{"id":236644,"date":"1967-11-21T00:00:00","date_gmt":"1967-11-20T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/workmen-of-ms-hindustan-motors-vs-ms-hindustan-motorsltd-anr-on-21-november-1967"},"modified":"2017-02-10T03:45:52","modified_gmt":"2017-02-09T22:15:52","slug":"workmen-of-ms-hindustan-motors-vs-ms-hindustan-motorsltd-anr-on-21-november-1967","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/workmen-of-ms-hindustan-motors-vs-ms-hindustan-motorsltd-anr-on-21-november-1967","title":{"rendered":"Workmen Of M\/S. Hindustan Motors … vs M\/S. Hindustan Motors,Ltd.,& Anr on 21 November, 1967"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Workmen Of M\/S. Hindustan Motors … vs M\/S. Hindustan Motors,Ltd.,& Anr on 21 November, 1967<\/div>\n
Equivalent citations: 1968 AIR 963, \t\t 1968 SCR (2) 311<\/div>\n
Author: V Bhargava<\/div>\n
Bench: Bhargava, Vishishtha<\/div>\n
           PETITIONER:\nWORKMEN OF M\/S. HINDUSTAN MOTORS LTD.\n\n\tVs.\n\nRESPONDENT:\nM\/S. HINDUSTAN MOTORS,LTD.,& ANR.\n\nDATE OF JUDGMENT:\n21\/11\/1967\n\nBENCH:\nBHARGAVA, VISHISHTHA\nBENCH:\nBHARGAVA, VISHISHTHA\nHIDAYATULLAH, M.\nVAIDYIALINGAM, C.A.\n\nCITATION:\n 1968 AIR  963\t\t  1968 SCR  (2) 311\n CITATOR INFO :\n R\t    1971 SC2567\t (1,24,10)\n R\t    1972 SC 330\t (8)\n R\t    1972 SC1954\t (6,23)\n RF\t    1973 SC 353\t (31)\n R\t    1973 SC2394\t (18,10)\n\n\nACT:\nIndustrial Dispute-Bonus-Rehabilitation\t surplus,calculation\nof   Age   machinery-Multiplier-Deductions   to\t  be   made-\nDepreciation-Returns   on  working  capital  and   paid\t  up\ncapital-Extraneous   income-Interest on fixed  deposits-Home\ndelivery  commission paid by foreign collaborator.\n\n\n\nHEADNOTE:\nThe  workmen of the respondent company raised an  industrial\ndispute about bonus claimed by them for the  year   1960-61.\nThe   Industrial  Tribunal applying the Full  Bench  Formula\nheld  that  the sum needed for rehabilitation  of  machinery\nexceeded  the surplus otherwise available and  therefore  no\nbonus  was payable.  Against this decision of  the  Tribunal\nthe  workmen  appealed\tto this\t Court\tand  raised  various\nobjections  as to the manner in which the available  surplus\nwas calculated by the Tribunal.\nHELD: (i) On the facts and the evidence produced in the case\nthe  life  of the respondent company's machinery  should  be\ntaken  at an average of 15 years if the machinery is  worked\nin two shifts. and 10 years if it is worked in three shifts.\nThe  artificial\t rule laid down in the\tIncome-tax  Act\t for\ncalculation   of  notional  depreciation  can\tprovide\t  no\ncriterion at all for determining the life of the  machinery,\nand  the Tribunal committed an error in proceeding  on\tthat\nbasis. [319 H]\nThe  life  of machinery taken in other cases is also  not  a\ncorrect\t basis\tfor  fixing  the  life\tof  machinery  in  a\nparticular  case.  Various factory come in that\t affect\t the\nuseful life of a machinery.  Factors such as the quality  of\nthe  material  used in the machines, and the nature  of\t the\nmaterial  on  which  the  machines  are\t to  operate,\tvery\nmaterially  affect their life.Further the life of a  machine\nwill  also depend on the manner in which it is handled in  a\nparticular  factory.  Consequently the correct principle  is\nto  determine  the  life of machinery in each  case  on\t the\nevidence adduced by the parties. [319 E--F; 320 D]\nFurther what has to be determined is the useful life of\t the\nmachinery rather than its economic life.  In fact one of the\nvery major considerations which should be taken into account\nis  the\t actual\t practice of  the  manufacturers  using\t the\nmachinery and, if the evidence be available, to find out how\nlong  the manufacturers continue to use the machinery  as  a\nrule.  [324 D--H]\nThe  fact  that in the Full Bench  Formula   the   breakdown\nvalue  of machinery is taken at 5% is certainly an aspect to\nbe  taken  into account. but it cannot be  accepted  that  a\nmachinery  should  be deemed to have  useful life  until  it\nreaches the stage of having a breakdown value of 5% No\tsuch\nabsolute rule can be inferred. [328 A]\nThe Tribunal was wrong in not taking into account  machinery\ninstalled during the bonus year itself for making  provision\nfor  rehabilitation.If\tany machinery is installed  in.\t the\nbonus year, the company would be\n312\njustified in claiming that it must immediately Start  making\nprovision   for\t its rehabilitation, though the\t period\t for\nrehabilitation of that machinery would only start at the end\nof the bonus year. [330 A--C]\t\t  '\n    (ii)  The  multipliers  given  by  the  company  in\t the\nschedule originally submitted by the company which were\t not\nobjected  to  by  the workers were  the\t correct  basis\t for\nCalculation  of\t the rehabilitation cost  and  the  Tribunal\nshould\t not  have  departed  from  them.   There   was\t  no\njustification  for  taking  an average\tof  the\t multipliers\nsubmitted  at  first  and those submitted  thereafter  in  a\nsecond\tschedule.   The Tribunal also was not  justified  in\nreducing the multipliers on the ground that the new machines\nwhich would be purchased to replace the original ones  would\nnecessarily  have more' productive capacity.  There  was  no\nmaterial  at all from which the Tribunal  could\t justifiably\nhave  inferred that the increase in production would be\t so.\nmaterial as to, attract the principle of  apportionment laid\ndown  by  this Court in the case of  the  Associated  Cement\nCompanies Ltd. 1331 A--F; 332\n    (iii) In calculating the rehabilitation requirement\t for\nthe machinery the depreciation provision made in  accordance\nwith  the  principles  of commercial accounting\t has  to  be\ndeducted from the amount that would be required to  purchase\nthe  new  machinery for replacement.   The  contention\tthat\ndeduction  should  be  made only  of  depreciation  reserves\navailable  to  the  employer cannot be\taccepted.   SUch  an\ninterpretation militates against the very purpose for  which\nrehabilitation\tprovision is allowed, namely, to enable\t the\nindustry  to  cover  the difference between  the  amount  of\ndepreciation which is recouped by making provision for it in\naccoromance  with the, principles of  commercial  accounting\nand  the amount that would be required to purchase  the\t new\nmachinery  for replacement. Therefore, in the present  case,\nthe  Tribunal  erred when in calculating the  provision\t for\nrehabilitation\tit took the entire price of the\t replacement\nmachinery  as  required\t to be\tprovided,  entirely  out  of\nprofits\t without  reducing the price to the  extent  of\t the\ndepreciation  provided\tfor in\tthe  accounts.\t[333  E--334\nB--F]\n    (iv) The claim of the workmen that the sum shown in\t the\nbalance-sheet  of the company as development rebate  reserve\nshould\tbe  deducted  from the\tavailable  surplus  must  be\nallowed.   The\tmere  statement of the\tGeneral\t Manager  on\naffidavit to. the effect that the reserves had been utilised\nas  part  of the working capital could not  be\taceepted  as\nevidence of the fact.  When the balance-sheet itself  showed\nthat  cash  amounts  in\t the form  of  fixed  deposits\twere\navailable which were far in excess of the development rebate\nreserve\t in question, there would be no.  justification\t for\nholding\t that  this  development.  rebate  reserve  was\t not\navailable  as  a liquid asset and had been included  by\t the\ncompany\t in  the working capital.  