produced by the respondents in support  of
\ntheir  contention that it purports to make a claim  for\t Rs.
\n192  lakhs per year ‘for rehabilitation.  That no  doubt  is
\ntrue  ;\t but  in terms the document  purports  to  show\t the
\nestimated  expenditure required during the ten\tyear  period
\nthere  specified; and as Mr. Tongaonkar has stated, it\tdoes
\nnot  include a full statement of the claim in regard to\t the
\nrehabilitation of all the blocks belonging to the appellant.
\nIn  considering the respondents’ argument on this point,  it
\nis necessary to bear in mind that in the earlier proceedings
\nthe  appellant\thad filed a separate statement\tshowing\t the
\namount\tto  which it was entitled by way  of  rehabilitation
\nunder  the formula; this statement was Ex.  C-3 and  it\t has
\nbeen produced in the present case and exhibited as U-5.\t  It
\nappears that in the earlier proceedings the tribunal did not
\nattach\tany  importance to the said document  and  virtually
\nignored it because, like the present tribunal, it held\tthat
\n”  it does not appear to be necessary to plan further  ahead
\nthan  ten years and it is desirable to base calculations  of
\nrehabilitation\ton  realities  “(1).   Even  so\t the  Labour
\nAppellate  Tribunal  found that the  appellant’s  contention
\nthat  its workmen were not entitled to any additional  bonus
\nwas  not well-founded even if its claim\t for  rehabilitation
\nwas  confined  to Rs. 192 or Rs. 193  lakhs.   Besides,\t Mr.
\nTongaonkar  has stated on oath that Ex.\t U-8 was  not  among
\nthe  documents originally submitted by the appellant to\t the
\ntribunal in 1954. it was in fact prepared and submitted at a
\nlater stage at the instance of the tribunal itself.  It\t is,
\ntherefore, clear that Ex.  U-8 was not intended to, and\t did
\nnot  supply,  the  basis of the\t appellant’s  claim  in\t the
\nearlier proceedings in accordance with the formula.
\nA study of the items contained in Ex.  U-8 also supports the
\nsame conclusion.  Mr. Tongaonkar has
\n(1)  (1955) 1 L.L.J. 588,592.\n<\/p>\n
947<\/span><\/p>\n
stated\tthat the total amount of the  estimated\t expenditure
\nshown in this document included only a small portion of\t the
\nexpenditure  required for rehabilitation of the\t post-\t1944
\nblock.\t It is true that Mr. Tongaonkar’s statement that  in
\nthe  said  total amount nearly Rs. 50  lakhs  represent\t the
\namount for replacement or rehabilitation of post-1944  block
\nis inaccurate.\tThe Chaibasa Cement Factory and the  Sevalia
\nCement Factory for the rehabilitation of which Rs. 64.98 and
\n85.15  lakhs  have been claimed in Ex. U-8  are\t undoubtedly
\nparts  of  the post 1944 block and the amounts\tclaimed\t for
\nthem  are  very\t much  more  than  Rs.\t50  lakhs.   It\t  is
\nnevertheless  clear  that  ‘the items in  Ex.\tU-8  do\t not
\ninclude a claim for rehabilitation for all the blocks of the
\nappellant, and it is not surprising either, because a  claim
\nfor the rehabilitation of all the blocks had been separately
\nmade  by the appellant in the earlier proceedings under\t Ex.
\nC-3.   Thus  there can be no doubt that neither\t the  report
\nsubmitted by the appellant before the Tariff Commission\t nor
\nthe  estimate  given  by Ex.  U-8  was\tprepared  under\t the
\nformula; and so any disparity in the amounts claimed in\t the
\ntwo  earlier  documents\t cannot be  seriously  pressed\tinto
\nservice against the appellant when it seeks to make a  claim
\nfor rehabilitation strictly in accordance with the  formula.
\nWe  must, therefore, hold that the tribunal was in error  in
\ncoming\tto  the conclusion that by reason  of  its  previous
\nconduct\t the  appellant could not be allowed  to  place\t its
\nclaim  for  rehabilitation at a figure higher than  Rs.\t 192
\nlakhs in the relevant year.  In this connection it would  be
\npertinent  to remember that in dealing with  the  employer’s
\nclaim  for  rehabilitation the tribunal is  called  upon  to
\nassess\t respective  values  of\t the  relevant\tfactors\t  on
\nhypothetical  and  empirical considerations, and so  it\t may
\ngenerally  not be useful or wise to take recourse to  strict
\nlegalistic   principles\t like  estoppel\t in  deciding\tthis
\nquestion  and  indeed all material questions  in  industrial
\nadjudications.\n<\/p>\n
Does  the  formula  need to be revised,\t and  should  it  be
\nrevised and reconstructed ? That is the question
\n948<\/span>
\nwhich we must now consider.  It appears that some  tribunals
\nhave  taken the view that the rigid working of\tthe  formula
\nmay  defeat its object of recognising the social justice  of
\nlabour’s  claim\t for bonus and so they\thave  made  suitable
\nadjustments in its operation.  It is this approach which has
\nraised the larger issue of principle in the group of appeals
\nwhich have been placed for disposal before the\tConstitution
\nBench.\t So  we\t must examine this  question  in  its  broad
\naspects\t and if we decide not to change the formula we\tmust
\nstate  what, in our opinion is the content of the  different
\nitems  mentioned  in  the formula and  how  they  should  be
\ncalculated and mutually adjusted.\n<\/p>\n
Let  us\t first\tset out the case as it\thas  been  made\t for
\nchanging the formula.  It is ‘urged that though the  formula
\npurports  to  recognise the principle of social\t justice  on
\nwhich labour’s claim for bonus is based, it does not  accord
\nto  the\t said claim the high priority it  deserves.   Social
\njustice\t has been given a place of pride in the preamble  to
\nthe Constitution and it has been enshrined in the  Directive
\nPrinciples  under Arts. 38 and 43.  Since 1950, ideas  about
\nsocial\tand  economic  justice\thave  made  an\t appreciable
\nprogress  and  they require the readjustment  of  priorities
\nprescribed by the formula in favour of the claim for bonus.
\nIt   is\t also  contended  that\texperience   in\t  industrial
\nadjudication during the last eight years and more shows that
\nemployers  are\tbecoming increasingly  more  rehabilitation-
\nconscious   and\t  their\t appetite  for\tthe   provision\t  of
\nrehabilitation\tis fast growing from year to year.   In\t the
\npresent case, for instance, though the appellant occupies  a
\ndominant  position in its line of trade and though it  makes
\nlarge\tprofits,  it  has  made\t such  a  tall\t claim\t for
\nrehabilitation that if the said claim is allowed the working
\nof the formula leaves no available surplus from which  bonus
\ncan  be granted to labour.  The appellant has no doubt\tpaid
\nbonus for three months and it is unlikely that the appellant
\nwould depart from its practice of paying the said bonus even
\nin future; but that does not affect the
\n949<\/span>
\nposition  that\tin the light of the  appellant’s  claim\t for
\nrehabilitation the working of the formula would not  justify
\nthe  grant  of\tany bonus to labour.  This  shows  that\t the
\nnotional claim for rehabilitation which an employer can make
\nunder  the formula tends to be completely divorced from\t the
\nreality or actuality of the need of rehabilitation; and that
\nneeds to be corrected.\n<\/p>\n
Besides,  it  is  said, that the  theory  that\tthe  trading
\nprofits\t of the industry must provide for the whole  of\t the
\nrehabilitation\texpenses  is  not  universall  accepted\t  by
\nenlightened and progressive businessmen and economists.\t  In
\nthis connection reliance is placed on the observations of F.
\nR. M. de Paula in his ” Principles of Auditing ” that ”\t the
\nobject\tof  depreciation  is  the  replacement\tof  original
\ninvestment capital and that an increase in replacement\tcost
\nis an important matter and means that additional capital  is
\nrequired in order to maintain the original earning  capacity
\n“.  It is also pointed out that the Institute  of  Chartered
\nAccountants  in\t England and Wales, in\tits  recommendations
\nmade  in  1949 under the heading ” Rising  price  levels  in
\nrelation  to  accounts\t” has pointed out  that\t ”  the\t gap
\nbetween historical and replacement costs might be too big to
\nbe bridged by a provision made for replacement spread over a
\nperiod\t of  years  either  by\tway  of\t supplementing\t the
\ndepreciation   charges\t or  by\t setting  up  in   lieu\t  of
\ndepreciation  a\t provision for renewals based  on  estimated
\nreplacement  costs  “.\tIt is therefore\t suggested  that  in
\nrevising the formula the claims for rehabilitation should be
\nfixed at a reasonable amount and industry should be required
\nto find the balance from other sources and if necessary from
\nits share in the available surplus.\n<\/p>\n
In  this connection it is pointed out that when\t the  Labour
\nAppellate  Tribunal  evolved  the  formula  it\twas  dealing
\ndirectly  with the needs of the textile industry  and  there
\nwas  no dispute that the plant and machinery of the  textile
\nindustry had become old and obsolescent and needed immediate
\nreplacement,   rehabilitation  and  modernisation.   It\t  is
\ndoubtful  whether,  in\tgiving priority\t to  the  claim\t for
\nrehabilitation in the
\n950<\/span>
\ncontext of the needs of the textile industry with which\t the
\nappellate  tribunal was concerned, it really  intended\tthat
\nrehabilitation\tshould\tbe  claimed ‘by\t every\tindustry  on
\ntheoretical considerations whether or not the said claim was
\njustified   by\t its   actual\tor   practical\t need\t for
\nrehabilitation.\n<\/p>\n
In  substance  the argument is that the Full  Bench  of\t the
\nLabour Appellate Tribunal evolved its formula in order\tthat
\nlabour\tmay get a reasonable share in the available  surplus
\nand  may  thereby receive assistance in filling up  the\t gap
\nbetween\t its actual wage and the living wage which it  looks
\nforward\t to receive in due course; and if it is found  that,
\nin working out the items which are treated as prior charges,
\nin  a  majority\t of cases the formula  leaves  no  available
\nsurplus, then its main object is frustrated and that is\t the
\njustification\tfor   revising\tit   and   readjusting\t its
\npriorities.\n<\/p>\n
In support of this view reliance has also been placed on the
\nrecommendations of the Committee on ‘Profit-sharing’.\tThis
\nCommittee   had\t been  appointed  in  1948  to\tadvise\t the
\nGovernment  of India ” on the principles to be followed\t for
\nthe  determination  of (a) fair wages to  labour,  (b)\tfair
\nreturn\tto capital employed in the industry, (e)  reasonable
\nreserves   for\t the  maintenance  and\texpansion   of\t the
\nundertaking, and (d) labour’s share of the surplus  profits,
\ncalculated   on\t a  sliding  scale  normally  varying\twith
\nproduction,  after provision has been made for (b)  and\t (c)
\nabove  “.  The Committee viewed its problem from  three\t im-
\nportant\t angles, viz., ” profit-sharing as an  incentive  to
\nproduction,   profit-sharing   as  a  method   of   securing
\nindustrial  peace,  and\t profit-sharing as  a  step  in\t the
\nparticipation  of  labour  in management  “.  The  Committee
\nrecognised  that putting back profits into the\tindustry  is
\none of the most useful forms of capital investment and\tthis
\nshould be encouraged and it recommended that a figure of 20%
\nfor  reserves  should  be  generally  aimed  at,  though  it
\nconsidered  that, as a first charge, 10% of the net  profits
\nshould be compulsorily set aside for reserves, leaving it to
\nthe good sense of the management to allocate the balance  or
\nmore out of their own share of surplus profits.\t In regard
\n951<\/span>
\nto the labour’s share in the surplus profits, the  Committee
\nstated that, having due regard to the conditions  prevailing
\nin  the\t industry  selected for\t an  experiment\t in  profit-
\nsharing,  it had come to the conclusion that labour’s  share
\nshould\tbe 50% of the surplus profits of  the  undertakings.
\nIt  is a matter of common knowledge that so  far  Government
\nhave  not  thought it desirable, expedient  or\tpossible  to
\nlegislate in this matter in the light of the recommendations
\nmade  by  this\tCommittee; but it is  suggested\t that  these
\nrecommendations\t afford a rational basis for  reconstructing
\nthe formula.\n<\/p>\n
It  may be conceded that there is some force in some of\t the
\narguments  urged  in support of the plea  that\tthe  formula
\nshould\tbe revised and its priorities should  be  readjusted
\nand redefined; but, on the other hand, we cannot ignore\t the
\nfact that on the whole the formula has worked satisfactorily
\nin  a  large  number of industries  all\t over  the  country.
\nExcept\tfor a few cases, particularly in Bombay, where\tsome
\nof  the\t tribunals have taken the view that,  in  its  rigid
\nform,  the formula has become unworkable from the  point  of
\nview  of labour, in a majority of cases industrial  disputes
\narising\t between  employers and their workmen in  regard  to
\nbonus  have been settled by tribunals on the basis  of\tthis
\nformula;  and it would not be unreasonable or inaccurate  to
\nsay  that  by and large labour’s claim for  bonus  has\tbeen
\nfairly\tand satisfactorily dealt with.\tThe main  source  of
\ncontest\t in  the working of the formula\t centres  round\t the
\nindustry’s  claim  for\trehabilitation;\t but,  as  we  shall
\npresently point out, if this claim is carefully\t scrutinised
\nand examined in the light of evidence which the employer has
\nto  produce in support of his claim, even the settlement  of
\nthis  item would, as it is intended to, invest the  tribunal
\nwith  sufficient  discretion  to make  the  working  of\t the
\nformula elastic enough to meet its two-fold object of  doing
\njustice both to industry and labour.\n<\/p>\n
It  is\ttrue that in the working of  the  formula  employers
\nsometimes make an attempt to add items to the list of  prior
\nclaims.\t In The State of Mysore v. The
\n121<\/span>
\n952<\/span>
\nworkers\t of Kolar Gold Mines (1), it was urged\tbefore\tthis
\nCourt by the industry that it was a wasting industry and  as
\nsuch  it needed special consideration.\tThe  contention\t was
\nthat  for  the prosperity and longevity of  the\t industry  a
\nspecial\t provision for the prospecting of new ore has to  be
\nmade  and that should be added as an additional item in\t the
\nlist of prior charges.\tThis argument was, however, rejected
\nand  it was held that the special features of  the  industry
\nwould be taken into account in determining the amount  which
\ncould  be  reasonably claimed  under  rehabilitation.\tThis
\ndecision  shows the reluctance of this court to vary or\t add
\nto the formula which oil the whole has so far worked  fairly
\nsatisfactorily.\n<\/p>\n
The theory that the whole of the rehabilitation charges need
\nnot come out of the trading profits of the industry does not
\nappear\tto be generally accepted.  As has been\tobserved  by
\nPaula himself: ” In the past the accepted principle has been
\nthat  the main object of providing for the  depreciation  of
\nwasting assets is to recoup the original capital invested in
\nthe purchase of such assets.  As part of the capital of\t the
\nconcern\t has been invested in the purchase of these  assets,
\ntherefore,  when  their working life comes to  an  end,\t the
\nearning\t capacity  of these assets ceases.  Thus  they\twill
\nbecome\tvalueless for the purposes of the business, and\t the
\noriginal  capital sunk in their acquisition, less any  scrap
\nvalue,\twill  have been lost.  Hence, in order to  keep\t the
\noriginal  capital of a business intact, if any part  thereof
\nis invested in the purchase of’ wasting assets, revenue must
\nbe held back by means of depreciation charges to profit\t and
\nloss account, in order to replace the capital that is  being
\nlost by reason of the fact that it is represented by  assets
\nthat  are  being  consumed or exhausted\t in  the  course  of
\ntrading\t or seeking to earn income It is also stated by\t the
\nsame  author  that ” in all cases where One  of\t the  direct
\ncauses\tof  earning revenue is gradually  to  consume  fixed
\nassets\tof wasting nature, the depreciation of\tsuch  assets
\nshould be provided for out of revenue ” (3).  It is true
\n(1)  [1959] S C.R. 895.\n<\/p>\n
(2)  F.R.M.  de Paula’s\t Principles of Auditing’,  1957,  P.\n<\/p>\n
136.