This\t development  rebate\nreserve\t was a liquid asset  available\t for  rehabilitation\nand consequently liable to be deducted when calculating\t the\nrehabilitation requirement. [335 A--G]\n    (v)\t If some. machines have fully run out  their  lives,\nthey must necessarily be replaced out of resources available\nimmediately and there would be no justification for  keeping\nthe available resources in reserve for future rehabilitation\nwhile  not  providing out of those available  resources\t for\nimmediate.  replacement\t of machinery.\tThere  is  also\t the\naspect\tthat  an employer in order to claim more  and,\tmore\nrehabilitation\tprovision will have a tendency to  keep\t old\nblocks of machinery running and to avoid adoption of such  a\ndevice\tit  would  be fair that he is  required\t to  utilise\navailable  resources at the very first opportunity when\t the\nold blocks of machinery require replacement and claim annual\nprovision   for\t  future only in respect of  that  machinery\nwhich will require replacement later\n313\non.Consequently,  in  the  present  case  the\tdepreciation\nprovision and the available development rebate reserve\tmust\nbe taken into account when calculating the annual  provision\nfor rehabilitation required for replacement of the  earliest\ninstalled machinery until it was exhausted, whereafter\t'the\nannual\trequirement  for the remaining blocks  of  machinery\nwould  have  to\t be  calculated,  ignoring  these  available\nresources. [336 G--H; 337 C--D]\n   (vi)\t For the purpose of working 'out return\t on  working\ncapital in the year of bonus the origin of the fund used  as\nworking capital is immaterial and it cannot be said that the\nreturn\tmust  be allowed only on reserves  used\t as  working\ncapital and not on any other funds used as such. However the\nfund must be available for investment before a claim can  be\nmade by the employer for a return on it. [340 E--F]\n    But,  the  mere existence of reserves and funds  at\t the\nbeginning  of  the  year, even\ttaken  together\t with  their\nexistence  at  the  end\t of the\t year  cannot  lead  to\t any\ninference  that\t these reserves and funds must\thave  formed\npart  of the working capital during the year and  could\t not\nform part of other items such as fixed deposits, investments\netc.  The affidavit filed by the company in this  connection\ndid not exclude the possibility that they were utilised\t for\npurposes other than that of working capital. in the balance-\nsheet the amounts which\t represented  fixed  assets,   fixed\ndeposits,  investments and other loans and.  advances  could\nnot be classified as part of the working capital.  The items\nrepresenting working capital were current assets,  stock-in-\ntrade,\t sundry\t debts,\t bank  and  cash. balances,  certain\nloans and advances and insurance and other claims. The items\nrepresenting working capital had a total value of Rs. 498.02\nlacs.  Deducting  from\tthis  the sum  of  Rs.\t377.34\tlacs\navailable  from subscribed capital or other  sources.  there\nremained  a  balance  of Rs. 120.68  lacs  which  must\thave\nnecessarily  come out of the various reserves including\t the\ndepreciation,  and  this  amount at least must\tbe  held  to\nrepresent resources actually used as working capital  during\nthe year by the company. On this amount it would be fair  to\nallow a 4% return to the company.\n[344 F--H; 347 D--E]\n    (vii) The company's claim that half the amount from\t the\nfollowing sources, namely, (1) the profit in the profit\t and\nloss  account  worked  out  at the  end\t of  the  year,\t (2)\ndepreciation  reserve for the year, (3)\t development  rebate\nfor  the year, (4) value of discarded fixed. assets  written\noff should be treated as 'a fund which was available  during\nthe  bonus  year for being available for being\tutilised  as\nworking capital, could not  be accepted.  There was  nothing\nto show whether any of these amounts became available to the\ncompany during the year and if so when they came  available.\n[347 F]\n    (viii)  In\tallowing  6% return on\tpaid-up\t capital  in\naccordance  with  the Full Bench Formula no  question  could\narise  of  deducting  the  amounts  invested  in  subsidiary\ncompanies   from  the  paid-up\tcapital\t because  the\tsaid\ninvestment    had not been held to have come out of  paid-up\ncapital [348 [348 F]\n     (ix)  The income of the company from interest on  fixed\ndeposits  was  its extraneous income which  accrued  to\t the\ncompany\t without  any  contribution by\tthe  workmen.\tthis\nincome\thad  therefore\tto be excluded\tin  calculating\t the\navailable  surplus.  At the same time the company could\t not\non equitable grounds be permitted to claim the interest paid\nby it on its borrowings as business expenditure.   Therefore\nthe  interest  on  fixed  deposits  was\t to  be\t treated  as\nextraneous income  only after deducting from it the interest\npaid on the borrowings. [349 D--F]\n314\n     (x)  The  income  received\t by  the  company  from\t its\nforeign\t  collaborators as commission on sales\teffected  by\nthe  said  collaborators  of their own\tcars  in  India\t was\nextraneous  income  to which the company's wOrkmen  made  no\ncontribution.  It was not therefore to be taken into account\nin calculating the available surplus. [349 C]\n     (xi)  Calculated  in  the above  manner  the  available\nsurplus\t came 10 Rs. 30.56 lacs.  The Tribunal was not right\nin  its decision that the company was not in a\tposition  to\npay bonus at all.  However, though the company had earned  a\nlarge amount of profit in the year of bonus it had for quite\na  large  number  of  years been running  at  a\t loss.\t The\navailable  surplus being only Rs. 30.56 lacs, the  workmen's\ndemand of bonus equivalent to six months' wages amounting to\nRs.  24\t lacs was too high. It would be just and  proper  to\nallow bonus at 20% of their annual wages which would come to\nRs. 8.60 lacs. [352 A--E]\n     Associated\t Cement Companies Ltd. Dwarka Cement  Works,\nDwarka\tv.  Its Workmen & Anr.<\/a> [1959] S.C.R.  925,  Saxby  &\nFarmer\tMazdoor\t Union,\t Calcutta v.  M\/s.  Saxby  &  Farmer\n(India) Ltd. [1955] L.A.C. 707, Workmen M\/s. Saxby &  Farmer\n(India)\t Pvt.. Ltd. v. M\/s. Saxby & Farmer  (India)  Private\nLtd. C.A. 152\/64 dr. 12-4-1965, The Millowners' Association,\nBombay\tv. The Rashuriya Mill Mazdoor Sangh, Bombay,  [1950]\nL.L.J. 1247. The Honorary Secretary South India\t Millowners'\nAssociation  &\tOrs. v. The Secretary,\tCoimbatore  District\nTextile\t  Workers'   Union.<\/a> [1962]  2  Supp.   S.C.R.\t926,\nNational Engineering Industries Ltd.  v. The Workmen &\tVice\nVersa,<\/a>\t [1968]\t 1  S.C.R.  M\/s.  Titaghar Paper  Mills\t Co.\nLtd. v. Its Workmen,<\/a> [1959] Supp. 2 S.C.R. 1012, Millowners,\nAssociation,  Bombay v.\t The Rashtriya Mill  Mazdoor  Sangh,\n[1952] 1 L.L.J. 518,\n    Tata Oil Mills Co. Ltd. v. It's Workmen & Ors.<\/a> [1960]  1\nS.C.R.\t1, Anil Starch Products Ltd. v.\t Ahmedabad  Chemical\nWorkers' Union & Ors., A.I.R.<\/a> 1960 S.C. 1346, Khandesh Spg &\nWvg.  Mills Co.\t Ltd. v. The Rashtriya Girni Karogat  Sangh,\nJalgaon,<\/a>   [1960]  2  S.C.R.  841,  Bengal Kagazkal  Mazdoor\nUnion  & Ors. v. Titagarh Paper Mills Company, Ltd.,<\/a>  [1963]\nII  L.L.J. 358 and Voltas Limited v. Its Workmen,<\/a>  [1961]  3\nS.C.R. 167, considered.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 635 of 1965.
\n    Appeal by special leave from the Award dated January  8.