\n(3)  Ibid, p. 138.\n<\/p>\n
953<\/span><\/p>\n
that  the  author  recognises  that  ”\towing  to  the\tvery
\nconsiderable   increase\t in  the  price\t level\t since\t the
\ntermination  of\t the 1939-45 war, industry  is\tfinding\t its
\noriginal money capital insufficient for its needs.  Thus the
\ncost  of replacement of fixed assets has  greatly  increased
\nand  in\t addition, further working capital is  required\t  to
\nfinance\t a  given volume of  production.   Many\t economists,
\nindustrialists,\t and  accountants  contend  that   provision
\nshould\tbe made, in arriving at profits, for this  increased
\ncapital\t requirement “. Having noticed this view the  author
\nadds  that  ” at the time of writing this  matter  is  still
\nbeing debated and final decisions have not yet been  reached
\n“,  and he concludes that ” until a final solution  of\tthis
\ncomplex\t problem is reached it would be inadvisable for\t the
\nauditor to act on any principle other than that\t recommended
\nby the Institute “(1); and that principle appears to be that
\ndepreciation   should  be  provided  for  out  of   revenue.
\nBesides,  it  must be borne in mind that, in  adjusting\t the
\nclaims\tof industry and labour to share in the profits on  a
\nnotional basis, it would be difficult to repel the claim  of
\nthe  industry  that  a\tprovision should  be  made  for\t the
\nrehabilitation\tof its plant and machinery from the  trading
\nprofits.   On  principle the guaranteed continuance  of\t the
\nindustry  is as much for the benefit of the employer as\t for
\nthat  of  labour; and so reasonable provision made  in\tthat
\nbehalf must be regarded as justified.\n<\/p>\n
The recommendations made by the Committee on Profit-sharing’
\ncannot be of much assistance because they raise questions of
\npolicy\t and   principle   which   Legislature\t can\tmore
\nappropriately  consider.  If the Legislature feels that\t the
\nclaims for social and economic justice made by labour should
\nbe redefined on a clearer basis it can step in and legislate
\nin  that  behalf.   It\tmay also be  possible  to  have\t the
\nquestion   comprehensively  considered\tby  a\thigh-powered
\ncommission  which may be asked to examine the pros and\tcons
\nof  the problem in all its aspects by taking  evidence\tfrom
\nall industries and all bodies of workmen.  The plea for\t the
\nrevision of the formula raises an issue
\n(1)F.R.M.  de Paula’s  Principles of Auditing’,\t 1957,\tP-\n<\/p>\n
80.
\n954<\/span>
\nwhich affects all industries; and before any change is\tmade
\nin  it,\t all industries and their workmen would have  to  be
\nheard  and their pleas carefully considered.  It is  obvious
\nthat  while  dealing with the present group  of\t appeals  it
\nwould be difficult, unreasonable and inexpedient to  attempt
\nsuch  a task.  That is why we think that labour’s claim\t for
\nbonus  should  be decided by tribunals on the basis  of\t the
\nformula without attempting to revise it.\n<\/p>\n
Whilst\twe are not prepared to accede to the  argument\tthat
\nthe formula should be revised, we wish to emphasise that the
\nformula\t is elastic enough to meet reasonably the claims  of
\nthe  industry and labour for fairplay and justice.   In\t its
\nbroad features it recognises the claims of the industry\t and
\ntabulates  them under different items as prior charges,\t and
\nthen  provides\tfor the distribution  of  available  surplus
\nbetween the labour, the industry and the shareholders.\t The
\nitems specified in the formula have to be worked out notion-
\nally  on theoretical grounds; in determining the content  of
\neach  one  of  the  items  it  is  therefore  essential\t  to
\nscrutinise and weigh carefully all the relevant and material
\nfacts.\t  If  the  content  of\teach  item   is\t  determined
\nobjectively in the light of all relevant and material facts,
\nthe  tribunals\twould  generally find it  possible  to\tmake
\nreasonable adjustments between the rival claims and  provide
\nfor  a fair distribution of the available surplus.  In\tthis
\nsense  it is necessary to treat the formula as\telastic\t and
\nnot rigid in working out detailed calculations under it.
\nWe  have no doubt that if the industry and labour  genuinely
\ndesire\tto  settle  the disputes as  to\t bonus\twithout\t the
\nintervention  of  the conciliator or  the  adjudicator,\t the
\nformula\t  would\t help  them  to\t arrive\t at   a\t  reasonable
\nsettlement.   If  the  employer\t does  not  make  an  unduly
\ninflated  claim under the items which  safeguard  industry’s
\ninterests, and if workmen do not make an exaggerated  demand
\nfor bonus, it would normally not be beyond the\tco-operative
\neffort of the parties to arrive at a reasonable figure which
\nshould be paid to labour by way of bonus from year to  year.
\nIt is unnecessary to emphasise that industrial disputes
\n955<\/span>
\nsettled\t amicably  are in the interest of both\tcapital\t and
\nlabour.\t  Amicable  settlements of such\t disputes  lead\t to’
\npeace,\tharmony and co-operation between capital and  labour
\nand that invariably helps more production which is a  matter
\nof great national importance at present.\n<\/p>\n
But  unfortunately,  in many cases, both  the  industry\t and
\nlabour\tdo  not\t appear to be too keen\ton  settling’  these
\ndisputes  amicably,  with the result that claims  for  bonus
\ngive  rise  to disputes year after year and  inevitably\t the
\nmachinery  under  the  Industrial Disputes  Act\t is  set  in
\nmotion.\t  Conciliation\tefforts\t are made but  they  do\t not
\nsucceed;  then reference is made under s. 10 of the Act\t and
\nthe  dispute  is taken before the tribunal; since  both\t the
\nparties\t are  not in a mood to co-operate with\teach  other,
\nover-statements are made on both sides, allegations are\t met
\nby  counter-allegations and they are sought to be  supported
\nby evidence.  In such a case the tribunals must examine\t the
\nrival contentions and scrutinise the evidence adduced by the
\nparties\t objectively  and in a judicial manner.\t  If  proper
\nevidence  is led and it is judicially weighed, the  tribunal
\nwould be able to work the formula in a reasonable manner and
\narrive\t at  a\tresult\twhich  would  be  substantially\t  in
\nconformity  with the object underlying the formula.   It  is
\nobvious that, in making the relevant calculations under\t the
\nitems  of  prior  charges  specified  in  the  formula,\t the
\ntribunals should have a clear idea as to the content of each
\none  of\t the said prior charges; and so it is  necessary  to
\nexamine carefully this aspect of the matter.
\nWe have already noticed that the formula for awarding  bonus
\nto workmen is based on two considerations; first that labour
\nis entitled to claim a share in the’ trading profits of\t the
\nindustry  because it has partially contributed to the  same;
\nand  second  that labour is entitled to claim that  the\t gap
\nbetween\t its actual wage and the living wage  should  within
\nreasonable  limits  be filled up.  The concept\tof  labour’s
\ncontribution to the profits of the industry has reference to
\nthe contribution made by the employer and the workmen  taken
\ntogether as a class; and so it would
\n956<\/span>
\n     not be relevant to, inquire which sectionof  labour
\nhas  contributed  to what share\t of the profits.The  board
\nidea underlying this concept is that the capital invested by
\nthe  employer  and  labour contributed\tby  workmen  jointly
\nproduce\t  the  profits\tof  an\tindustry.  This\t   does\t  not
\nnecessarily mean that, in theindustry  in question,  labour
\nmust  actually manufacture or produce goods, though, in\t the
\ncase of manufacture and,production of goods contribution  of
\nlabour.\t is  patent  and obvious.  In the  Burma  Shell\t Oil
\nStorage\t and  Distributing  Co.,  of  India  Pd.  v.  Their,
\nWorkmen<\/a>(1)  the\t Labour\t Appellate  Tribunal  rejected\t the
\nemployers’  claim that, since workmen employed by  them\t did
\nnot  manufacture  or produce any goods but  merely  assisted
\nthem in the distribution Of oil, they were not. entitled  to
\nclaim  any bonus under the formula.  It is wrong to  say  “,
\nobserved  the labour Appellate, Tribunal, that\tbecause\t the
\nemployees of these oil companies merely market the oil\tthey
\nhave not earned the right to any bonus”. It was also Pointed
\nout  that  the\tworkmen had to perform\t:duties\t of  various
\nintensity for marketing an article of public. utility,.\t and
\nin  that sense they contribute to, production  according  to
\nthe concept of economists”. So were the clerks held entitled
\nto  bonus for,their duties in the, general business  of\t the
\nconcern though, they had nothing to do with the physical act
\nof  marketing the commodity it was also emphasised that\t the
\nother  object of granting the bonus was to help the  workmen
\nto fill up the gap between their actual wages and the living
\nwage.\tThus  in dealing with the claim for  bonus  made  by
\nworkmen\t the  two-fold basis of the formula must  always  be
\nkept in mind.\n<\/p>\n
The  working of the formula begins with the figure of  gross
\nprofits\t taken\tfrom the profit and loss account  which\t are
\narrived at after,payment of wages and dearness allowance  to
\nthe employees and other items of expenditure.  As a  general
\nrule  the  amount  of gross  profits  thus  ascertained\t is.
\naccepted without submitting the statement of the’ profit and
\nloss ‘account to a close scrutiny.  If, however, it  appears
\nthat
\n(1)(1953) 11, L.L.J. 246.\n<\/p>\n
957<\/span><\/p>\n
entries have, been made on the debit side, deliberately\t and
\nmala fide to reduce the amount of gross profits, it would be
\nopen  to the tribunal to examine the question and if  it  is
\nsatisfied that the impugned entries have been made mala fide
\nit may disallow them.  This principle has been recognised by
\nthe   Labour  Appellate\t Tribunal  when\t it  observed,\t for
\ninstance, in M\/s.  J. K. Cotton Manufacturers Ltd.,   Kanpur
\nv.  Their Workmen<\/a> (1) that if managing\tagents\tdeliberately
\ndivert profits to the selling, agents with a view to deprive
\nlabour\tof  their bonus and pay commission to  the  selling.
\nagents at high rates then certainly the matter must be taken
\ninto consideration in the determination of available surplus
\nbalance ” It would likewise be open to the parties to  claim
\nthe exclusion of items either on the credit or on the  debit
\nside  on  the  ground that the impugned\t items\tare.  wholly
\nextraneous and entirely unrelated to the trading profits  of
\nthe  year.   In considering such a plea\t the  tribunal\tmust
\nresist\tthe temptation of dissecting the  balance-sheet\t too
\nminutely  or of attempting to reconstruct it in any  manner.
\nIt  is\tonly glaring cases, where the impugned item  may  be
\nplently\t and  obviously\t extraneous  that  a  plea  for\t its
\nexclusion  should be entertained.  Where the employer  makes
\nprofits in the course of carrying on his trade or  business,
\nit would be unreasonable to inquire whether each one of the,
\nitems of the said profit is related to the contribution made
\nby  labour.   In  such matters, the tribunal  must  take  an
\noverall,  practical  and commonsense view.  Thus  it  ma  be
\nstated\tthat  as a rule the gross profits appearing  at\t the
\nfoot of the statement of the profit, and loss account should
\nbe taken a,% the basic figure while working out the formula.
\nIn,  working out the formula the other important fact  which
\nshould not be ignored is, that the formula proceed’s to deal
\nwith  the  labour’s claim for bonus on the  basis  that\t the
\nrelevant  year\tfor  which  bonus  is  claimed\tis  a  self-
\nsufficient  unit and the appropriate accounts  have, to.  be
\nmade  on  the notional basis in respect of the said,  It  is
\nsubstantially because
\n(1)[1954]  L.A.C.  716, 745. (Also vide [1952]\tL.A.C.\t420,\n<\/p>\n
421.)
\n958<\/span>
\nof this basic assumption that if an employer receives during
\nthe  bonus year a refund with respect to the excess  profits
\ntax  paid by him in a previous year the amount of refund  is
\nnot  included  on  the credit side.  In\t Model\tMills  etc.’
\nTextile\t Mills, Nagpur v. The Rashtriya Mill  Mazdoor  Sangh<\/a>
\n(1) the Labour Appellate Tribunal observed that according to
\nthe.  formula, the income-tax is to be deducted as  a  prior
\ncharge\ton trading results of the year just as much  as\t the
\nbonus  is to be ascertained upon the trading results of\t the
\nyear.  The concession made by the income-tax authorities  in
\nmaking\ta refund of the excess profits tax already  paid  by
\nthe employer is intended to aid a concern on account of past
\nlosses\tand so it has nothing to do with the  formula.\t The
\nsame principle governs cases where owing to a loss  incurred
\nin  the previous year or years the employer is\tentitled  to
\nclaim  allowance  for  adjustment under s.  24\t(2)  of\t the
\nIncome-tax Act during the bonus year; and so it is held that
\nthe  allowance\tfor  adjustment which  the  employer  claims
\ncannot\tbe taken into account in determining the  amount  of
\nincome-tax  payable on the profits of the bonus\t year  under
\nthe  formula.\tIn Bennett Coleman and co.,  Ltd.  v.  Their
\nWorkmen\t (2)  the  Labour Appellate  Tribunal  rejected\t the
\ncontention  raised by labour that since under s. 24 (2)\t the
\nemployer  would\t not be liable to pay tax during  the  bonus
\nyear  no  provision  for payment of tax should\tbe  made  in
\nworking\t out  the formula.  The\t Labour\t Appellate  Tribunal
\npointed out that the fact that the employer was not required
\nto  pay\t tax  during the bonus year was the  result  of\t the
\nadjustment  of the previous year’s  unabsorbed\tdepreciation
\nand  losses against current year’s profit, and that  had  no
\nrelevance  in  determining the available  surplus  from\t the
\ntrading\t profits of the bonus year.  The same view has\tbeen
\ntaken  in  several  other  decisions  to  which\t the  Labour
\nAppellate Tribunal has referred.  In our opinion, once it is
\nrealised  that in working out the formula the bonus year  is
\ntaken as a unit self-sufficient by itself, the decisions  of
\nthe Labour Appellate Tribunal in regard
\n(1) (1955) I  J. 534, 540.\n<\/p>\n
(2) (1955)  I J. 60.\n<\/p>\n
959<\/span><\/p>\n
to  the refund of excess profits tax and the  adjustment  of
\nthe  previous  year’s depreciation and\tlosses\tagainst\t the
\nbonus year’s profits must be treated as logical and sound.
\nHaving\tascertained the amount of gross profits,  the  first
\nitem of deduction relates to depreciation.  The propriety of
\nthis   deduction  was  not  questioned\tbefore\tthe   Labour
\nAppellate  Tribunal  which  evolved  the  formula;  but\t the
\ncontent\t of  the  item of depreciation became  a  matter  of
\ncontroversy subsequent to 1950.\t After 1948, s. 10 (2)\t(vi)
\nof   the  Income-tax  Act  has\tprovided  for  initial\t and
\nadditional  depreciation besides the statutory\tdepreciation
\nwhich was already admissible.  In other words,\tdepreciation
\nallowed under the Income-tax Act now consists of what may be
\ncalled the statutory normal depreciation calculated under r.
\n8   as\t well  as  initial   depreciation   and\t  additional
\ndepreciation.\tThe allowance of these depreciations  is  an
\nexception  to  the general rule that the income\t has  to  be
\ntaxed  without reference to the diminution in the  value  of
\nthe capital.  Under the amended provision of s. 10 (2)\t(vi)
\nof the Income-tax Act the employers began to claim that from
\nthe gross profits all the depreciations admissible under the
\nIncome-tax Act should be debited; and this claim was  upheld
\nby some tribunals and rejected by others.  This conflict  of
\ndecisions  led\tto  confusion; and so a Full  Bench  of\t the
\nLabour Appellate Tribunal was constituted to decide this and
\nother  points in the case of the U. P. Electric Supply\tCo.,
\nLtd.,\tetc.   Electricity  Supply  Undertakings  v.   Their
\nWorkmen<\/a>(1).   The  Full Bench held that ”  the\tdepreciation
\nwhich  should be deducted from the gross profits in  working
\nthe  formula  is  annual depreciation  allowable  under\t the
\nprovisions  of\tthe Income-tax Act  including  the  multiple
\nshift\tdepreciation;\tit  also  held\tthat   the   initial
\ndepreciation  and  additional depreciation which  were\talso
\nallowed\t under the Income-tax Act are abnormal additions  to
\nthe  income-tax\t depreciation designed\tto  meet  particular
\ncontingencies and for a limited period;\n<\/p>\n
(1) (1955) II  J. 431.\n<\/p>\n
122<\/span>
\n960<\/span><\/p>\n
and  so it would not be fair to the workmen that  these\t two
\ndepreciations  should be rated as prior charges\t before\t the
\navailable  surplus is ascertained “. Apparently\t some  doubt
\narose  as to what exactly was allowed to be  deducted  under
\nthis Full Bench decision; and two of the members of the Full
\nBench  took  occasion  to  clarify  the\t position  in  Surat
\nElectricity Co.’s Staff Union v. Surat Electricity Co., Ltd.<\/a>
\n(1).  This decision shows that what the Full Bench  intended
\nto treat as depreciation for the purpose of the formula\t was
\na notional amount of normal depreciation; in order to  avoid
\nany future doubt or confusion, the judgment in the case\t has
\nset   out   the\t manner\t in  which  this   notional   normal
\ndepreciation has to be worked out.  Since this decision\t was
\npronounced  it is the notional normal depreciation  that  is
\ndeducted from the gross profits in working the formula.\t  It
\nseems to us that the view taken by the Full Bench is  wholly
\nconsistent  with the basic idea of social justice  on  which
\nthe original formula is founded.  The relevant provisions of
\nthe  Income-tax Act allowing further depreciation are  based
\non  considerations which have no relevance to  the  original
\nformula;  indeed, as the Full Bench has pointed out, if\t the
\nsaid  two items of depreciations are allowed to be  deducted
\nfrom  the  gross  profits it would in a\t majority  of  cases
\ndefeat\t the  object  of  the  formula\titself.\t  We   would
\naccordingly  hold  that\t the depreciation which\t has  to  be
\ndeducted  from\tthe  gross profits should  be  the  notional
\nnormal\tdepreciation  as  explained in\tthe  case  of  Surat
\nElectric Co., Ltd. (1).\n<\/p>\n
The  balance obtained after deducting depreciation from\t the
\ngross  profits\tis  then  taken\t as  the  amount  on   which
\ncalculations  have to be made about the\t income-tax  payable
\nfor  the bonus year.  This item gives rise to a\t controversy
\nbetween the parties.  It is urged for the employers that  in
\ndetermining the amount payable by way of income-tax on\tthis
\nbalance\t the  tribunal should not  take\t into  consideration
\nallowances  which are made under the relevant provisions  of
\nthe  Income-tax Act.  There is no doubt that in\t taxing\t the
\nemployer for the bonus year the Income-tax Act would
\n(1)(1957) II L. L. J. 648.\n<\/p>\n
\t    961<\/span><\/p>\n
make allowance not only for the normal depreciation but also
\nfor  the  initial  and\tadditional  depreciations;  but\t the
\nargument  is  that  the\t income-tax  should  be\t  determined
\nnationally  without  reference to the said  allowances.\t  In
\nsupport of this argument it is further urged that though the
\nemployer may obtain credit for the two further depreciations
\nfor  some  years, later on the said allowances will  not  be
\nmade and his liability’ to pay tax would be  correspondingly
\nincreased.   It is but fair, so the argument runs, that\t the
\nemployer  should be allowed to create a fund  of  income-tax
\nreserve\t from  which  he  would be  able  to  bear  his\t tax
\nliability in future as and when it is bound to increase.
\nOn the other hand it is contended on behalf of workmen\tthat
\nwhile  determining the amount of tax payable for  the  bonus
\nyear the tribunal cannot ignore the concession given to\t the
\nemployer  by the Income-tax Act by making the  allowance  of
\ntwo further depreciations.  What the employer claims is\t not
\nthe  amount  of tax payable during the bonus year  but\tmuch
\nmore  in  addition in order to build up a reserve  and\tthis
\nnotion\tof  building up a tax reserve  for  meeting  future,
\nthough\tcertain, increased tax liability is foreign  to\t the
\nbasic  idea of the formula.  For making\t calculations  under
\nthe formula the bonus year is taken as a unit and all  items
\nspecified in the formula should be worked out on that basis.
\nThat is why the refund of the excess profits tax received in
\nthe bonus year is excluded from consideration and the  right
\nof  the\t employer to adjust his previous year’s\t losses\t and
\ndepreciation  against the trading profits of the bonus\tyear
\nis likewise ignored.  So too the fact that the employer\t may
\nhave to pay increased taxes in future years must be  treated
\nas irrelevant.\tThat in brief is the case for workmen.
\nIn  our opinion, having regard to the basis of\tthe  formula
\nand  the manner in which the other items of the formula\t are
\nrequired  to  be worked out, it would not be  reasonable  to
\nallow the employer to claim under the item of income-tax  an
\nadditional   amount   is   respect  of\t the   two   further
\ndepreciations  which are expressly allowed to him  under  s.
\n10(2)(vi) of the Income-tax
\n962<\/span>
\nAct.  It is clear that the amount determined under this item
\nwould  not  represent the actual tax  which  the  income-tax
\ndepartment will recover from the employer.  In that sense it
\nwould always be a notional amount ; but in calculating\teven
\nthis notional amount it would be unfair and unjust to ignore
\nthe  concessions  allowed to the employer by  s.  10(2)(vi).
\nThe creation of a fund of income-tax reserve may conceivably
\nlead to unnecessary complications.  Besides, if on principle
\nthe further depreciations allowed by the Income-tax Act\t are
\ntreated\t as  inadmissible  under  the  formula\tand  so\t are
\nexcluded  from\tconsideration,\tit  would  be  substantially
\ninconsistent with the object of such exclusion to allow\t the
\nemployer to claim tax in respect of the said amounts of\t the
\ntwo  depreciations.  It is clear that even if the amount  of
\nincome-tax  is\tdetermined  after taking  into\taccount\t the
\nconcession  given to the employer by s. 10(2)(vi)  it  would
\nwork no hardship to the employer, for the simple reason that
\nin future years when these concessions cease to be operative
\nand his liability to pay the tax correspondingly  increases,
\nhe would be entitled to claim the amount of income-tax which
\nwould  then be payable by him.\tThis method  of\t calculating
\nincome\ttax  is\t thus fair to both the parties\tand  it\t has
\nbesides\t the  merit  of\t being\tconsistent  with  the  basic
\ncharacter  of  the formula.  It would be  relevant  in\tthis
\nconnection   to\t remember  that,  though  in  most  of\t the
\nindustries  workmen  continue to be employed  from  year  to
\nyear, nationally and on principle, the claim for bonus for a
\nparticular year is made on behalf of workmen employed during
\nthe said year; and in that sense, the relevant\tcalculations
\nhave to be made with the bonus year as a unit.\tThat is\t why
\nconsiderations\tof future tax liability of the employer\t are
\nforeign\t to  the calculation under the formula.\t  We  would,
\ntherefore,  bold  that\tin calculating\tthe  amount  of\t tax
\npayable\t for  the bonus year the tribunals should  not\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.\n<\/p>\n
This point has been  considered by this Court in
\n963<\/span>
\nSree  Meenakshi Mills, Ltd. v. Their Workmen<\/a> (1)  where\t has
\nupheld the view taken by the Full Bench the Labour Appellate
\nTribunal  in  the case of the U. Electric Co.,\tLtd.,  etc.,
\nElectricity Supply Undertakings (2) and has directed that in
\ndetermining  amount of income-tax payable during  the  bonus
\nyea the further depreciations permissible under the  income-
\ntax Act should be taken into account.  We would only like to
\nadd  that in that case this Court had  occasion to say\twhat
\nexactly the normal depreciation meant; but it is clear\tthat
\nthe  normal depreciation mentioned in the judgment  was\t not
\nintended  to  mean anything other than the  notional  normal
\ndepreciation  as explained by the Labour Appellate  Tribunal
\nin the case of the Surat Electric Co., Ltd. (3 ). The amount
\nincome-tax thus determined has then to be deduct( as a prior
\ncharge.\n<\/p>\n
The  next step in the working of the formula related to\t the
\ndeduction of an appropriate amount in respect of the  return
\non  paid-up  capital as well as working\t capital.   We\thave
\nalready noticed that the formula provides generally for\t the
\npayment\t of interest at 69 per annum on the paid-up  capital
\nand  at 2% on worldling capital.  Subsequent decisions\tshow
\nthat  the  tribunals  do  not  regard  the  said  rates\t  as
\ninflexible and they have suitably modified them in the light
\nof  the relevant circumstances in each case.  We think\tthat
\nthis  is a correct approach and that it is necessary to\t fix
\nthe  rates of interest on the two items of  paid-up  capital
\nand  working capital according to the circumstances of\teach
\ncase.\tIn this connection it may be added  that  ordinarily
\nindustrial  tribunals awards interest at the rate of 6%\t per
\nannum on paid-up capital.\n<\/p>\n
In Workmen of Assam Co., Ltd. v. Assam Co., Ltd.<\/a> this  Court
\nheld  that interest allowed by the tribunal a 7% on  paid-up
\ncapital\t and confirmed by the Labour Appellate Tribunal\t was
\njustified  because ” an industry connected with\t agriculture
\nlike  the tea industry is exposed to greater risks than\t any
\nother industry such
\n(1)  [1958] S.C.R. 878.\n<\/p>\n
(3)  (1957) 11 L.L.J. 648.\n<\/p>\n
(2)  (1955) II L.L.J.- 431.\n<\/p>\n
(4)  [1959] S.C.R. 327]
\n964<\/span>
\nweather,  pests in the plants and gradual  deterioration  of
\nthe soil “. On the other hand, in Ruston and ornsby  (India)
\nLtd.  v.  Their Workmen (1) the\t Labour\t appellate  Tribunal
\nallowed\t only  4%  return  on the  art\tof  paid-up  capital
\nrepresented  by\t bonus\tshares for the year  in\t which\tsuch
\nshares\twere issued and ,)served that ,for subsequent  years
\nno   distinction  between  it  and  other  paid-up   capital
\nrepresented  by paid-up shares should be made “.  Similarly,
\nin regard  reserves or depreciation used as working  capital
\ninterest  has been allowed either at 4% or at 3% or ,Ten  at
\n2%  according  to the relevant circumstances.  in  the\tMill
\nOwners\tAssociation,  Bombay v. The Rashtriya  Mill  Mazdoor
\nSangh (2) the Labour Appellate Tribunal has observed that  ”
\nas  we\thave said before, there is no fixed rule as  to\t the
\nrates of such return (on capital) and each case must  depend
\non its individual acts.\t We have in appropriate cases  given
\nas  high  as % but in case of the mills the Full  Bench\t has
\nconsidered that the equivalent of 2% would be reasonable  nd
\nwe propose to retain it at that level for the present “.  In
\nTea  and  Coffee  Workers  Union  v.  Brooke  Bond   (India)
\n(Private) Ltd.<\/a> (3) the Industrial Tribunal as considered the
\nprevious decisions on the question of the return on  working
\ncapital and held that, in the case before it, it would be an
\nadequate  return  on the working capital if 3%\tinterest  is
\nallowed\t because there were no special reasons existing\t for
\nallowing a higher ate.\n<\/p>\n
In dealing with this aspect of the matter it is relevant  to
\npoint  out  that no distinction has been made  )y  tribunals
\nbetween\t reserves used as working capital  and\tdepreciation
\nfund similarly used.  In the Mill Owners Association, Bombay
\nv.  The\t Rashtriya Mill Mazdoor Sangh (2)  (page  523)\twhen
\nlabour objected to the depreciation fund earning any  return
\neven  if  it was utilised in or about the  business  of\t the
\nyear, the labour Appellate Tribunal overruled the  objection
\nand  observed that ” no essential difference could  be\tmade
\nbetween the depreciation fund and any other
\n(1) (1955) 1 L.L.J. 73.\t    (2) (1952) 1 L.L.J. 518. 522.