\n1963  of the First Industrial Tribunal, West Bengal in\tCase
\nNo. VIH-354 of 1961.\n<\/p>\n
    B. Sen, Janardan Sharma, P.K. Ghosh and S.K. Nandy,\t for
\nthe appellants.\n<\/p>\n
    Niren   De,\t  Solicitor-General,   M.   Mukherjee\t and
\nSardar Bahadur. for respondent No. 1.\n<\/p>\n
    The JUdgment of the Court was delivered by
\n    Bhargava,  J.   This appeal by special  leave  has\tbeen
\nfiled  by’  the\t workmen of  Messrs  Hindustan\tMotors\tLtd.
\nagainst the decision of the First Industrial Tribunal,\tWest
\nBengal\tin  a dispute relating to payment of bonus  for\t the
\nyear  1960-61.\tThe respondent, M\/s Hindustan  Motors  Ltd.,
\n(hereinafter referred to as
\n315<\/span>
\n“the  Company”)\t was  established  in  the  year  1942\tand,
\ninitially,  the\t work taken up by the Company  was  that  of
\nassembling  of\tmotor  cars from  components  imported\tfrom
\nforeign\t countries. Later on, manufacture of  components  of
\nmotor  cars was started and gradually the Company  developed
\nthis  work  of manufacture of components by  increasing\t the
\nnumber\tof  components\tmanufactured by\t it  until,  at\t the
\npresent time, the Company is manufacturing more than 70%  of
\nthe components utilised in the cars put on the market by the
\nCompany.  The work of manufacturing components was taken  in
\nhand  for the first time in the year 1949, according to\t the
\nreply  of  the Company filed on 10th January, 1962,  to\t the
\nstatement  filed  on  behalf  of  the  workmen.\t before\t the
\nTribunal.   At\tthe  initial stages of\tits  existence,\t the
\nCompany was running at a loss and even, as late as the\tyear
\n1956.  the  Tariff  Commission’s Report\t on  the  Automobile
\nIndustry  mentioned that this Company was making a  loss  of
\nRs.  833 per car on the Hindustan Landmaster which  was\t the
\ncar  put  on the market by the Company at that\ttime.\tEven
\nSubsequently, for several years. no profit was shown in\t the
\nprofit and loss account and, consequently, no bonus was paid
\nto the workmen until the dispute about it was raised for the
\nfirst time in respect of the year 1959-60.  We were informed
\nthat  the dispute relating to the payment of bonus  for\t the
\nyear  l\t 959-60\t is  still  pending  before  the  Industrial
\nTribunal,  while the dispute with respect to bonus  for\t the
\nnext  year 1960-61 has been decided and is now before us  in
\nthis  appeal.\tIn this year 1960-61, the  profit  and\tloss
\naccount\t of  the Company showed a net profit of\t Rs.  249.71
\nlacs.\tOut of this, a sum of Rs. 59.53 lacs  was  allocated
\nfor  payment of dividend on ordinary shares @ 12% and a\t sum
\nof Rs. 27.55 lacs for dividend on preference shares  @8.57%.
\nThe total amount allocated for payment of dividends was thus
\nRs. 87.08 lacs.\t In view of the fact that, in this year, the
\nCompany\t had earned a net profit of over Rs. 249  lacs.\t the
\nworkmen demanded bonus equivalent to six months’ wages.\t The
\nmonthly\t wage  bill of the workmen is about Rs. 4  lacs,  so
\nthat  the total amount claimed towards bonus by the  workmen
\ncame  to Rs. 24 lacs.  It was also stated on behalf  of\t the
\nworkmen that, if this bonus to the extent of Rs. 24 lacs  is
\nawarded,  the actual amount which the Company would have  to
\npay   will  only  be  55%  of  this  amount,   because\t 45%
\nrepresenting  income-tax on this amount would be  refundable
\nto the Company from the Government.\n<\/p>\n
    Before  the Tribunal, there was no dispute\tbetween\t the
\nparties\t that, in order to find out whether any surplus\t was
\navailable  for distribution of bonus, calculations  must  be
\nmade on the basis of the Full Bench Formula approved by this
\nCourt in The Associated Cement Companies Ltd., Dwarka Cement
\nWorks, Dwarka v. Its
\n316<\/span>
\nWorkmen & Another(1).  The Tribunal, after making all  other
\ndeductions  from  the  surplus\twhich have  to\tbe  made  in
\naccordance  with the Full Bench Formula and  without  taking
\ninto  account  provision for rehabilitation,  arrived  at  a
\nfigure of Rs. 87.80 lacs as the amount of surplus available.
\nThereafter, the Tribunal held that a sum of Rs. 373.62\tlacs
\nevery year was needed for rehabilitation purposes and, since
\nthis  amount  very  much  exceeded  the\t surplus   otherwise
\navailable,  there  was no scope for granting, any  bonus  at
\nall.   Consequently,  the  Tribunal  decided  the  reference
\nagainst\t the workmen and held that no bonus was payable\t for
\nthis  year.  The workmen have come up to this Court  against
\nthis decision of the Tribunal.\n<\/p>\n
    In\tthis  appeal  also, there is  no  dispute  that\t the
\nprinciples  to\tbe  applied  for  working  out\tthe  surplus
\navailable  for distribution of bonus must be those  approved
\nby  this  Court in the case of Associated  Cement  Companies
\nLtd.(1).   On behalf of the workmen, however, it  was  urged
\nthat  the  Tribunal   committed an  error  in  applying\t the
\nFormula\t in respect of five different items involved in\t the
\ncalculation. These are:\n<\/p>\n
(1) Rehabilitation,
\n(2) Return on reserves used as working capital,
\n(3) Return on paid-up capital,
\n(4) Interest on fixed deposits, and
\n(5) Home delivery commission.\n<\/p>\n
Of these items, the most controversial is the first item  of
\nrehabilitation\tand  that  is also the\tmost  material\tone,
\nbecause,  if the figure of annual rehabilitation arrived  at
\nby the Tribunal is accepted, it is clear that no surplus can
\npossibly  remain out of the profits earned during  the\tyear
\nfor   distribution   of\t bonus.\t  In  the   calculation\t  of
\nrehabilitation, various factors are involved which have been
\nindicated  by  this Court in the case of  Associated  Cement
\nCompanies(1).  The factors in calculation of  rehabilitation
\naccepted  by the Tribunal which have been challenged by\t the
\nworkmen are:\n<\/p>\n
\t\t  (i)  the divisor, which depends  upon\t the
\n\t      life  of the plant, machinery  and  buildings,
\n\t      the  year of their installation  or  erection,
\n\t      and  the\tresiduary life which must  be  taken
\n\t      into account when working out the divisor,\n<\/p><\/blockquote>\n
\t\t  (ii) the calculation of the multiplier for
\n\t      arriving\tat the replacement cost of  the\t old
\n\t      machinery which requires rehabilitation. and
\n(1) [1959] S.C.R. 925.\n<\/p><\/blockquote>\n
317<\/span><\/p>\n
WORKMEN V. HINDUSTAN MOTORS LTD. (Bhargava,<\/a> 1.)\t  317\n<\/p>\n
\t      (iii) the deductions which should be made when
\n\t      working out the annual rehabilitation.\n<\/p>\n
We shall now proceed to deal with these points.
\n    When  the dispute was taken up for adjudication  by\t the
\nTribunal, the Company, on 3 l st May, 1962 filed  statements
\nshowing\t calculations of rehabilitation\t provision  required
\nfor  rehabilitating  the  plant,  machinery  and  buildings.
\nAmongst\t these\tstatements  was\t a  statement  described  as
\nSchedule IA (hereinafter referred to as “the first  Schedule
\nIA”)  and in that statement it was claimed on behalf of\t the
\nCompany\t that the average total life of its machinery was  6
\nyears.\tOn behalf of the workmen, it was urged that the life
\nof the machinery should be taken to be 30 years and on\tthis
\nbasis,\t,after\tthe arguments were  over  a   rehabilitation
\ncost   calculation  was\t filed\ton  21st   November,   1962.