\n(3)(1958) 1 L.L.J. 645.\n<\/p>\n
965<\/span><\/p>\n
fund belonging to the company which could be invested so  as
\nto  earn a return “. It is thus clear that what is  material
\nis not the origin of the fund.\tIt is the fact that the fund
\nin the hands of the concern has been used as working capital
\nthat justifies the claim for art adequate return on it.\t  We
\nthink it is commonsense that if the concern utilises  liquid
\nfunds available in its hands for the purpose of meeting\t its
\nworking expenses rather than borrow the necessary amounts it
\nis  entitled  to claim some reasonable return on  the  funds
\nthus used.  It is of course necessary that the employer must
\nshow that the amount under the depreciation fund was in fact
\navailable  and\tthat it has actually been  used\t as  working
\ncapital\t during\t the relevant year.  What return  should  be
\nallowed on such funds must inevitably be a question of\tfact
\nto be decided by the tribunal in its discretion in each case
\nin  the light of the relevant circumstances.  It would\tthus
\nbe  noticed  that in working out these two items  under\t the
\nformula\t there is no fixed or rigid rule about the  rate  of
\ninterest which can be claimed and awarded. It is also  clear
\nthat if any fund is used by the employer for the purpose  of
\nexpanding  his\tbusiness  he is not entitled  to  claim\t any
\nreturn\ton such fund under those items.\t In the case of\t the
\nU.  P.\tElectric Supply Co., Ltd. etc.\t Electricity  Supply
\nUndertakings  (1)  the Full Bench of  the  Labour  Appellate
\nTribunal  held that ” considering all the factors  presented
\nto them they did not think that a case had been made out for
\ngiving a special prior charge in the shape of return on\t the
\nreserves   utilised  for  expansion  “.\t When  the   amounts
\nawardable  to  the  employer  under  these  two\t items\t are
\ndetermined  they have to be treated as prior charges in\t the
\ncalculation of available surplus under the formula.
\nThe original formula referred to replacement, rehabilitation
\nand  modernisation of the plant and machinery.\t Soon  after
\nthe  formula was evolved a dispute arose as to\twhether\t the
\nindustry  was  entitled\t to  claim  rehabilitation  for\t its
\nbuildings  as  well  and  it was held that  ”  a  claim\t for
\nrehabilitation for buildings had to
\n(1)  (1955) II L.L.J. 431.\n<\/p>\n
966<\/span><\/p>\n
be  treated  as a prior charge just like the claim  for\t the
\nrehabilitation of plant and machinery ” (1). :This  position
\nis not disputed before us, and we think rightly.
\nThat  takes us to the item of rehabilitation and it is\tthis
\nitem which poses a very difficult problem.  We have  already
\nnoticed that the object of providing depreciation of wasting
\nassets\tin commercial accounting is to recoup  the  original
\ncapital\t invested  in the purchase of such assets;  but\t the
\namount\tof depreciation which is allowed under\tthe  formula
\ncan hardly cover the probable cost of replacement.  That  is
\nwhy  the  formula has recognised the  industry’s  claim\t for
\nrehabilitation\tin addition to the admissible  depreciation.
\nSince  the Second World War prices of industrial  plant\t and
\nmachinery  have registered a continuous upward rise and\t its
\ninevitable consequence has been a proportionate rise in\t the
\nclaim  for  rehabilitation.  In considering  the  claim\t for
\nrehabilitation\tit is first necessary to divide\t the  blocks
\ninto  plant and machinery on the one hand and  other  assets
\nlike buildings, roads, railway-sidings, etc., on the  other.
\nThen the cost of these separate blocks has to be ascertained
\nand  their probable future life has to be  estimated.\tOnce
\nthis  estimate\tis made it becomes  possible  to  anticipate
\napproximately  the  year when the plant or  machinery  would
\nneed  replacement;  and\t it is the probable  price  of\tsuch
\nreplacement  on\t a future date that ultimately\tdecides\t the
\namount\tto  which  the\temployer  is  entitled\tby  way\t  of
\nreplacement cost.  This problem can be considered item\twise
\nwhere the industry does not own too many factories and\titem
\nwise  study  of\t the  plant  and  machinery  is\t  reasonably
\npossible; but if the industry owns several factories and the
\nnumber\tof  plants and machines is very large  it  would  be
\ndifficult  to  make a study of the replacement\tcosts  item-
\nwise, and in such a case the study has to be blockwise.\t  In
\neither\tcase  what  the\t tribunal has  to  estimate  is\t the
\nprobable  cost of replacement of plant and machinery at\t the
\ntime  when such replacement would become due.  It  would  be
\nclear  that the decision of this question  would  inevitably
\ndepend upon several uncertain
\n(11) (1952) 1 L.L.J. 518, 522.\n<\/p>\n
967<\/span><\/p>\n
factors.  The estimate about the probable life of the  plant
\nand  machinery\tis itself to some extent a matter  of  guess
\nwork and any anticipation, however intelligently made, about
\nthe  probable trend of prices during the intervening  period
\nwould  be  nothing  but\t a  guess.   That  is  how,  in\t the
\ndetermination  of this problem, several\t imponderables\tface
\nthe tribunals.\n<\/p>\n
One  of\t the  points which raises  a  controversy  in  this’
\nconnection  is:\t What level of prices  should  the  tribunal
\nconsider in making its calculations about the probable\tcost
\nof  replacement\t ? Would it be the  price  level  prevailing
\nduring\tthe bonus year or that prevailing at the  time\twhen
\nthe tribunal holds its enquiry ?  Prima facie it may  appear
\nthat it is the price level prevailing in the bonus year that
\nshould\tbe treated as relevant; but if the relevance of\t the
\nevidence about the price level is limited only to the  bonus
\nyear,  it  may\thinder rather than help\t the  process  of  a
\nsatisfactory   determination   of  the\tprobable   cost\t  of
\nreplacement.   What  the tribunal has to do  in\t determining
\nsuch cost is to project the price level into the future\t and
\nthis  can  be more satisfactorily done if  the\tprice  level
\nwhich has to be projected into the future is determined\t not
\nonly in the light of the prices prevailing during the  bonus
\nyear  but also in the light of subsequent price levels.\t  It
\nseems to us that in order to enable the tribunal to make  an
\nestimate in this matter as near actualities or realities  as
\npossible  it is necessary that the tribunal should be  given
\nfull  discretion  to admit all relevant evidence  about\t the
\ntrend  in  price levels.  The price level during  the  bonus
\nyear would no doubt be admissible; but that alone should not
\nbe taken as the basis for decision.  That is the view  which
\nthe  tribunals have taken in a majority of cases in  dealing
\nwith the question of rehabilitation and we do not think that
\nthere is any justification for disturbing the usual practice
\nin that behalf.\n<\/p>\n
The problem of determining the probable cost of\t replacement
\nitself is very difficult; but the difficulty is immeasurably
\nincreased   when  it  is  remembered  that  the\t claim\t for
\nrehabilitation covers not only cases of
\n123<\/span>
\n968<\/span>
\nreplacement  pure  and\tsimple\tbut  of\t rehabilitation\t and
\nmodernisation.\t In  the context rehabilitation\t is  distin-
\nguished\t from  ordinary repairs which go  into\tthe  working
\nexpenses  of  the industry.  It is also\t distinguished\tfrom
\nreplacement.  It is quite conceivable that certain parts  of
\nmachines  which constitute a block may\tneed  rehabilitation
\nthough the block itself can carry on for a number of  years;
\nand this process of rehabilitation is in a sense a continual
\nprocess.   Unlike  replacement, its date  cannot  always  be
\nfixed or anticipated.  So with modernisation; and all  these
\nthree  items are included in the claim\tfor  rehabilitation.
\nThat  is  why we think it is necessary\tthat  the  tribunals
\nshould\texercise their discretion in admitting all  relevant
\nevidence  which\t would enable them to determine\t this  vexed
\nquestion satisfactorily.\n<\/p>\n
At  this  stage it is relevant to remember  that  the  claim
\nunder  this item is confined to rehabilitation,\t replacement
\nand  modernisation.  It is common ground that  expansion  of
\nthe plant and machinery is not included in this item; but in
\nseveral\t cases\tit  is\tnot  easy  to  distinguish   between
\nmodernisation of the plant and machinery and its  expansion.
\nIt  is urged that an expert can, if he so chooses,  make  an
\nattempt to include expansion within what he may describe  as
\nmodernisation by clever use of technical words and details,-
\nand that it is precisely this aspect of the matter which has
\nto  be\tcarefully examined by the  tribunal.   The  industry
\nsometimes claims that a plant may become obsolescent because
\nit has become out of date and has to be substituted by a new
\nmodern\tplant.\tIs the introduction of the new modern  plant
\nin  such circumstances an item of expansion or mere  modern-
\nisation\t ?  It is difficult to lay down\t any  general  tests
\nwhich  would  govern the decision of this question.   If  it
\nappears fairly on the evidence that the introduction of\t the
\nmodern plant or machine is in substance an item of expansion
\nof the industry, expenses incurred in that behalf have to be
\nexcluded.   On\tthe  other  hand, if  the  employer  had  to
\nintroduce  the new plant essentially because the use of\t the
\nold  plant though capable of giving  service-was  uneconomic
\nand other-\n<\/p>\n
969<\/span><\/p>\n
wise wholly inexpedient, it may be a case of  modernisation.
\nSimilarly,  if\tby  the introduction of a  modern  plant  or
\nmachine\t  the  production  capacity  of\t the  industry\t has
\nappreciably increased, it would be relevant for the tribunal
\nto  consider  in  an appropriate case whether  it  would  be
\npossible  to  apportion expenses on the basis that it  is  a
\ncase  of partial modernisation and partial  expansion.\t If,
\nhowever,  the increased production is not of  a\t significant
\norder  it  may be regarded as incidental to  replacement  or
\nmodernisation  and  the question of  apportionment  may\t not
\narise.\t We  have set out these considerations in  order  to
\nemphasise  the\tfact  that in dealing with  the\t problem  of
\nrehabilitation\tthe  tribunal  must  carefully\texamine\t the
\nevidence  and  consider\t the employer’s\t claim\tin  all\t its
\naspects\t before\t determining  the  amount  which  should  be
\nallowed\t by way of rehabilitation as a prior charge  in\t the
\nrelevant year.\n<\/p>\n
The  decision  on  the\tquestion of  the  probable  cost  of
\nrehabilitation\tis  always reached by  adopting\t a  suitable
\nmultiplier.   This multiplier is 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\t modernisation.\t  Since\t there\thas  been  a
\ncontinuous  rise  in  the prices  of  industrial  plant\t and
\nmachinery the older the plant which needs rehabilitation the
\nhigher\tis  the multiplier.  That is why there is  always  a
\ncompetition  between  industry and workmen  on\tthis  point.
\nIndustry  is  sometimes tempted to keep its  old  pre-\t1939
\nblock  alive with a view to claim a higher multiplier  which
\ngives  it  a larger amount  of\trehabilitation\texpenditure;
\nwhereas\t workmen urge that the old pre-1939 block  has\tbeen
\nnominally  kept alive as a device and so press for  a  lower
\nmultiplier which would reduce the claim for  rehabilitation.
\nOnce  a proper multiplier is adopted in respect of each\t one
\nof  the\t blocks the first step in determining  the  probable
\ncost of rehabilitation can be easily taken.  It then becomes
\na matter of mere arithmetical calculation.
\nAt  this  stage\t the divisor steps  in.\t  The  total  amount
\nrequired for rehabilitation which is determined by the
\n970<\/span>
\napplication  of\t a suitable multiplier in respect.  of\teach
\nblock has to be divided by a suitable divisor in respect  of
\neach  block in order to ascertain the annual requirement  of
\nthe  employer in that behalf year by year.  In the  case  of
\nthe  divisor the employer seeks for a lower divisor  whereas
\nworkmen\t claim a higher divisor and this contest has  to  be
\ndecided by the tribunal by reaching a fair conclusion on the
\nevidence  before  it about the probable future life  of\t the
\nblock  in  question.   It would thus  be  noticed  that\t the
\nadoption  of a suitable multiplier and divisor plays a\tvery
\nimportant  part in the decision of the vexed question  about
\nthe employer’s rehabilitation claim.\n<\/p>\n
Before actually awarding an appropriate amount in respect of
\nrehabilitation for the bonus year certain deductions have to
\nbe  made.   The first deduction is made on  account  of\t the
\nbreakdown value of the plant and machinery which is  usually
\ncalculated at the rate of 5% of the cost price of the  block
\nin  question.\tThen  the depreciation\tand  general  liquid
\nreserves  available  to\t the  employer\tare  deducted.\t The
\nreserves  which have already been reasonably  earmarked\t for
\nspecific  purposes of the industry are, however,  not  taken
\ninto   account\tin  this  connection.\tLast  of   all\t the
\nrehabilitation\tamount\twhich may have been allowed  to\t the
\nemployer in previous years would also have to be deducted if
\nit appears that the amount was available at the time when it
\nwas  awarded in the past and that it had not been  used\t for
\nrehabilitation\tpurposes  in the meanwhile.  These  are\t the
\nbroad  features\t of  the steps which have  to  be  taken  in
\ndeciding  the employer’s claim for rehabilitation under\t the
\nworking of the formula.\t ”\n<\/p>\n
It would thus be clear that the decision of this major\titem
\nin  the working of the formula presents\t many  difficulties;
\nand  in the last analysis its decision depends upon  several
\nhypothetical   and   empirical\t considerations.    It\t is,
\ntherefore, not surprising that in the case of Metal Box\t Co.
\nof  India,  Ltd.  v. Its Workmen<\/a> (1)  the  Labour  Appellate
\nTribunal  has observed that ” It is unfortunately  too\ttrue
\nthat all
\n(1)  [1952] L.A.C. 315, 321.\n<\/p>\n
971<\/span><\/p>\n
our  calculations as to rehabilitation may be  disproved  by
\nsubsequent events; it is impossible to say what the trend of
\nworld  prices  would be in the next fifteen years  or  which
\ncircumstances  will  intervene before that period  to  upset
\nsuch calculations one way or the other, and no\tcalculations
\nof this kind are capable of mathematical accuracy.  We\thave
\nto  take  a commonsense view of these matters  and  make  an
\nallowance’ for rehabilitation to the best of our ability and
\nin accordance with our formula “. It has also been  observed
\nby  the\t Labour Appellate Tribunal that\t if  an\t appropriate
\nmultiplier  and divisor are determined ” they are  generally
\nused   because\tthe  tribunals\ttake  the  view\t  that\t the
\nreconsideration\t of the said multiplier and  divisor  should
\nnot be hastily undertaken and could be justified only on the
\nbasis  of  a  substantial  change  of  a  stable   character
\nextending  or likely to extend over a sufficient  number  of
\nyears so as to make a definite and appreciable difference in
\nthe   cost  of\treplacement  “.\t (Vide:\t The   Mill   Owners
\nAssociation Bombay v. The Rashtriya Mill Mazdoor Sangh (1)
\nIn  dealing  with the employer’s  claim\t for  rehabilitation
\ntribunals  have\t always\t placed the onus  of  proof  on\t the
\nemployer.   He\thas  to prove the price\t of  the  plant\t and
\nmachinery,  its\t age, the period during\t which\tit  requires
\nreplacement, the cost of replacement, the amount standing in
\nthe  depreciation and reserve fund, and to what\t extent\t the
\nfunds  at his disposal would meet the cost  of\treplacement.
\nIf the employer fails to lead satisfactory evidence on these
\npoints\ttribunals  have on occasions  totally  rejected\t his
\nclaim  for  rehabilitation. (Vide: Ganesh  Flour  Mills\t Co.
\nLtd., Kanpur v. Ganesh Flour Mills Staff Union, Kanpur<\/a>\t(2);
\nBombay\tGas  Co.  Ltd. v. Their\t Workmen<\/a>  (3);\tDharangadhra
\nChemical  Works Ltd. v. Its Workmen<\/a> (4)).  If the  tribunals
\nare satisfied that the employer is deliberately and  without
\na  sufficient  cause not taking any steps  to  rehabilitate,
\nreplace\t  or   modernise  his  machinery  even\t though\t  an
\nappropriate  allowance is made in that behalf from  year  to
\nyear, they may take into
\n(1)(1952) 1 L.L.J. 518.\n<\/p>\n
(3)(1955) 11 L.L.J. 152.\n<\/p>\n
(2)  [1952] L.C. 172
\n(4)  (1956) 1 L.L.J. 475.\n<\/p>\n
972<\/span><\/p>\n
account\t this  conduct\tin determining the  extent  of\tsuch
\nallowance  in the bonus year in question.  Similarly  if  it
\nappears\t that  the employer has deliberately  or  mala\tfide
\nrefrained from rehabilitating or replacing his old machinery
\nwith a view to claim a higher multiplier in calculating\t the
\nrehabilitating\tamount, the tribunals may take\this  conduct
\ninto   account\tin  determining\t the  actual  allowance\t  of
\nrehabilitation to him.\n<\/p>\n
The  main  difficulty  in  deciding  questions\tabout  reha-
\nbilitation  arises from the fact that satisfactory  evidence
\nis  not always placed before the tribunals and it  is  urged
\nthat  the  evidence  given  by\tthe  employers’\t experts  is
\ninterested and the workmen with their limited resources\t are
\nnot able to test the said evidence by adequate or  effective
\ncross-examination.   In such a case the tribunal may, if  it
\nso  desires and if it is possible, secure the assistance  of
\nassessors  (vide s. 38 of the Industrial Disputes Act).\t  It
\nis therefore necessary that the tribunal should require\t the
\nemployer  to give clear and satisfactory evidence about\t all
\nthe  relevant  facts  on which it  can\tmake  the  requisite
\nestimate.  The questions which the tribunal has to  consider
\nunder  this item are essentially questions of fact  and\t its
\nfinal decision on them is bound to be hypothetical, since it
\nwould be based on a fair evaluation of several circumstances
\nwhich are by no means certain and which cannot be predicated
\nwith any amount of precision or even definiteness.  That  is
\nwhy  it\t is of the utmost importance that all  relevant\t and
\nmaterial  evidence should be adduced by the employer and  it
\nshould\tbe properly tested by cross-examination.  When\tthat
\nis  done the tribunal must do its best to consider the\tsaid
\nevidence  objectively  and  reach its final  decision  in  a
\njudicial manner.\n<\/p>\n
Once  the  amount of rehabilitation is thus  determined\t the
\navailable surplus for the bonus year is ascertained and\t the
\nfinal  stage  is  reached  when the  tribunal  has  to\tgive
\ndirections  for\t the  distribution  of\tthe  said  available
\nsurplus.   It is not seriously disputed that  three  parties
\nare  entitled  to claim a share in this\t available  surplus;
\nlabour claims bonus from it, the industry claims a share for
\nthe purpose of its expansion
\n973<\/span>
\nand  other needs, and share-holders claim a share by way  of
\nadditional  return on the capital invested by them.  In\t the
\ncase  of the Mill Owners Association, Bombay (1)  where\t the
\nformula\t was  evolved, out of the available surplus  of\t Rs.
\n2.61  crores  2.16 crores was distributed by  way  of  bonus
\nleaving a balance of 0.45 crores with the industry.  In\t the
\nTrichinopoly  Mills Ltd. v. National Cotton  Mills  Workers’
\nUnion<\/a>  (2) the available surplus was found to be Rs.  34,660
\nand  out of it Rs. 30,000 was ordered to be  distributed  as
\nbonus  to  the\tworkmen.  These two and\t other\tsimilar\t in-
\nstances,  however,  cannot be pressed into service  for\t the
\npurpose\t of  evolving any general rule as to  the  ratio  or
\nproportion   in\t which\tthe  available\tsurplus\t should\t  be
\ndistributed.   The  ratio of  distribution  would  obviously
\ndepend\tupon several facts: What are the wages paid  to\t the
\nworkmen\t and what is the extent of the gap between the\tsame
\nand a living wage?  Has the employer set apart any  gratuity
\nfund ? If yes, what is the amount that should be allowed for
\nthe bonus year ? What is the extent of the available surplus
\n?  What are the dividends actually paid by the employer\t and
\nwhat are the probabilities of the industry entering upon  an
\nimmediate  programme  of  expansion?   What  dividends\t are
\nusually\t paid by comparable concerns ? What is\tthe  general
\nfinancial  position  of the employer?  Has the\temployer  to
\nmeet  any urgent liability such as redemption  of  debenture
\nbonds  ?  These and similar  considerations  will  naturally
\ndetermine  the actual mode of distribution of the  available
\nsurplus.   In this connection labour’s claim to fill up\t the
\ngap between the wage actually paid to it and the living wage
\nhas  an\t important bearing on the decision  of\tthis  point.
\nIndustry’s claim for paying additional return on capital and
\nfor  making  additional provision for expansion\t would\talso
\nhave to be considered.\tThe fact that the employer would  be
\nentitled  to a rebate of income-tax on the amount  of  bonus
\npaid to his workmen has to be taken into account and in many
\ncases it plays a significant part in the final distribution.
\nTherefore, in our opinion once the
\n(1) (1952) 1 L.L.J. 518.     (2) (1953) 11 L.L.J. 361.\n<\/p>\n
974<\/span><\/p>\n
available surplus is determined, the tribunal should, in the
\nlight  of  all relevant circumstances, proceed\tto  make  an
\naward  directing  the payment of a fair and just  amount  to
\nlabour\tby  way\t of bonus.  If the formula  is\tthus  worked
\nreasonably it would in a large majority of cases succeed  in
\nachieving  its\tprincipal object of doing  justice  both  to
\nlabour and industry.\n<\/p>\n
Before\twe part with the question of working the formula  it
\nis  necessary to observe that the practice adopted  by\tsome
\ntribunals  in giving the amount of bonus a priority  in\t the
\ncalculations  is not justified.\t Logically it is only  after
\nall the prior charges have been determined and deducted from
\nthe gross profits that available surplus can be ascertained;
\nand  it is only after the available surplus  is\t ascertained
\nthat the question of awarding bonus can be considered.\tSome
\ntribunals  seem to work out nationally the amount  of  bonus
\nwhich they think can be awarded and place that amount higher
\nup in the process of making calculations before the  income-
\ntax  payable is determined.  The inevitable  consequence  of
\nthis procedure is to make the amount of tax  proportionately
\nless.\tWe wish to make it clear that this procedure  should
\nnot  be\t followed.   As\t we have  already  pointed  out,  in
\ndirecting  the\tdistribution of the  available\tsurplus\t the
\ntribunal  has to take into account the rebate of  income-tax
\nto  which  the employer is entitled on the amount  of  bonus
\npaid to his workmen but that on principle is different\tfrom
\nplacing\t the amount of bonus immediately after\tdepreciation
\nin the working of the formula.\n<\/p>\n
It  has\t been urged before us by the  respondents  that\t the
\namount\t of  rehabilitation  as\t well  as  the\t amount\t  of
\ndepreciation  should  be  deducted from\t the  gross  profits
\nbefore\t income-tax   payable  is  ascertained.\t   In\tthis
\nconnection  reliance  is  placed on the\t fact  that  in\t its
\njudgment  which\t evolved the formula  the  Labour  Appellate
\nTribunal  has at one place described rehabilitation  as\t the
\nfirst charge in priorities.  Having regard to the context in
\nwhich  the said statement is made it is clear that all\tthat
\nthe  Labour Appellate Tribunal wanted to emphasise was\tthat
\nthe textile industry
\n975<\/span>
\nwith which it was directly concerned in the said case needed
\nrehabilitation\tvery urgently.\tThe final calculations\tmade
\nin  the\t judgment  give a clear indication  as\tto  how\t the
\nformula has to be worked out.  We are, therefore,  satisfied
\nthat  rehabilitation  cannot  be  given\t the  high  priority
\nclaimed for it by the respondents,
\nWe  must  now  consider whether the tribunal  was  right  in
\ndirecting  that overtime payment should be’ included in\t the
\ncalculation of the bonus which it has directed the appellant
\nto  pay.  Mr. Kolah contends that the direction\t to  include
\novertime wages is contrary to the usual practice followed by
\nindustrial  tribunals and it is also unsound  on  principle.
\nThis dispute arises between the employer and the workmen  in
\nthis  acute  form because the total amount of bonus  is\t not
\ndetermined   logically\tafter  ascertaining  the   available
\nsurplus.   If  the said amount is  logically  determined  as
\nindicated  by us, then the question as to  whether  overtime
\nwages should be included or not would really be a matter  of
\ndispute between workmen inter se because once the amount  of
\nbonus  is determined, how it should be\tdistributed  between
\nworkmen\t inter\tse  would cease to be  a  matter  of  direct
\nconcern\t to  the employer.  Therefore we  think\t that  there
\nwould be no occasion for such a dispute between the employer
\nand  his workmen if the tribunals follow the logical  method
\nof  determining the amount of bonus in the manner  indicated
\nby us.\n<\/p>\n
On principle we do not think it would be fair to the workmen
\nas  a whole that overtime should be included in\t calculating
\nthe bonus which each workman should receive.  Workmen who do
\novertime  get additional payment for such overwork.   If  in
\naddition  to  such payment they are allowed to\tinclude\t the
\nsaid  payment in their wages in calculating bonus  to  which
\nthey  are entitled, obviously the gap between  their  actual
\nwage  and  the living wage would be filled up  to  a  larger
\nextent than in the case of other workmen who do not  receive
\nsuch  additional overtime payment.  Besides, if the  payment
\nof bonus proceeds on the broad consideration that it is\t due
\nto  the\t workmen for their contribution to  the\t profits  it
\nwould be unreasonable to make
\n124<\/span>
\n976<\/span>
\na distinction between workmen and workmen on the ground that
\nsome  have contributed more to the profit than\tothers;\t and
\nthat  is exactly what would follow if overtime\tworkers\t are
\nallowed\t to claim a larger amount of bonus than their  other
\ncolleagues.  That is why we think that the tribunal was\t not
\njustified in directing that the calculations of bonus should
\nbe  made on the basis that overtime payments  constituted  a
\npart of the basic wages of the employees.\n<\/p>\n
The next point to consider relates to the return on  paid-up
\ncapital\t to which the appellant is entitled.   The  tribunal
\nhas  awarded  to the appellant return at the rate of  6%  on
\npaid-up\t capital  and  at 4% on the  working  capital.\t The
\nappellant  claims  a  return at a  higher  rate\t on  paid-up
\ncapital\t whereas  the respondents contend  that\t the  return
\nshould\tbe paid on the paid-up capital at a lower rate.\t  In
\nsupport\t of its claim for a higher return the appellant\t has
\nrelied\ton the fact that it has consistently paid  dividends
\nat  a reasonably low rate and it did not seek to make  undue
\nprofits\t even during the years of war.\tIn  this  connection
\nMr. Kolah has invited our attention to a statement, Ex.\t  C-
\n1, showing the percentage of dividend to paid-up capital and
\ninvested capital for the eighteen financial years 1936-37 to
\n1953-54\t and  he has asked us to contrast the low  rates  of
\ndividend  evidenced  by\t it with  dividends  paid  by  other
\ncompanies  as shown by another document Ex.  C-12.   He\t has
\nalso  asked  us\t to take into account the  highest  and\t the
\nlowest\tquotation  for the company’s shares  in\t the  Bombay
\nStock Exchange during the period 1949-55.  On the other hand
\nMr.  Dudhia  has  urged that during the\t relevant  year\t the
\nappellant  has capitalised Rs. 35.85 lakhs from the  reserve
\nfund  and  175.45 lakhs from Premium-on\t Shares\t Account  by
\nissuing\t one bonus share for every five shares held  by\t the
\nshareholders;  and he argues that the tribunal was in  error
\nin allowing 6% on the paidup capital during the bonus  year.
\nIncidentally  Mr. Dudhia also relied, though  halfheartedly,
\non  the finding of the tribunal that the appellant had\tpaid
\nan  inflated price for the pre-1939 block.  It is true\tthat
\nin one place the tribunal has made an observation to
\n977<\/span>
\nthis  effect ; but it is clear that the said observation  is
\ninconsistent  with its definite finding recorded earlier  in
\nthe course of its judgment that it was not prepared to\thold
\nthat  the A. C. C. had inflated the capital invested by\t the
\nmerging\t companies by taking them over in  1936.   Therefore
\nthis  part  of\tMr. Dudhia’s argument is  invalid..  In\t our
\nopinion, the question as to what return should be allowed to
\npaid-up\t capital  in’  a  given case  must  be\tleft  to  be
\ndetermined  by the tribunal in its discretion having  regard
\nto  all the relevant facts; and if the tribunal has  in\t its
\ndiscretion awarded 6% interest on the paid-up capital we see
\nno  reason to interfere with its decisions It is clear\tthat
\nno question of principle or law is involved in the matter.