\nThereafter,  in\t the course of arguments on  22nd  November,
\n1962,  some  fresh  statements were filed  by  the  Company.
\nThese  statements  in respect of the machinery had  two\t new
\nSchedules,  both  marked as Schedule IA.  In  one  of  these
\nSchedules  IA filed on 22nd November. 1962,  the  multiplier
\ntaken  for replacement of the machines installed in  various
\nyears  was higher than the multiplier in the first  Schedule
\n1A.   This  Schedule shall be referred to.  as\t“the  second
\nSchedule  1A”.\t At  the same time,  as\t mentioned  earlier,
\nanother Schedule IA was filed and, in this Schedule IA,\t the
\nmultipliers were the same as in the first Schedule 1A.\tThis
\nshall be referred to hereinafter as “the third Schedule 1A”.
\nIn  none of these Schedules filed, either on behalf  of\t the
\nCompany\t or  on\t behalf\t of  the  workmen,  was\t there\t any
\nclassification of plant and machinery into precision or non-
\nprecision  machinery.\tSome statements for the\t purpose  of
\ncalculation of rehabilitation were again filed on behalf  of
\nthe  Company on 28th December, 1962 under the directions  of
\nthe  Tribunal and it appears that, taking into\taccount\t the
\nevidence  which\t had  been  led\t before\t the  Tribunal,\t the
\nTribunal  at this stage asked the Company to  give  separate
\nCharts for precision machinery and non-precision  machinery.
\nConsequently,  the statements flied on 28th  December.\t1962
\nclassified  the machinery into precision  and  non-preCision
\nmachinery.It  seems  that  the\tTribunal,  in  making\tthis
\ndirection  was\talso influenced by  the\t circumstance  that,
\nunder  the  Income-tax\tLaw,  the  depreciation\t allowed  in
\nrespect\t  of  precision\t and  non-precision   machinery\t  is
\ndifferent, from which the Tribunal. inferred that  precision
\nmachinery  will\t have  a  shorter  life\t than  non-precision
\nmachinery.In  fact,  the Tribunal was of the view  that\t the
\nproportion  between the life of precision and  non-precision
\nmachinery  can\tbe  safely  taken to  be  the  same  as\t the
\nproportion  between the depreciation allowed in\t respect  of
\nthe  two.Proceeding  on\t this basis, the  Tribunal,  in\t the
\nstatements prepared for and annexed as. part of the
\nLISup.C.I.\/68–6
\n318<\/span>
\nAward,\tclassified  the machinery into\tprecision  and\tnon-
\nprecision  machinery and worked out different life  for\t the
\ntwo  kinds of machinery.  In the course of arguments  before
\nus,  it was urged on behalf of the workmen that the  Company
\nnot  having claimed that machinery classified  as  precision
\nhad  a\tshorter\t life  than  machinery\tclassified  as\tnon-
\nprecision  either in the written statements or at the  stage
\nof filing the first Schedule 1A or even the second or  third
\nSchedule IA, there was no justification for the Tribunal to.
\naccept\tthis.  classification  and   work   out\t   different
\nperiods\t of life for different classes. of  machinery.\t Mr.
\nNiren  De, counsel appearing on behalf o.f the\tCompany,  in
\nhis  argument before us also urged that the Company  at\t no.
\nstage  put  forward the Case that the  machinery  should  be
\nclassified  into precision and non-precision  machinery\t and
\ndifferent  life should be attributed to the two\t classes  of
\nmachinery.  According to him, the Company’s. case throughout
\nhas been that all machinery installed m the. factory of\t the
\nCompany\t has an economic life of 6 years only, so  that\t the
\nCompany is not prepared to justify the decision given by the
\nTribunal  on the basis of this classification.\t Since\tboth
\nparties\t  before   us  challenge  the\tadoption   of\tthis
\nclassification by the Tribunal, we consider that it will  be
\nright  to ignore this. classification and to proceed on\t the
\nbasis  that the total life of the machinery must  be  worked
\nout  on\t an average for all the machines  installed  in\t the
\nfactory\t of  the  Company, without  making  any\t distinction
\nbetween precision machinery and non-precision machinery.
\n    As\twe have mentioned earlier, the contention on  behalf
\nof  the\t workmen was that the life of  the  whole  machinery
\nshould\tbe  taken  to  be 30 years.   Mr.  B.  Sen,  counsel
\nappearing on behalf of the workmen, drew our attention to  a
\nnumber of cases, in which the life of the machinery came  up
\nfor   consideration  either  before  the  Labour   Appellate
\nTribunal or before this Court in connection with calculation
\nof rehabilitation provision.  The. first case brought to our
\nnotice\twas Saxby & Farmer Mazdoor Union, Calcutta  v.\tM\/s.
\nSaxby  &  Farmer (India) Ltd., Calcutta<\/a>(1),  in\t which,\t for
\npurposes.  of  calculation of rehabilitation,  the  life  of
\nmachinery  was taken to be 30 years.  Another  case  between
\nthe   Workmen  of M\/s. Saxby & Farmer (India) Pvt.  Ltd.  v.
\nM\/s. Saxby & Farmer (India) Private Ltd.(2) in respect of  a
\nsubsequent  year came up before this Court.  In\t that  case,
\nthe Tribunal, in its Award, fixed the life of the  machinery
\nat 20 years and on behalf of the, workmen it was urged\tthat
\nit  should  have been 30 years as accepted  by\tthe  Labour.
\nAppellate  Tribunal  in respect of the earlier year  in\t the
\nof   Saxby & Farmer Mazdoor Union, Calcutta(1).\t This  Court
\nheld  that  the life of 30 years. had been taken at  a\ttime
\nwhen
\n(1) [1959] L.A.C. 707.\n<\/p>\n
(2) Civil Appeal No. 152 of 1964 decided on 12-4-1965.\n<\/p>\n
319<\/span><\/p>\n
the  machinery was. being worked in two, shifts,  while,  in
\nthe  subsequent\t case, it was shown that the  machinery\t was
\nworking\t in three shifts, so that it could not be said\tthat
\nthe Tribunal was wrong in fixing the life in this subsequent
\ncase  at  20 years.  Relying on these cases, Mr.  Sen  urged
\nthat,  in the present case also, we should take the life  of
\nthe   machinery\t  to  be  30  years.   In   The\t  Millowners
\nAssociation,   Bombay\tv.   The  Rashtriya   Mill   Mazdoor
\nSangh,Bombay(1),  the  Full Bench of  the  Labour  Appellate
\nTribunal,  when\t laying\t down the  formula  that  was  later
\napproved  by this Court, appears to. have accepted the\tlife
\nof  textile machinery as 25 years, while this Court, in\t the
\ncase of the Associated Cement Companies Ltd. (2),  proceeded
\non  the basis that the life of the machinery was  30  years.
\nIn   the   Honorary  Secretary,\t  South\t  India\t  Millowners
\nAssociation and Others v. The Secretary, Coimbatore District
\nTextile Workers’ Union<\/a>(1), this Court confirmed the  finding
\nof  the\t Tribunal  that the estimated life  of\tthe  textile
\nmachinery  of the Company concerned in that case  should  be
\ntaken.\tto  be\t25  years.  It is  on  the  basis  of  these
\ndecisions  that the claim was put forward that the  life  of
\nthe  machinery in the present case should also. be taken  to
\nbe  30\tyears  or at least 25 years.   In  our\topinion.this
\nargument proceeds on an entirely incorrect basis.  The\tlife
\nof   a\tmachinery  of  one  particular\tfactory\t  need\t not
\nnecessarily be the same as that of another factory.  Various
\nfactors come in that affect the useful life of a  machinery.