\nThere  is  one more point which we must consider  before  we
\nproceed\t to deal with the facts in the present\tcase.\tThis
\npoint relates to the employer’s claim to treat the amount in
\nthe gratuity fund as a prior charge; and this claim has been
\nallowed\t by  the tribunal.  It appears that in\tM\/S.   Metro
\nMotors\tv. Their Workmen (1) the Labour\t Appellate  Tribunal
\nobserved  that\tit was desirable in all cases  to  create  a
\nseparate  reserve  fund for the payment of gratuity  and  it
\ndirected  that the modest fund claimed by the  employer\t for
\nthe  year  in  question\t was a\tproper\tdeduction  from\t its
\nprofits.   The question which we have to decide\t is  whether
\nthe  allowance on this account should be treated as a  prior
\ncharge in making the calculations under the formula.   There
\ncan  be\t no  doubt that, in a sense, the  gratuity  fund  is
\ncreated\t for the benefit of workmen and there should  be  no
\ndifficulty  in\trecognising the appellant’s  claim  for\t the
\ndeduction  of an appropriate amount on this account; but  we
\nthink  on principle it is desirable that no addition  should
\nbe  made  to  the list of prior charges\t recognised  by\t the
\nformula.   Even so when the available surplus is  determined
\nthe tribunal ought to take into account the employer’s claim
\non  account of the gratuity fund created for the benefit  of
\nhis workmen and the amount which the tribunal may regard  as
\na reasonable
\n(1)(1952) II L.L.J. 205.\n<\/p>\n
978<\/span><\/p>\n
allowance in that behalf should be definitely borne in\tmind
\nin  finally deciding the amount which should be paid to\t the
\nworkmen\t by  way  of  bonus.   This  method  will  meet\t the
\nemployer’s  claim adequately without making any addition  to
\nthe list of priorities specified in the formula.  Mr. Dudhia
\ncontended  that the tribunal should not have allowed Rs.  10
\nlakhs  under  this  item but we do not think  there  is\t any
\nsubstance in this contention.\n<\/p>\n
Incidentally Mr. Dudhia has pointed out that in dealing with
\nthe  appellant’s claim for a return on working\tcapital\t the
\ntribunal  has made a mistake by including a further  sum  of
\n0.66 lakhs as return on investments.  Mr. Kolah has conceded
\nthat  this  is a mistake and so the return  on\tthe  working
\ncapital would stand at 26.10 lakhs only.\n<\/p>\n
It  is\tnow  necessary\tto  consider  the  evidence  of\t Mr.
\nTongaonkar  and decide the most controversial point of\tfact
\nin  dispute  between  the  parties  about  the\t appellant’s
\nrequirements  for rehabilitation.  Mr. Tongaonkar holds\t the
\nDegree of Bachelor of Science of the London University,\t and
\nhe  is\talso  a\t Member of  the\t Institution  of  Electrical
\nEngineers,  London.   He joined the  appellant\tin  November
\n1934,  but before that he had nearly three years’  practical
\nexperience  in England in various engineering firms; and  on
\nhis  return  to India, he had joined the  Dinshaw  group  of
\ncement factories.  He continued to work with the said  group
\nuntil  its  merger with the appellant in 1936, when  he\t was
\nappointed by the appellant.  Mr. Tongaonkar is in charge  of
\nthe  department\t which deals with the  construction  of\t new
\ncement\t factories,  modernisation  and\t extension  of\t the
\nexisting cement factories, design and manufacture of  cement
\nmachinery  for A. C. C., and major engineering\tproblems  of
\nthe  A.C.C.  Since  April 1956 he  has\tbeen  appointed\t the
\nController  of Planning and Development of the A. C.  C.  He
\nvisits the A. C. C. factories very frequently and claims  to
\nbe acquainted with the condition of the plant and  machinery
\nat  all the A. C. C. factories.\t There is no doubt that\t Mr.
\nTongaonkar  is qualified to give evidence on  the  technical
\npoints which are relevant in
\n979<\/span>
\ndealing\t with the question of rehabilitation.  Even  so,  in
\nappreciating ‘his evidence, it would not be unreasonable  to
\nbear in mind the fact that he is an officer employed by\t the
\nappellant,  and\t as such he is likely to  be  interested  in
\nsupporting the claim for rehabilitation which the  appellant
\nhas decided to make.\n<\/p>\n
According to Mr. Tongaonkar, the average future life of\t the
\nplant and machinery existing in 1939 would’ be approximately
\nseven  years  from  1-8-1954.\tSimilarly,  the\t approximate
\nfuture life of the three other categories of blocks would be
\n13,  15\t and 20 years respectively.  He has stated  that  in
\ncalculating  the life of machinery, it is necessary to\ttake
\ninto  consideration, first the mechanical condition  of\t the
\nmachinery,  second  whether  it is  efficient  or  has\tbeen
\nrendered  obsolete  because new machinery of  modern  design
\nwith  a\t considerably better efficiency has  come  into\t the
\nmarket.\t  In  other words, the probable useful life  of\t the
\nmachinery may be prematurely determined by the emergence  of
\nmore  efficient machinery.  In support of this statement  he
\nhas  given  some instances where the  appellant’s  plant  or
\nmachinery had to be changed mainly for the reason that a new
\ncorresponding plant or machinery was more efficient and gave
\nmore satisfactory results.  However, stated generally,in the
\nopinion\t of the witness, the average life of a cement  plant
\ntaken  as a whole would be 25 years if it is properly  main-
\ntained.\n<\/p>\n
Mr.  Tongaonkar then gave evidence about the rise in  prices
\nof plant and machinery and he produced Ex.  C-36 which is  a
\nstatement  showing the progressive increase in\tprices\tfrom
\npre-war days up to 1955-56 of major items of machinery, gear
\nboxes, motors and power plant used in cement factories.\t  He
\nhas stated that the said statement had been prepared on\t the
\nbasis  of actual quotations which he had in his\t possession.
\nHis  evidence  shows that between 1951-54 there has  been  a
\nrise  of 11%, whereas between 1954-56 there has been a\trise
\nof 7% in the prices of the relevant items of machinery.\t  He
\nthen sought to corroborate his evidence on this point by the
\nexpenditure actually incurred by the appellant while putting
\ninto commission
\n980<\/span>
\na  new\tcement\tfactory\t at  Sindri  in\t about\t1955.\t The
\ncalculations  made by him in this behalf show that the\tcost
\nof construction of a new factory is approximately 4.3  times
\nthe cost of construction of similar factory in 1939.
\nIn  regard to the life of buildings, Mr.  Tongaonkar  stated
\nthat first-class buildings lived approximately for 40  years
\nprovided they are properly maintained and provided they\t are
\nnot in earthquake zone; but he added, that for the main unit
\nof  the\t cement\t plant\tit is usual  to\t take  the  life  of
\nbuildings  at 25 years.\t He also stated that in\t many  cases
\nthe  existing buildings have got to be either demolished  or
\nconsiderably modified when the main machinery whose life  is
\n25 years has to be replaced by modern machinery which is  of
\na  different  design and which would require  buildings\t and
\nfoundations  of\t different size and type.   Thus,  for\tthis
\nspecial\t circumstance also, he was not prepared to give\t the
\nbuildings  of the appellant an average life longer  than  25
\nyears.\n<\/p>\n
In  regard  to\tthe increase in\t the  cost  of\tconstructing
\nbuildings, he produced two statements, C-6 and C-14.  Ex. C-
\n6  shows the increase in prices of building materials  since
\n1938-1954,   whereas   Ex.   C-14  shows   the\t continually
\nincreasing  amount of expenditure incurred by the  appellant
\nfor construction of labour quarters, etc.
\nIt  is on this evidence that Mr. Tongaonkar has adopted\t the
\nrespective  multipliers\t and  divisors in  arriving  at\t the
\nfigure\tof  the amount required for rehabilitation.   As  we
\nhave  already  pointed out, for the pre-1939  block  he\t has
\ntaken  4.28  as\t the  multiplier,  whereas  for\t the   block
\npurchased   between  1940-44  he  has  taken  2.8   as\t the
\nmultiplier.  He has explained that the multiplier of 4.28 is
\nreally\tmade up of two multipliers.  Certain portion of\t the
\nplant  and  equipment  which  is  obtained  from  abroad  is
\nestimated  at 60% of the total cost and the  expenditure  on
\nthe  remaining items is estimated at 40% of the total  cost.
\nThe multipliers of these two groups are estimated at 4.8 and
\n3.5  respectively, and by calculations it has  been  noticed
\nthat the average ratio comes to 4.28. This is the
\n981<\/span>
\ngenesis of, and the justification for, the adoption of\t4.28
\nas the multiplier.  He has also added that the proportion of
\n60%  and  40%  which  he had  mentioned\t was  based  on\t his
\nexperience  of building a number of cement factories and  of
\ncarrying out extension and modernisation of existing  cement
\nfactories.   The multiplier was based, said the witness,  on
\nthe state, of comparative quotations of plant and  machinery
\nreceived   in  1939  and  quotations  received\tof   similar
\nmachinery recently.  It would thus be clear that in devising
\nthe  multiplier and divisor, Mr. Tongaonkar has\t drawn\tvery
\nlargely on his experience and has drawn inferences which  he
\nthought\t were  reasonable.  Besides in making  the  relevant
\ncalculations  he has not dealt with the plant and  machinery
\nand  the  buildings  and other assets  separately,  but\t has
\nlumped them together under the respective blocks.
\nThe  approximate  cost\tof the merging\tcompanies  of  their
\nassets as on July 31, 1936, was 5.73 crores of rupees.\t Ex.
\nC-3   which  is\t a  certificate\t issued\t by  the   Chartered
\nAccountants  shows  that  ” according  to  the\tblocks,\t the
\noriginal  cost\tof  the\t block\tof  fixed  assets  excluding
\ngoodwill  and purchase of rights and land as at\t 31st  July,
\n1954,  of  the\tappellant  under  the  groups  of  years  of
\nacquisition”, amounted to Rs. 19,41,38, 100.  Similarly, Ex.
\nC-28  which  is also a certificate issued by  the  Chartered
\nAccountants, shows that the original cost of such portion of
\nfixed  assets excluding goodwill and purchase of rights\t and
\nlands  as have been discarded, scrapped or sold as  on\tJuly
\n31,  1954,  of the appellant companies under the  groups  of
\nyears  of acquisition noted in the certificate, amounted  to
\nRs.  1,70,91,  296.  The  figures  supplied  by\t these\t two
\ncertificates are mentioned in cols. 2 and 3 respectively  in
\nEx.   C-2.  Under the method adopted by Mr.  Tongaonkar\t the
\ncost  of discards is shown in the respective years when\t the
\nportions of blocks were discarded; and the amounts spent  on
\nrehabilitation\tfrom year to year have gone with the  blocks
\nof the said respective years shown in col. 2. The amount  of
\nrehabilitation\thas thus been calculated by the adoption  of
\nthe multiplier and divisor selected by Mr. Tongaonkar.\t The
\nquestion
\n982<\/span>
\nwhich calls for our decision is whether the multipliers\t and
\ndivisors  adopted  by  Mr.  Tongaonkar can  be\tsaid  to  be
\nappropriate.   As  we  have already  mentioned,\t it  is\t the
\nmultipliers  and divisors that play a decisive part  in\t the
\ndetermination of the employer’s claim for rehabilitation  in
\nall bonus proceedings,
\nMr.  Tongaonkar’s evidence has been severely  criticised  by
\nthe respondents and in fact, the tribunal does not appear to
\nhave  been favourably impressed by it.\tBefore dealing\twith
\nthe  criticism\tmade  against  his  evidence,  it  would  be
\npertinent  to observe that the witness has given  exhaustive
\ndetails\t on the points put to him  in  examination-in-chief,
\nand  his  evidence, read as a whole, does make\tan  imposing
\nreading.   But\tsometimes  the wealth of  details  given  by
\nexperts\t is Apt to complicate the narrow points\t of  dispute
\nbetween\t the parties and to create doubt and confusion;\t the
\nlarge  number  of technical details expressed  in  technical
\nlanguage  may,\tin  some cases, tend to\t cloud\trather\tthan
\nclarify\t the points which the tribunal has to consider.\t  We
\nfeel  inclined\tto hold that is what has  happened  to\tsome
\nextent\tin  the\t present case.\tBut that  by  itself  cannot
\nobviously be said to introduce any infirmity in the evidence
\ngiven  by  the expert or affect its  credibility.   It\tonly
\nmeans  the tribunal has to analyse his\tstatements,  examine
\nthem  carefully\t in the light of his  cross-examination\t and
\ndecide how far it would be justified in acting on them.
\nIt  has\t been urged before us by the  respondents  that\t the
\nclaim made by Mr. Tongaonkar in regard to the rehabilitation
\nof the pre-1939 block should be rejected.  The contention is
\nthat,  this block must have been completely replaced  before
\n1953 and no claim for its rehabilitation can be entertained.
\nThis argument was based substantially on the assumption that
\na  part of Rs. 997.42 lakhs must have been utilised for\t the
\npurpose\t of  replacing the said block.\tMr.  Tongaonkar\t has
\nstated\tthat  prior to 1-8-1954 the total  amount  spent  on
\nmodernisation,\treplacement  and  rehabilitation  and  other
\nsundry jobs, but excluding’ expansion, was approximately Rs.
\n9.97″crores,  and in support of this ‘statement he  produced
\nEx.  C-29,
\n983<\/span>
\nwhich shows the said expenditure year by year.\tAccording to
\nthis  statement 78 lakhs had been spent on the\tconstruction
\nof  Rohri Works and Kistna Works, and Rs. 622-13  lakhs\t had
\nbeen  spent  on the expansion during  the  post-war  period.
\nThis  gives the figure of Rs. 700.13 lakhs.  Deducting\tthis
\namount from the total expenditure of Rs. 1697-55 lakhs,\t the
\nbalance\t of,  Rs. 997.42 lakhs is shown\t as  expenditure  on
\nmodernisation, rehabilitation, replacement and other  sundry
\ncapital jobs.  It is in respect of this amount of Rs. 997.42
\nlakhs  that Mr. Tongaonkar was severely cross-examined.\t  In
\ncross-examination he stated that he was not in a position to
\nsay whether out of the total expenditure of Rs. 997.42 lakhs
\nshown  in  Ex.\t C-29  a major portion\thad  been  spent  on
\nrehabilitation\tand  replacement of the pre-1939  block\t and
\n1940-44\t block.\t He admitted that the figures in  Ex.\tC-29
\nhad  been  prepared  by the  Accounts  Department  from\t the
\nFinancial Books so far as year to year total expenditure was
\nconcerned  and he also stated that it was not  possible\t for
\nhim  to\t give  details about the  said\texpenditure.   These
\nanswers\t indicated that the amount of Rs. 997.42  lakhs\t had
\nbeen  ascertained mechanically by deducting from  the  total
\nexpenditure of Rs. 1697.55 lakhs incurred on all jobs up  to
\n31-7-1954  the\testimated expenditure of  Rs.  700.13  lakhs
\nwhich  was treated as expenditure for expansion\t during\t the
\nsaid period.  It is on these statements that the respondents
\nplaced reliance in support of their argument that the amount
\nof  Rs. 997.42 lakhs must have been utilised for  completely
\nreplacing the pre- 1939 block.\tThus presented, the argument
\nno doubt appeared very plausible, and so we asked Mr.  Kolah
\nto  give  us a satisfactory explanation about the  items  of
\nthis  expenditure.   Accordingly  Mr.  Kolah  has  filed   a
\nstatement, Ex.\tI which gives a rough classification of\t the
\ntotal capital expenditure of about Rs. 997 lakhs incurred up
\nto  31-7-1954 on modernisation, replacement,  rehabilitation
\nand other sundry and miscellaneous jobs.  The several  items
\nof this expenditure are broadly indicated under eight heads,
\nthe last of which covering an
\n125<\/span>
\n984<\/span>
\namount\tof Rs. 160 lakhs has in its turn been split up\tinto
\nfive  separate items by the statement 1(a).  There was\tsome
\ndispute\t before\t us about the admissibility of some  of\t the
\nsaid items under cl. 5 of this document 1(a).  But Mr. Kolah
\ncontends, and it is not disputed by the respondents  either,
\nthat  even if the whole of the disputed item 5 is  excluded,
\nthe  remaining\titems on Ex. 1 give  a\tfairly\tsatisfactory
\nexplanation  about the work of\trehabilitation,\t replacement
\nand modernisation on which the bulk of Rs. 997.42 lakhs must
\nhave  been  spent.  In view of this statement we  must\thold
\nthat  the assumption made by the respondents that  the\tsaid
\namount\tof  Rs.\t 997.42 lakhs must have\t been  utilised\t for
\nreplacing the pre-1939 block is not well-founded.
\nIt  is\tthen contended that there is  no  justification\t for
\nkeeping\t the  pre-1939\tblock still alive  in  view  of\t the
\nestimate made by Mr. Tongaonkar about the life of the cement
\nplant  and  machinery.\tThe suggestion is  that\t the  oldest
\nblock  is  deliberately kept alive in order  to\t enable\t the
\nappellant  to claim a higher multiplier in  calculating\t the
\nrehabilitation\tamount.\t It cannot be said that there is  no
\nforce  at  all in this criticism.  In  fact  Mr.  Tongaonkar
\nhimself\t has  admitted that a given portion  of\t this  block
\ncould have been discarded earlier, but he added, that a part
\nof it had been rehabilitated as a temporary measure in order
\nto  carry  on. That is why that particular  portion  of\t the
\nblock  had not been discarded so far.  According to him\t the
\npre-1939  block\t contains  a portion whose  useful  life  is
\nalready over, but the appellant would have to carry on\twith
\nit  until  finances  could be  found  for  modernisation  or
\nreconstruction or entire replacement of the said block.\t  In
\nour  opinion, this explanation cannot be said to  be  wholly
\nsatisfactory.\tIf  the useful life of the whole  block\t had
\nreally\texpired,  the appellant would have easily  found  it
\npossible to replace the said block in due time having regard
\nto its general financial position.\n<\/p>\n
The next criticism made against Mr. Tongaonkar’s evidence is
\nthat  admittedly he has not calculated the average  life  of
\nthe said block.\t He stated that he had assessed the pre-1939
\nblock by his personal visits to
\n985<\/span>
\nthe  factory  by  observing  to\t what  extent  it  had\tbeen
\nrehabilitated as a temporary measure and by considering what
\nits  present  condition was.  It is possible that  with\t his
\nknowledge and experience Mr. Tongaonkar may be able to\tform
\na  proper assessment about the life of the machinery in\t the
\nmanner\tdeposed\t to by him.   But  unfortunately,  effective
\ncross-examination  on  this point has been stifled  to\tsome
\nextent\tbecause’  we  find  that  on  some  material  points
\nquestions  put to the witness were objected to by Mr.  Kolah
\nand  the objection was upheld by the tribunal.\tThe  witness
\nwas  asked whether he could tell the tribunal with his\twide
\nexperience,  how  many years on the average 1939  block\t had
\nspent prior to 1939.  This question was clearly relevant and
\nfrom  the respondents’ point of view it was  important.\t  If
\nthe  witness was able to predicate about the  future  useful
\nlife of the machinery from his examination of the plant,  it
\nwas  suggested to him that it should be possible for him  to
\ngive  an estimate about the life already spent by it by\t the
\nsame process.  The object of this question obviously was  to
\nshow  that the machinery in question had lived\tmuch  longer
\nthan its estimated life as deposed to by the witness.\tThis
\nquestion   having  been\t disallowed,  any   further   cross-
\nexamination  to test the claim of the witness that from\t the
\ninspection and examination of the machinery he can predicate
\nthe period of its future useful life became impossible.\t The
\nwitness\t was  further  asked to state whether  it  would  be
\ncorrect\t to  assume that the said pre-1939 block had  on  an
\naverage spent more than 15 years of its life.  This question
\nalso  was disallowed, and the respondents naturally  make  a
\nserious grievance that they were not given an opportunity to
\nshow  that Mr. Tongaonkar’s estimate about the life  of\t the
\nplant and machinery was a gross under statement.
\nThe  respondents  have\tthen objected to  the  inclusion  of
\nseveral\t items\tin the approximate  cost  of  rehabilitation
\nmentioned in col. 8 of Ex.  C-2.  The new additional packing
\nmachine\t in regard to the factory at Banmore as well as\t the
\ncrane storage are, it is urged, not items of rehabilitation,
\nbut of expansion.  Similar
\n986<\/span>
\ncriticism  is made in regard to the  dust-collector  plants,
\ncoal-handling plants, items in regard to the  fluidification
\nsystem, diesel engine shunting locomotive and similar  other
\nitems.\t The  respondents’ grievance is\t that  by  including
\nthese  items  which  are really matters\t of  expansion,\t the
\namount of approximate cost of rehabilitation has been unduly
\nincreased.   We\t are  unable  to say  if  the  grievance  is
\njustified.\n<\/p>\n
In  regard to the multiplier adopted by Mr. Tongaonkar,\t the
\ncriticism is that it is based on hypothetical considerations
\ndetermined  by\thim  in a subjective  manner.\tIt  is\talso
\npointed out that the failure of the witness to take out\t the
\npresent day replacement cost of individual items of the pre-
\n1939   block  has  introduced  an  additional\telement\t  of
\nuncertainty in the final calculations made by him in  regard
\nto the multiplier.  No doubt, the witness has stated that he
\nhas used the multiplier of 4.8 on a comparative study of the
\nquotations  received between 1939 and the present  day,\t but
\ndealing\t  with\tthe  machinery\tblockwise  is  not  a\tvery
\nsatisfactory  way  of  determining such\t a  multiplier.\t  In
\nsupport\t  of  this  argument,  reference  is  made  to\t the
\nstatements  made by the witness to the cost of 180-ton\tper-
\nday  kiln, if manufactured by the appellant, would be  lower
\nthan  that of a 300-ton-a-day kiln.  The witness then  added
\nthat  the  appellant does not  manufacture  a  180-ton-a-day
\nkiln,  and if such a kiln is imported from abroad  its\tcost
\nwould  be somewhat higher than that of a 300-ton-a-day\tkiln
\nmanufactured by the appellant under present day\t conditions.
\nHe  was then asked whether he had got a quotation of a\t180-
\nton-a-day  kiln, and he admitted that he had none, and\tthat
\nhe had estimated it approximately at Rs. 11 1\/2 lakhs.\t The
\nrespondents  urged that this estimate about the cost  of  an
\nimported  180-ton-a-day kiln is purely notional and  is\t not
\nbased on any material at all.  This part of the criticism is
\njustified.\n<\/p>\n
The  next argument urged against the statements prepared  by
\nMr. Tongaonkar is that he appears to have taken into account
\nthe prices prevailing in 1956 and has completely ignored the
\nprices\tas  they obtained in the previous  years.   We\thave
\nalready observed that
\n987<\/span>
\nin deciding the amount of rehabilitation by the adoption  of
\nan  appropriate\t multiplier, the tribunal should  take\tinto
\naccount\t all relevant facts and these would not be  confined
\nto  the price level prevailing in any one  particular  year.
\nWhen deciding the hypothetical question as to what would  be
\nthe price in future when the plant and machinery would\thave
\nto be replaced or rehabilitated, the tribunal has to take an
\noverall picture of prices into account, and the argument  is
\nthat  concentration  on the price level of  1956  alone\t has
\nintroduced  an\tinfirmity in the calculations  made  by\t the
\nwitness.\n<\/p>\n
There  is another infirmity in these calculations which\t has
\nbeen  criticised  by the respondents.\tMr.  Tongaonkar\t has
\nlumped together the plant and machinery as well as buildings
\nand other properties belonging to the appellant in col. 2 of
\nEx.   C-2.  The more scientific and satisfactory  method  of
\ndealing with the question of rehabilitation is to treat\t the
\nplant and machinery separately from the buildings and  other
\nassets that need rehabilitation.  In fact we asked Mr. Kolah
\nto  give  us a statement showing the cost of the  plant\t and
\nmachinery  and the buildings and other assets separately  in
\norder  to  enable  us to have a clearer\t picture  about\t the
\nextent of the rehabilitation needs of the appellant.  He has
\naccordingly filed a statement, Ex. F (a).\n<\/p>\n
There  is  yet\tanother\t point\ton  which  Mr.\tTongaonkar’s
\nevidence  has  been criticised by the  respondents.   It  is
\nargued\tthat this evidence shows that under his\t concept  of
\nmodernisation  several items of expansion can  be  included.
\nMr. Tongaonkar has stated that by ‘ modernisation’ he  meant
\n‘a  composite scheme comprising replacement of the  part  of
\nthe   old  machinery  by  new  machinery,  installation\t  of
\nadditional  machinery  because the layout of  the  composite
\nmodernisation  scheme is different from the previous  layout
\nand  rehabilitation  of the remaining machinery as  a  short
\nterm measure’.\tBy ‘ rehabilitation’ he ment ‘alterations to
\na  machine  or\tmachinery, installation\t for  improving\t its
\nmechanical  performance,  its  technical  efficiency  or  to
\nextend its life by a further span’.  This would also
\n988<\/span>
\ninclude\t what he compendiously describes as the\t removal  of
\nweak links.  According to him expansion can be divided\tinto
\ntwo groups, viz., Group No.-1 construction of the completely
\nnew factory solely for obtaining additional production;\t and
\nGroup  No.  2 would cover the specific\tadditional  machines
\nwhich are installed not for modernisation purposes as  such,
\nbut   with  the\t primary  object  of  obtaining\t  additional
\nproduction.   He concedes that in the ‘modernisation  of  an
\nexisting  factory’ expansion is only a part of\tthe  scheme.
\nThis means that in the\tmodernisation scheme’ there would be
\nan element of’ expansion’.  It would thus be clear that\t the
\nvery broad and wide description of  modernisation’ given  by
\nthe  witness would justifiably give rise to an\tapprehension
\nin  the minds of workmen that under the heading of  ‘modern-
\nisation’ items of  expansion ‘ pure and simple are likely to
\ncreep  in.   That is why evidence given by experts  in\tsuch
\nproceedings  needs to be scrutinised carefully, with a\tview
\nto exclude items of ‘expansion’ properly so called from\t the
\nrelevant calculations.\n<\/p>\n
Mr.  Tongaonkar has stated that when plant or  machinery  is
\nrehabilitated  or  replaced  it\t may  lead  to\tincrease  in
\nproduction.   But  such an in Crease is\t purely\t incidental.
\nBut  what would be the position where, for instance, a\t180-
\nton-a-day kiln is substituted by a 300-ton-a-day kiln by way
\nof rehabilitation or replacement ?  The employer is entitled
\nto say that the first category of kilns is not available  in
\nthe  market  or\t that the later category of  kilns  is\tmore
\nprofitable Ind economically more useful.  That being so,  if
\nthe  first  kiln  is discarded and  is\tsubstituted  by\t the
\nlatter, that is an item of rehabilitation or replacement and
\nnot of expansion.  On the other hand, by the substitution of
\nthe latter kiln there would be such an appreciable  increase
\nin  production that the workmen may be entitled\t to  contend
\nthat   some   apportionment   should   be   made   and\t the
\nrehabilitation\tpart  of the machinery should  be  separated
\nfrom   the   expansion\tpart  which  has  crept\t  into\t the
\ntransaction.  We confess that it would be- very difficult to
\nundertake the task of making any such apportionment.\n<\/p>\n
989<\/span><\/p>\n
Even  so, tribunals may have to consider the workmen’s\tplea
\nif  they are satisfied that the steps taken by the  employer
\nby  way of rehabilitation have led to a very large  increase
\nin  production.\t  In this connection  the  respondents\thave
\nrelied\ton  Ex.\t H. 0. C-2 which, according to\tthem,  shows
\nconsiderable increase in production, and that, it is  urged,
\nis the result of expansion and not of rehabilitation.