\nThere  is,  first,  the\t consideration\tof  the\t quality  of
\nmachinery  installed.  If the machinery is purchased from  a
\ncountry\t  producing  higher  quality  of  machines,it\twill
\nnaturally  have\t longer life, than the\tmachinery  purchased
\nfrom  another  country where the quality  of  production  is
\nlower.Again,  the articles on which the machinery  operate.s
\nmay  very  markedly  vary the life of a\t machine.   If,\t for
\nexample,  a machine is utilised for grinding of cement,\t the
\nstrain on the machine will necessarily not be the same as on
\na  machine  which  operates  on steel  o.r  iron.   We\tare,
\ntherefore, unable to accept the suggestion that the: life of
\nthe machinery in the present case should have been fixed  on
\nthe  basis  of\tthe life accepted in other  cases  in  which
\ndecisions were given on bonus disputes either by the  Labour
\nAppellate Tribunal or by this Court.\n<\/p>\n
    The\t Tribunal, in its decision, worked. out the life  of
\nthe   machinery\t  on  ‘the  basis  of  the   percentage\t  of
\ndepreciation   allowed\tunder  the  Income-tax\t Act.\t The
\napplication of this principle has been attacked before us by
\nboth the parties.  It is urged that the artificial rule laid
\ndown  in  the  Income-tax Act for  calculation\tof  notional
\ndepreciation can provide no criterion at all for determining
\nthe life of the machinery.  We think that the parties are
\n(1) [1950] L.L.J. 1247.\t     (2) [1959] S.C.R. 925.
\n(3) [1962] 2 Supp. S.C.R. 926.\n<\/p>\n
320<\/span><\/p>\n
correct\t and  that  the\t Tribunal  committed  an  error\t  in
\nproceeding on this basis.\n<\/p>\n
    Though,  in\t the case of the Honorary  Secretary,  South
\nIndia  Millowners’ Association(1), this Court, on the  facts
\nof that case, accepted the life of the textile machinery  as
\n25 years; the Court also laid down the principle for.finding
\nout the life of machinery in the following words :–\n<\/p>\n
\t\t    “We\t are not prepared to  accept  either
\n\t      argument because, in our opinion, the life  of
\n\t      the  machinery  in  every\t case  has  to\t be.<\/p><\/blockquote>\n
\t      determined in the light of evidence adduced by
\n\t      the parties.” (p. 933)
\nObviously, this is the correct principle, because it is only
\nwhen  the  life of machinery is determined in the  light  of
\nevidence  adduced by the parties in a particular  case\tthat
\nthe authority determining the life can take into account all
\nthe  factors  applicable  to  the  particular  machinery  in
\nquestion.   As we have indicated earlier,  when\t determining
\nthe life of a machinery, factors, such as the quality of the
\nmaterial used in the machines and the nature of the material
\non which the machines are to operate, very materially affect
\ntheir life.  Further, the life of a machine will also depend
\non  the.  manner  in which it is  handled  in  a  particular
\nfactory.  We, consequently, in this case proceed to  examine
\nthe evidence given by the parties. in this behalf.
\n    In\torder  to prove the life of  machinery,\t one  method
\nusually\t adopted by the Companies is to tender\tevidence  of
\nexperts.   In  the. present case, the  Company\ttendered  in
\nevidence  the  statement of an\texpert,\t Gerald\t Waplington,
\nwhich  was  recorded earlier on 5th November,  1961  by\t the
\nFifth  Industrial Tribunal in a dispute pending\t before\t it.
\nThat  dispute  was also between this very  Company  and\t its
\nworkmen.  In giving the life of machinery, Waplington  first
\nclassified  the machines into two  classes–general  purpose
\nmachine\t  tools\t and  special  or  single  purpose   machine
\ntools–and  expressed  the opinion that\t a  general  purpose
\nmachine tool used for one single operation is likely to have
\na  shorter  economic  life than special\t or  single  purpose
\nmachine\t tool.\tAccording to him, a general purpose  machine
\ncarrying on work of high accuracy will have an economic life
\nof the: order of 2 to 3 years only, while a special  purpose
\nmachine\t doing\tsimilar work of high  accuracy\tworking\t 400
\nhours  a month will have an economic life of 5 to  6  years.
\nIf  the work taken. from the machines is of  less  accuracy.
\nthen,  in  his opinion, a general purpose machine  may\thave
\nan,economic  life  up  to 5 years,  and\t a  special  purpose
\nmachine\t an  econoevidence available in this  case.  It\t may
\nhowever, be  noted that
\n(1) [1962] 2 Supp. S.C.R. 926.\n<\/p>\n
321<\/span><\/p>\n
tinction  between economic life and useful life.   He  twice
\nstated\tthat economic life of a machine would be only  1\/3rd
\nof the useful life of the machine, so that if, on the  basis
\nof  his\t evidence,  the useful life of\tvarious\t classes  of
\nmachines mentioned by him is to be worked out, the member of
\nyears  given  for each class by him above will\thave  to  be
\nmultiplied  by\t3.   Thus, according to\t his  evidence,\t the
\neconomic life of a machine will vary from 2 to 3 years as  a
\nminimum to 7 to 10 years at the maximum, and working out the
\nuseful life on the basis of his statement that economic life
\nis only 1\/3rd of the useful life, the machines would have  a
\nminimum\t of  6 to 9 years and a maximum of 21  to  30  years
\nuseful life.  We shall consider what inferences can be drawn
\nfrom  his statement at a later stage when we have  discussed
\nthe other evidence available in tiffs case. It may, however,
\nbe noted that Waplington is the only expert who can be\theld
\nto. be entirely disinterested, because the other two experts
\nexamined  are employed as Engineers by the  Company  itself.
\nThis independent witness, Waplington, was not asked  whether
\nhe  had\t seen  the various machines in the  factory  of\t the
\nCompany,  nor was he at any tune requested to  indicate\t how
\nmany different machines in the factory of the Company  would
\nfail  in  the various classifications mentioned by  him\t for
\nwhich he has given different periods in respect of  economic
\nlife.\n<\/p>\n
    The\t Other\ttwo  witnesses examined\t are  Joseph  Joyce,
\nGeneral\t Master Mechanic, and Girish Chandra Bansal,  Master
\nMechanic,  employed by the Company.  Both of them  have,  in
\ntheir\tstatements  given  out\ttheir\tqualifications\t and
\nexperience  which  they.  have in  dealing  with  automobile
\nmanufacturing  machinery. According to Joyce,  the  economic
\nlife  of  the machinery of the Company cannot  go  beyond  6
\nyears,\tand  this statement was. made on the  basis  of\t the
\nmachines  working 16 hours a. day in two shifts of  8  hours
\neach.  Later on, he added that, applying American  standard,
\nthe  life  of the machines can only be 6 to  10\t years.\t  In
\ngiving\tthe life, he qualified that word with “economic”  or
\n“economic  useful”,  so that he equated economic  life\twith
\neconomic useful life and gave the figures on this basis.  In
\ncross-examination, he, however, admitted that useful life of
\na  machine  is\tlonger than its\t economic  life.   Thus,  if
\nvarious, statements of his are taken into account and it  is
\nkept in view that he is. an employee. of the Company, it may
\nbe  accepted that, according to him, the  maximum  ,economic
\nlife of the machinery of the Company will be between 6 to 10
\nyears and the useful life will be longer how much longer, he
\nhas  not indicated.  If we were to assume that he  is  using
\nthe  expressions  “economic life” and “useful life”  in\t the
\nsame: sense in which they were used by Waplington,  economic
\nlife  would  be 1\/3rd of the useful life,  with\t the  result
\nthat,  on his evidence, useful life of the machinery of\t the
\nCompany would work out to be
\n322<\/span>
\nanywhere between 18 to 30 years.  The third witness,  Girish
\nChandra Bansal, estimated the efficient economic life, based
\non  16\thours  per  day working, at 6  to  10  years,  which
\nCoincides  with\t the’  estimate\t by  Joyce.   In  his  case,
\nhowever,  no questions were put to. elicit from him  whether
\nhe  would make\tany distinction between\t efficient  economic
\nlife and useful life, so. that his evidence does not  appear
\nto carry us any farther than the evidence of Joyce.
\nIt may be added that both these witnesses in their  evidence
\nstated\tthat  the workmen employed by the Company  were\t not
\nvery  skilled workers and this was a factor that had  to  be
\ntaken into account in considering the life of’ the  machines
\nin this company. It is obvious that, if a machine is handled
\nby  a  more skilful worker, it will last longer and  have  a
\nlonger\tlife.\tA  Statement was also  made  by\t Joyce\tthat
\nmachine.s running at high speed will have shorter life\tthan
\nthose  running at lower speeds; but this  general  statement
\nmade by him offers no assistance to us in this case, because
\nhe  has not indicated in his evidence how many and which  of
\nthe  machines of the Company run at high speed and which  at
\nlower speed.\n<\/p>\n
    Apart  from\t this evidence of experts, the\tCompany\t has
\nattempted  to  provide\tsome  other data  which\t can  be  of
\nassistance in assessing the life’ of the machinery.  In this
\nconnection, Mr. Niren De, arguing the case on behalf of\t the
\nCompany;  drew our attention to the history of this  Company
\nwhich showed that, initially, this Company started the\twork
\nof  assembly  of  cars\tfrom  parts  imported  from  foreign
\ncountries.  some time in the year 1942-43, but,\t later,\t the
\npolicy was. altered and manufacture of components was  taken
\nup  and progressively increased so as to  minimise  foreign.
\nimport. He also pointed out that this policy of\t progressive
\nproduction of indigenous parts was pressed Upon the  Company
\nby the Government and, for this purpose, drew our  attention
\nto  the:  first\t and  the  Second  reports  of\tthe   Tariff
\nCommission in the years 1953 and 1956, as well as the report
\nof the lid Hoc Committee on Automobile Industry known as the
\nReport\tof the Jha Committee, because Sri L.K. Jha  was\t its
\nChairman.   This report came out in the year 1960.   It\t was
\nUrged  by  Mr. De that, due to. this policy  of\t progressive
\nincrease  in  manufacture  of new  components,\tit  was\t not
\npossible  for the Company to find money to rehabilitate\t old
\nmachinery  and,\t consequently,\tthe fact  that\tthe  Company
\ncontinued to use old machinery for a number of years  should
\nnot  be\t taken\tas  indicating\tthat  machinery\t ‘still\t had
\neconomic or useful life. It was argued. that the Company per
\nforce had to continue use of these ‘old machines, because it
\nwas  under pressure to expand its activities. by  taking  up
\nmanufacture  of components and the Company was running at  a
\nloss.\tIt has already been mentioned earlier’ that  in\t the
\nsecond\treport\tof  the Tariff Commission  in  1956  it\t was
\nclearly stated that this Company was selling cars at a\tloss
\nof
\n323<\/span>
\nRs. 833 per car.  It is in this background that the evidence
\ngiven  by the Company should be judged to find out  what  is
\nthe life of the machinery possessed by the Company.  He also
\ndrew  our  attention  to the principles laid  down  in\tthis
\nconnection  by\tthe  Full  Bench  of  the  Labour  Appellate
\nTribunal  in the Millowners’ Association’s case (1), and  by
\nthis  Court in the Associated Cement Companies’ case(2).  In
\nthe  former  case,  when  laying  down\tthe  principle\tthat
\nprovision should be’ made for rehabilitation replacement and
\nmodernization of the machinery, the  Tribunal  held that:\n<\/p>\n
\t\t “It   is  essential  that  the\t plant\t and
\n\t      machinery should be kept continuously in\tgood
\n\t      working Order for the purpose of ensuring good
\n\t      return.  and  such maintenance  of  plant\t and
\n\t      machinery\t would also be to the  advantage  of
\n\t      labour,  for.  the better\t the  machinery\t the
\n\t      larger the earnings, and the better the chance
\n\t      of securing a good
\n\t      bonus.”\n<\/p><\/blockquote>\n
In the latter case, this Court, when examining the scope  of
\nclaim for rehabilitation. held that:\n<\/p>\n
\t\t “this\tclaim  covers  not  only  cases\t  of
\n\t      replacement    pure   and\t  Simple   but\t  of
\n\t      rehabilitation   and  modernisation.  In\t the
\n\t      context, rehabilitation is distinguished\tfrom
\n\t      ordinary\trepairs\t which go into\tthe  working
\n\t      expenses\t of   the  industry.  It   is\talso
\n\t      distinguished   from   replacement.   It\t  is
\n\t      quite\/conceivable\t  that\tcertain\t  parts\t  of
\n\t      machines\twhich  constitute a block  may\tneed
\n\t      rehabilitation  though  the block\t itself\t can
\n\t      carry  on\t for  a number of  years;  and\tthis
\n\t      process  of  rehabilitation is in\t a  sense  a
\n\t      continual\t process.  Unlike  replacement,\t its
\n\t      date  cannot always be fixed  or\tanticipated.
\n\t      So  with\tmodernisation and  all\tthese  three
\n\t      items   are   included  in   the\t claim\t for
\n\t      rehabilitation.\tThat is why we think  it  is
\n\t      necessary\t that the Tribunals should  exercise
\n\t      their  discretion\t in admitting  all  relevant
\n\t      evidence which would enable them to’ determine
\n\t      this vexed question satisfactorily.”\n<\/p><\/blockquote>\n
Proceeding   further  to.  distinguish\tbetween\t  cases\t  of
\nreplacement. modernisation and expansion, the Court held:\n<\/p>\n
\t\t    “If\t it appears fairly ‘on the  evidence
\n\t      that  the introduction of the modern plant  or
\n\t      machine  is in substance an item of  expansion
\n\t      of  the  industry, expenses incurred  in\tthat
\n\t      behalf  have  to be excluded.   On  the  other
\n\t      hand,  if the employer had to  introduce\tthe.<\/p><\/blockquote>\n
\t      new  plant essentially because the use of\t the
\n\t      old plant. though capable
\n(1) [1950] L.L.J. 1247.\t   (2) [1959] S.C.R. 925.\n<\/p>\n
324<\/span><\/p>\n
\t      of giving service-was uneconomic and otherwise
\n\t      wholly  inexpedient,  it\tmay  be\t a  case  of
\n\t      modernisation.\t Similarly;   if   by\t the
\n\t      introduction of a modern plant or machine\t the
\n\t      production  capacity  of\tthe  industry\thas.\n<\/p>\n
\t      appreciably  increased, it would\tbe  relevant
\n\t      for the Tribunal to consider in an appropriate
\n\t      case whether it would be possible to apportion
\n\t      expenses\ton  the basis that it is a  case  of
\n\t      partial modernisation and partial expansion.”
\nIt will thus. be seen that, when considering the question of
\nrehabilitation,\t what  is  essentially\tto  be\ttaken  into.
\naccount\t is  that the old plant, though\t capable  of  giving
\nservice,  was  uneconomic and otherwise\t wholly\t inexpedient
\nwhen provision for its replacement and rehabilitation,\teven
\nthough\tit  will   include   modernisation  would  be  fully
\njustified.\n<\/p>\n
    In this context, it may be worthwhile examining at\tthis
\nstage  the difference between economic life and useful\tlife
\non which emphasis has been laid by Mr. Sen on behalf of\t the
\nworkmen.  We  have already indicated earlier that  even\t the
\nexpert\texamined behalf of the Company,\t Gerald\t Waplington,
\nmade  a distinction between economic life of  machinery\t and
\nits  useful  life, Further, in giving the life,\t he  applied
\nAmerican  standards  which may not be applicable  in  India.