\nMr. Tongaonkar has suggested in his evidence that it is\t the
\nintention of the employer that decides the character of\t the
\ntransaction.  If the employer wants to instal new  machinery
\nsolely\twith the object of expanding his business,  that  is
\nexpansion;  but if he purchases new machinery  for  business
\nreasons\t and not for the purposes of expansion, it would  be
\nrehabilitation\t notwithstanding  the  fact  that  the\t new
\nmachinery   gives  rise\t to  increased\t production.\tThis
\napproach,  in  our opinion, gives undue\t importance  to\t the
\nintention  of  the employer and we think that, on  a  proper
\noccasion,  the\tquestion may have to be\t considered  by\t the
\napplication of some objective tests.  In this connection  it
\nwould  be relevant to bear in mind the fact that  the  steps
\ntaken  by  the appellant for  rehabilitating,  replacing  or
\nmodernising  its  machinery  are  a  part  of  its  plan  of
\nexpanding its business so as to meet the growing demand\t for
\ncement in our country.\n<\/p>\n
In  deciding  the  question  as\t to  whether  the  claim  as
\ndisclosed  by the statements prepared by Mr.  Tongaonkar  is
\ninflated  or not, the respondents have asked us to  consider
\nthe  estimate  made  by the  appellant’s  Chairman  in\tthat
\nbehalf.\t In his speech delivered on January 24, 1951, at the
\nFourteenth Annual General Meeting of the appellant  company,
\nthe Chairman stated that most of the company’s pre-war plant
\nwould  be due for replacement in the course of the next\t ten
\nyears  and  he\tadded that ” at the  present  price  levels,
\nreplacement will cost on an average 2 1\/2 times the original
\ncost.\tThis  will  involve an expenditure of  about  Rs.  8
\ncrores\tover  and  above  the  provision  already  made\t for
\ndepreciation  “. The contention is that, considered  in\t the
\nlight\tof   this   estimate,\tthe   pre,sent\t claim\t for
\nrehabilitation is very much inflated.\n<\/p>\n
990<\/span><\/p>\n
When Mr. Tongaonkar was asked about this estimate he  stated
\nthat  the Chairman had not consulted him while drafting\t the
\nannual report or while drafting the portion of the speech in
\nregard to ‘rehabilitation’ and he also added that he did not
\nagree  with the figures given by the Chairman regarding\t the
\nreplacement cost of plant and machinery in his report  dated
\nJanuary\t 24,  1951.   This  explanation\t may  not  be\tvery
\nsatisfactory.\tBut we cannot ignore the fact that when\t the
\nChairman made his statement he did not purport to  calculate
\nthe claim for rehabilitation in terms of the formula and  so
\nit would not be fair to test the evidence of the witness  in
\nthe  light  of\tthe estimate given by the  Chairman  in\t his
\nspeech.\n<\/p>\n
We have so far considered the broad arguments urged  against
\nMr. Tongaonkar’s evidence.  Unfortunately, the tribunal\t has
\ncontented  itself  merely  with\t the  observation  that\t the
\nmultiplier  of\t2.7 would be adequate; and it has  given  no
\nfinding as to the suitable divisor.  That is why we must now
\nproceed\t to  adopt  a suitable multiplier  and\tdivisor\t for
\ndeciding  the question of rehabilitation.  We  have  already
\nstated our conclusions in regard to some of the\t infirmities
\nin  the\t evidence  of  Mr.  Tongaonkar\tand  the  statements
\nprepared  by him.  He has lumped together all assets of\t the
\nappellant  that\t need  rehabilitation.\tHe  has\t taken\tinto
\naccount\t the  prices  prevailing only in 1956,\tand  in\t the
\nselection  of  an average multiplier he\t has  probably\tbeen
\nslightly generous to the appellant.  His estimate about\t the
\nlife  of the plant and machinery has not been allowed to  be
\nsufficiently  tested in crossexamination and, on the  whole,
\nit  appears  to\t err  a little too much on  the\t side  of  a
\nconservative  estimate ; and if that is so his\tdivisor\t may
\nneed  revision;\t it  is\t also probable\tthat  in  the  items
\nincluded by him under rehabilitation may have been  included
\nsome  which  are  more of the character\t of  expansion\tthan
\nrehabilitation,\t replacement or modernisation.\tBesides,  it
\nis  not\t unlikely  that the steps  taken  by  the  appellant
\nostensibly for rehabilitation, replacement and modernisation
\nof the machinery have appreciably increased its\t production,
\nand that may partly be due to the fact that the
\n991<\/span>
\ngeneral plan of expansion adopted by the appellant has\tbeen
\nin  operation  for some time past.  It is in  the  light  of
\nthese  facts that we have to examine the  appellant’s  claim
\nfor  rehabilitation.  In doing so, we have taken  Ex.\tC-2,
\nEx.   C-23 and Ex.  F (a) as a basis for  our  calculations.
\nIt  is\tsomewhat unfortunate that in making  its  claim\t for
\nrehabilitation\tMr.  Tongaonkar did  not  make\tcalculations
\nseparately  in\trespect of plant and machinery\tas  distinct
\nfrom  buildings, roads, bridges and railway sidings.  It  is
\ntrue  that at our instance a statement Ex.  F (a)  has\tbeen
\nfiled  before  us; but if such a statement  had\t been  filed
\nbefore the tribunal, the respondents would have had a better
\nopportunity of testing the accuracy of the calculations made
\nin it and the basis on which the respective multipliers\t and
\ndivisors  are  sought  to be deduced  from  it.\t  We  would,
\ntherefore, like to make it clear that the calculations which
\nwe   now  propose  to  make  in\t regard\t to  the   item\t  of
\nrehabilitation\tshould\tnot be ,taken to be binding  on\t the
\nparties\t in  subsequent\t years.\t If, in\t the  light  of\t our
\ndecision  on  the principal points raised before us  in\t the
\npresent appeals, the parties decide to settle their disputes
\nabout bonus for subsequent years there would be no  occasion
\nfor  the  tribunal  to deal with them on  the  merits.\t If,
\nhowever, these disputes have to be, settled by the tribunal,
\nit would be open to the parties to lead evidence in  support
\nof their respective contentions.  The tribunal also would be
\nat liberty to consider the matter afresh and come to its own
\nconclusion on the merits.\n<\/p>\n
Let  us now proceed to make the relevant calculations.\t The
\nfirst step to take is to correct the figures in Ex.  C-2  by
\nexcluding  the\tcost  of  buildings,  roads,  ,bridges\t and
\nrailway-sidings from the total cost mentioned in it  against
\nthe  several blocks.  This cost has been supplied to  us  by
\nthe  appellant in Ex.  F (a).  This is how  the\t corrections
\nwork out.  In our calculations all figures are expressed  in
\n‘lakhs’:\n<\/p>\n
126<\/span>
\n992<\/span><\/p>\n
\t\t  Chart I.\n<\/p><\/blockquote>\n
 Period\t      Original cost\tLess cost of\tBalance\n       of block\t       buildings etc.\n(1)\t\t    (2)\t     (3)\t\t(4)\nUp to 1939\t   486.89    132.98\t       353.91\n1940-44\t\t    59.91\t22.38\t\t   37.53\n1945-47\t\t   208.93\t68.15\t\t  140.78\n1948-54\t\t  1144.81      333.47\t\t  811.34\n<\/pre>\n
In Ex.\tF (a) the appellant has shown the respective average
\nratios in col. 5 in regard to items of property mentioned in
\ncol.  2. We think, in making our calculations, it  would  on
\nthe  whole be fair to adopt 3.5 as a suitable multiplier  up
\nto  1939, 2 from 1940.47 and 1 from 1948-54 (as in C-2)\t for
\nreplacement by part A.C.C. machinery.  We have not disturbed
\nthe  divisors taken by C-2 though we feel inclined  to\thold
\nthat Mr. Tongaonkar has underestimated the probable life  of
\nmachinery.    The   amount   of\t  yearly   requirement\t for
\nrehabilitation\tfor the total block minus  buildings,  etc.,
\nwould  then work out at Rs. 229.39. This does not take\tinto
\naccount\t the available reserves; that aspect  is  considered
\nlater on:\n<\/p>\n
\t       Chart II.\n<\/p>\n
Period Original
\ncost of\t Multiplier Total  Less Balance Life   Yearly
\n\t\t\t  break-\tof   require-\n<\/p>\n
\t\t\t down as machi-\t   ment\n\t\t       in Ex. C-2     nery\n\t\t\t\t    (in Yrs.)\n(1)\t  (2)\t (3)   (4)     (5)\t (6)\t (7)\t(8)\n\t(approx.)\n<\/pre>\n
UP to 1939 353.91 x3.5\t1238.68\t 65.921172.767\t 167.54
\n1940-44\t 37.53\t x2    75.06\t4.66\t 70.40135.41
\n1945-47\t 140.78\t x2    281.56  11.19   270.371518.02
\n1948-54\t 811.34\t x1   811.34   42.84\t 768.502038.42
\n\t\t\t\t\t   ……….\n<\/p>\n
\t\t\t\t Total\t       229.39\n\t\t\t\t\t   ..........\n<\/pre>\n
Then  we would deal with the buildings, roads,\tbridges\t and
\nrailway-sidings.,  These may be given an average life of  30
\nyears for all blocks in order to compensate for cases  where
\nthey  have  to be demolished on\t account  of  modernisation.
\nAccording  to the previous statements of the  appellant\t the
\nlife of factory buildings was about 35 years and residential
\n993<\/span>
\nareas 50 years.\t Even so we propose to take the average life
\nof  30 years in making our calculations in respect of  these
\nblocks.\t  The multipliers may be taken as 2.25 for  pre-1939
\nblocks,\t 1.5 for 1940-47 blocks, 1 for 1948-54 blocks.\t The
\nBombay block has been taken as in Ex.  C-2:\n<\/p>\n
\t  Chart III.\n<\/p>\n
Period\tCost   Multi- Total   Less Balancelife\tYearly
\n\tplier\t\t break down    require-\n<\/p>\n
\t\t\t  valued at 5%\t ment
\n\t\t\t    of cost
\n(1)\t   (2)\t    (3)\t   (4)\t   (5)\t  (6)\t(7)   (8)
\nUP to 1939  132.98  X 2.25   299.20  6.65  292.55 20   144.63
\n1940-44\t   22.38  x 1.5\t   33.57   1.12\t 32.45\t25    1.29
\n1945-47\t   68.15  x 1.5\t   102.22  3.40\t 98.82\t25    3.95
\n1948-54\t    333.47 x 1\t     333.47  16.67 316.80 30   10.56
\nBombay
\noffice\t   40.83\t    50.28     .73  49.55  69\t .71
\nblock
\n\t\t\t\t       ………….\n<\/p>\n
\t\t\t\t\tTotal  31.14
\n\t\t\t\t       ………….\n<\/p>\n
Thus the total yearly requirement for rehabilitation of this
\nblock would come to 31.14 lakhs.\n<\/p>\n
The   appellant’s  claim  for  rehabilitation  can  now\t  be
\ncalculated  on\tthe basis of Ex.  C-23 as corrected  in\t the
\nlight  of  the\tthree  charts  prepared\t by  us.   As,\t the
\ncalculations  in  the  chart show, we would  hold  that\t the
\nappellant  is entitled to an allowance of 216.10  lakhs\t for
\nrehabilitation in the relevant year:\n<\/p>\n
\t     Chart IV.\n<\/p>\n
Replacement of pre-1939 block:<\/p>\n
\nCost of machinery\n(Chart II)\t    1172.76\nDeduct reserves\t     311.00\nBalance\t\t     861.76  divided by 7:  123.11\nAdd for buildings\n(Chart III)\t\t\t\t\t14.63\n\t\t\t\t     ..............\nTotal\t\t\t\t\t       137.74\nReplacement cost of 1940-44  block\n<\/pre>\n
Including buildings etc. (5.41 plus 1.29) …\t 6.70
\n     do\t   for 1945-47\t(18.02 plus 3.95) …\t21.97
\n     do\t   for 1948-54 (38.42 plus 10.56) …\t48.98
\n     do\t      for Bombay Office\t\t  …\t  .71
\n\t\t\t\t  ……………..\n<\/p>\n
\t\t\t  total\t   …\t216.10
\n994<\/span>
\nHaving\tdecided\t that  the total  claim\t for  rehabilitation
\nadmissible to the appellant is 216.10 lakhs for the relevant
\nyear,  we  must\t now proceed to\t determine  whether  on\t the
\nworking of the formula any surplus profit is available.\t  We
\nhave  made  the following calculations in the light  of\t the
\nprinciples laid down by us in this judgment:\n<\/p>\n
\t\t       Chart V.<\/p>\n
\nTotal profit excluding Bhupendra\nfactory\t\t\t\t\t\t428.71\nLess notional normal depreciation\n(p. 428, Pt. 1)\t\t\t      100.22\nLess income-tax payable @\n7 as. in the Rupee as per\nNote A below\t\t\t      115.16\nLess 6% on paid-up capital\t       76.06\nLess 4% on working capital\t       26.10\n\t\t\t\t       .............\n\t\t       Total...317.54\t 317.54\n\t\t\t      Balance..\t 111.17\n<\/pre>\n
Less provision for rehabilitation..\t\t115.88**
\n\t\t\t\t       ………….\n<\/p>\n
\t\t\t\t Balance…4.71
\nThis is how we have calculated theincome-tax  payable\tfor
\nthe relevant year:\n<\/p>\n
\t\t   Note A.\n<\/p><\/blockquote>\n
Gross profits\t\t\t    428.71\nLess statutory\ndepreciation\t\t\t    165.49\n\t\t       ------------------\nBalance\t\t\t\t    263.22\nIncome-tax @ 7 as.\nin the Rupee\t\t\t    115.16\n<\/pre>\n
**Provision for rehabilitation (vide Chart V):\n<\/p><\/blockquote>\n
Total from Chart IV.\t\t    216.10\nLess notional normal\ndepreciation...\t\t\t    100.22\n\t\t\t----------------\nBalance...\t\t\t  **115.88\n\t\t       -----------------\n995<\/span>\n<\/pre>\n
We  ought to add that in our calculations we have not  taken
\ninto  account  the Bhupendra Factory  because  the  relevant
\nmaterial  for  working\tout the figures in  regard  to\tthis
\nfactory is not adequate or satisfactory.  However from\tsuch
\nmaterial as is available it appears that if the profits made
\nby  the\t said factory are included in the  calculations\t and
\nrehabilitation\trequired by it is worked out, it  would\t not
\nmaterially  affect  the’  figure  of  rehabilitation  amount
\ndetermined by us.\n<\/p><\/blockquote>\n
The result is that there is no available surplus from  which
\nthe  respondents can claim any bonus for the relevant  year.
\nIt  is\ttrue  that  the\t appellant  has\t already  paid\t the
\nrespondents 20.65 lakhs as bonus for the relevant year,\t and
\nit  is likely that it may continue to do so in future ;\t but
\nthat is a matter which is not governed by the formula.
\nIn  view of the fact that the working of the formula  leaves
\nno  available  surplus the appeal must be  allowed  and\t the
\naward  made by the tribunal set aside.\tSince the  appellant
\nhad  come to this Court for the decision of the\t larger\t and
\nmore  important question about the revision of the  formula,
\nwe would direct that there should be no order as to costs.
\nAppeal allowed.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India The Associated Cement Companies … vs Its Workmen & Another on 5 May, 1959 Equivalent citations: 1959 AIR 967, 1959 SCR Supl. (2) 925 Author: P Gajendragadkar Bench: Das, Sudhi Ranjan (Cj), Bhagwati, Natwarlal H., Das, S.K., Gajendragadkar, P.B., Wanchoo, K.N. PETITIONER: THE ASSOCIATED CEMENT COMPANIES LTD.,DWARKA CEMENT WORKS, DW Vs. […]<\/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-227935","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nThe Associated Cement Companies ... vs Its Workmen & Another on 5 May, 1959 - 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\/the-associated-cement-companies-vs-its-workmen-another-on-5-may-1959\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Associated Cement Companies ... vs Its Workmen & Another on 5 May, 1959 - 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