\nThis.  Court,  in  various  cases  where  the  question\t  of
\nrehabilitation\thas  been discussed, has  laid\temphasis  on
\nuseful\tlife rather than on economic life and, oven  in\t the
\nAssociated  Cement Companies’ case(1) in the extract  quoted
\nabove,\tthe Court held that modernisation is justified\twhen
\nthe  use of the old plant becomes uneconomic  and  otherwise
\nwholly\tinexpedient.  Thus, two tests were laid down, first,
\nthat it should be uneconomic and, second, that it should  be
\nalso  otherwise wholly inexpedient.  The economic  life,  as
\nenvisaged by Waplington, was not, therefore, considered\t the
\nappropriate.  test  for\t determining when rehabilitation  of
\nthe plant and machinery would be justified. In fact, one  of
\nthe  very  major considerations, that should be\t taken\tinto
\naccount\t is the actual practice of the\tmanufacturers  using
\nthe machinery and if evidence be available, to find out\t how
\nlong  the manufacturers continue to use the machinery  as  a
\nrule. It  may be that, during the last few years of use, the
\nmachinery  may.be continued to. be utilised because of\twant
\nof resources and compulsion to retain the machinery, because
\nreplacement  is not possible at all.  It is in the light  of
\nthis.  situation  that we proceed to  examine  the  evidence
\ngiven  by the Company about the behaviour of  its  machinery
\nand the steps taken by the Company to have the old machinery
\nrehabilitated.\n<\/p>\n
(1) [1959] S.C.R. 925.\n<\/p>\n
325<\/span><\/p>\n
    In\tthis connection, two statements filed on  behalf  of
\nthe Company are of significance.  One of these is a list  of
\nobsolete and\/or discarded machines prepared on 26th October,
\n1962  and  marked as Ext. 28.  It is to\t be.  noticed  that,
\nthough 40 different machines were discarded by 26th October,
\n1962 when this statement was prepared, none of the machinery
\ndiscarded  was that installed up to. the year  1947-48.\t  In
\nfact,  this  situation\tis  also  borne\t out  by  the  three
\nSchedules IA which have been referred to earlier by us.\t  In
\nthose Schedules 1 A, the machinery discarded and written off
\nfrom  books  is\t shown as being worth Rs.  35,000\/-  out  of
\nmachinery  of the value of Rs. 89.75 lacs installed  in\t the
\nyear  1947-48.\tThus, the machinery of that  year  discarded
\nwas  nominal  in  value. None  of  the\tmachinery  installed
\nbetween ‘the years 1948-49 to 1951-52 was discarded.  Again,
\nthe  machinery\tinstalled in 1952-53 was  discarded  to\t the
\nextent of the nominal value of Rs. 39,000\/- out of Rs. 11.06
\nlacs,  and no machinery installed in 1953-54 was  discarded.
\nThe machinery discarded was primarily that installed in\t the
\nyears 1954-55 to 1957-58, and its value was in the region of
\nRs.  46\t lacs.\tThus, right up to 1962,\t the  old  machinery
\npurchased  up to the year 1954 was almost all  continued  in
\nuse  and was not discarded, even though machinery  installed
\nin the next four years was considered unfit for further\t use
\nand. was discarded or written off,
\n    The second statement is Ext. 21 which bears the  heading
\n“replacement programme condition of machine tools” and which
\nwas  prepared  in  March, 1960 in  order  to  claim  foreign
\nexchange  from the Government for replacement of  machinery.
\nThat  list contains more than 200 machines, but, again,\t the
\nmachines  installed  during  the  year\t1947-48\t or  earlier
\nincluded in it are only 5 in number, whereas the majority of
\nmachines. included in that list are those installed in later
\nyears,.\t  Significance attaches to this factor, because\t the
\nmachines  ins.tailed in the year 1947-48 were of very  large
\nvalue,\ttheir  cost being. in excess of Rs.  89\t lakhs.\t  In
\nfact,\tthat  is  the  year  in\t which\tthe  investment\t  on
\ninstallation  of machinery was highest, barring the year  of
\nbonus and the year immediately preceding it.  This statement
\nthus shows that, even though the Company wanted\t replacement
\nof a number of machines which had been installed even in the
\nyear 1949-50 and some machines installed in later years, the
\nreplacement of those machines was given preference over\t the
\nreplacement of machines installed earlier in the year  1947-\n<\/p>\n
48.   In  this\tstatement, in the remarks  column,.  it\t was
\nmentioned that these machines are to be scrapped. but  there
\nwas  no statement that machines which had been installed  in
\nthe  year  1947-48 were also in such a condition  that\tthey
\nrequired  scrapping.  Thus, these  statements  provide\tsome
\nindication  of the life of machinery which point both  ways.
\nThe  fact  that old machinery of 1947-48, though  of   large
\nvalue,\twas  not
\n326<\/span>
\nconsidered to be in such a condition as to require immediate
\nreplacement in preference to machinery installed later would
\npoint towards that machinery having a fairly long life.\t  On
\nthe other hand, there is the factor that machinery installed
\nin  later  years was actually scrapped or was sought  to  be
\nscrapped,  and this necessarily means that  later  machinery
\nwas considered as having shorter life.\n<\/p>\n
    In\tthis connection,  another statement of which  notice
\nmay  be\t taken\tis Ext. 29 which  shows\t prices\t of  certain
\nmachines originally purchased by. the Company which is to be
\nrehabilitated,\tand the prices of the same  machines,  which
\nwere  purchased\t in the two years preceding  the  time\twhen
\nGirish\tChandra\t Bansal was examined  before  the  Tribunal.
\nGirish\tChandra\t Bansal’s  ,evidence was  recorded  on\t14th
\nNovember, 1962 ‘and in his statement before the Tribunal  he
\nstated\tthat Ext. 29 was prepared to compare the  prices  of
\nsame  machines\tin earlier years when  they  were  purchased
\noriginally and again when similar machines were purchased  a
\nsecond\ttime in the past two years.  This statement has\t the
\nsignificance that, though in the past two years the  Company
\ntook the step of purchasing machines which would perform the
\nidentical functions which the old machines were\t performing,
\nthe  Company chose to add these machines as new ones,  as  a
\npart  of its  scheme of expansion rather than replace  those
\nold  machines.\tIn the year 1961-62, therefore, the  Company
\nwas still of the opinion that it was preferable to add a new
\nmachine of the same type rather than replace an old  machine
\ndoing  the-same\t work, and an  inference  would\t necessarily
\nfollow\tthat  old machine must have been  considered  to  be
\nsufficiently serviceable.  This is the view that the Company
\nappears\t to  have  held in respect of  machinery  which\t was
\ninstalled 14 or 15 years earlier.\n<\/p>\n
    On\tbehalf\tof the Company, some statements\t were  also.
\nfiled  to show that there were very frequent break-downs  in
\nthe  machinery of the Company and. as an  illustration,\t our
\nattention was drawn to the statement for the period January,
\n1960 to September, 1960. It is true that, if there are\tvery
\nfrequent  break-downs  in  machinery,  this  would  give  an
\nindication of the condition of the machinery and lead to the
\ninference that their useful life is coming to an end.  There
\nis, however, one great difficulty in drawing any  conclusion
\nfrom  the  statistics  of  number  of  break-downs  of\t the
\nmachinery put forward on behalf of the Company.\t The Company
\nhas. no doubt, shown us statements that a number of machines
\nhad break-downs during the last few years preceding the year
\nof  bonus.  but no material was brought to  our\t notice-from
\nwhich  it might have been possible to compare how  the\tsame
\nmachinery was behaving in earlier years or within the  first
\nfew years after it was installed.  Unless it be possible  to
\ncompare the number of
\n327<\/span>
\nbreak-downs. when their life is claimed to be over with\t the
\nnumber\tof break-downs when the machine was almost  new’  or
\n‘was  running its economic or Useful life, no assistance  is
\navailable  for assessing the. life of the machinery  from  a
\nmere  table showing the number of break-downs.\tFurther,  it
\nwas not possible from these statements’ to find out which of
\nthe  machines  installed in which year were subject  to\t the
\nbreak-downs,  nor did these statements give us\tany  picture
\nabout  the  percentage of machines  installed  in  different
\nyears\twhich’\t were\tincluded   in\tthese\t‘statements.
\nConsequently,  we  have\t felt  handicapped  in\tdrawing\t any
\ninference  from\t these statements.\n<\/p>\n
    Reliance  was  also placed on  some\t statements  showing
\nthat, for purposes of granting incentive bonus, a rated time
\nwas  prescribed for various machines and progressively\tthis
\nrated time in respect of a large number of machines has\t had
\nto  be\tincreased  in order to enable the  workmen  to\tearn
\nbonus,\tbecause\t the  machines themselves  are\tnot  working
\nefficiently  and.  if the rated time is not  increased,\t the
\nworkmen\t would\tfail to qualify for incentive bonus  for  no
\nfault  of  their own and  simply because the   machines\t  on
\nwhich  they  were  required  to\t work  had  deteriorated  in
\ncondition.It is true that the statement given of increase of
\nrated  time gives some indication that the condition of\t the
\nmachinery  in  this factory has been going down\t and  though
\nthis.  factor is relevant in determining the useful life  of
\nmachinery, it cannot carry us very far, because there is  no
\nevidence’  which would enable us to lay down  a\t correlation
\nbetween the increase in the rated time and the expiry of the
\nuseful\tlife  of the machinery.\t It is not possible  on\t the
\nevidence to discover how much the rated time is expected  to
\nincrease  before  it  can be said  that\t the  machinery\t has
\ncompletely run out its useful life.\n<\/p>\n
    Mr. De also drew our attention to the statements of some
\nof  the\t  witnesses who. deposed that machinery\t running  at
\nhigh  speed  has  a shorter life than that  running  at\t low
\nspeed.\t  This\t general  statement,  however,\tis   of\t  no
\nassistance, because the Company did not attempt to  classify
\nits  machines between high speed and low speed ones and’  to
\ngive evidence in that behalf.\n<\/p>\n
    Lastly,   it  was  urged by Mr. Sen\t on  behalf  of\t the
\nworkmen\t that  another\tfactor which should  be\t taken\tinto
\naccount\t is that, according to the Full Bench  Formula,\t for
\ncalculation  of rehabilitation the machinery is\t treated  as
\nscrapped when its value is reduced to 5%, because the break-
\ndown  value of 5% is all that is deducted  when\t calculating
\nthe requirements for rehabilitation.  The argument was\tthat
\nthe fact that the. break-down value is taken at 5% indicates
\nthat  the  machinery  ‘for  purposes  of  rehabilitation  is
\ntreated as still useful unless its value is reduced to\tthat
\nlow figure.\n<\/p>\n
328<\/span><\/p>\n
This  is, no doubt, another aspect that must be taken  into.
\naccount, though we are unable to accept the submission\tthat
\na  machinery should be deemed to have useful life  until  it
\nreaches\t the stage of having a break-down value of  5%.\t  No
\nsuch absolute rule can be inferred.\n<\/p>\n
In  this  case,\t the Tribunal, in fixing  the  life  of\t the
\nmachinery,  as\twe  have  mentioned  earlier,  proceeded  to
\ncalculate it on the basis of the depreciation rate permitted
\nunder  the Income-tax Act. That basis was not acceptable  to
\neither\tof the parties before us. On behalf of the  workmen,
\nit  was\t urged that it was an entirely\twrong  principle  of
\ncalculating the life, and even o.n behalf of the Company  no
\nattempt\t was  made  to support this method  adopted  by\t the
\nTribunal.    In\t  the  Honorary\t  Secretary,   South   India
\nMillowners, Association’s case(1), this Court also  rejected
\nthe  argument that the calculation of the life may be  based
\non the depreciation rate permitted by the income-tax Act.
\n    In\t these\tcircumstances,\twe  have  to  consider\t the
\ncumulative  effect  of the various pieces  of  evidence\t and
\ncircumstances  which  we have discussed above  and,  on\t its
\nbasis,\tto  estimate what should  be considered\t to  be\t the
\nuseful life of the machinery of this Company.. Reference may
\nbriefly be made to the various conclusions  arrived at.\t The
\nevidence  of  the  independent expert and  of  the  engineer
\nemployees of the Company gives a figure. for useful life. of
\nmachinery  which  may  be anywhere between 6  years  to.  30
\nyears.\tThe lower figures given by them cannot be,  accepted
\nas they relate to economic life in the strict sense of\tthat
\nexpression and are based on American standards. At the\tsame
\ntime,  the maximum life worked out from their evidence is on
\nthe hypothesis that the useful life stated by Waplington  to
\nbe three times that of economic life is also the useful life
\nin  the\t same proportion to economic life as  given  in\t the
\nevidence  of Joyce.  Then, there is the evidence  that\tthis
\nCompany itself has been running its old machinery for  quite
\na  large  number of years and even after 13 or 14  years  of
\nuse, the Company in quite a large number of cases preferred,
\nwhen buying similar machines, to utilise them for  expansion
\nrather\tthan  for  rehabilitation.   On\t the  face  of\t it,
\nreplacement  of old machinery would have been  preferred  to
\nexpansion,  if\tthe old machinery had really  completed\t its
\nuseful life. In some cases,  however, machinery purchased in
\nlater  years  had  to be rehabilitated\tafter  much  shorter
\nperiods, but no detailed information is available. why\tsuch
\nearly  replacement  became  necessary.\t No.’  material\t was
\nprovided  to show the comparative quality of machines  which
\nhave  been  run\t for a long time  and  machines\t which\twere
\nreplaced  or sought to be replaced after shorter periods  of
\nus. After tak-\n<\/p>\n
(1) [1962]  2 supp. S.C.R. 926.\n<\/p>\n
329<\/span><\/p>\n
ing  into consideration the various factors mentioned by  us
\nabove, and on the evidence before us, we think that in\tthis
\ncase, it would. be appropriate to hold that the average life
\nof  the machinery of this. Company in respect  of  different
\nkinds  of  machines obtained from different sources  may  be
\nappropriately  taken  as  15 years. This life  of  15  years
\narrived\t at by us, it may be mentioned is on the basis\tthat
\nthe machines of the Company have been running during most of
\nthe.  period, to which the evidence relates, in\t two  shifts
\nonly.\tGirish Chandra Bansal, one of the Engineers  of\t the
\nCompany, examined as a witness, stated that the machines  in
\nthis Company were working in two shifts only, until, for the
\nfirst time in 1959-60, the factory started to run round-the-
\nclock,\ti.e.,  in three shifts.\t He added  that the  factory
\nhad been working in two shifts from the time it was founded.
\nIt  is also clear that; if the. factory had been working  in
\nonly  one shift, the life of the machinery would  have\tbeen
\nlonger, and we think that in that case lit. would have\tbeen
\nappropriate  to take the life of the machinery as 25  years.
\nOn  the other hand, after the machines are being  worked  in
\nthree shifts, the Life of the machinery is bound to be lower
\nand,  consequently,  if\t the machines  be  worked  in  three
\nshifts,\t it  would be appropriate to take the  life  of\t the
\nmachinery at 10 years. In the present case, however, we\t are
\naccepting the; average life as 15 years for all the machines
\nrequiring rehabilitation, because the evidence, as mentioned
\nabove,\tshows  that the machines have been. working  in\t two
\nshifts\t only  from  the  time\twhen  the  factory   started
\nfunctioning,  with  the\t exception that, in  the  first\t few
\nyears,\tthey were worked in only one shift while,  from\t the
\nyear  preceding the year of bonus, they have been worked  in
\nthree shifts.  Consequently, it may be taken that, up to the
\nyear of bonus, the machines have been worked on the average,
\nin two shifts. In working out the divisor, however, it\twill
\nhave  to be kept in view that future life of  the  machinery
\nwill have to be calculated on the basis of three shifts and,
\nconsequently, on the basis of the  figure of 10 years as the
\nuseful\tlife  of the machinery.\t We  may  also\tincidentally
\nmention that this Court, in the case of National Engineering
\n‘Industries  Ltd. v. The Workmen & Vice\t Versa<\/a>(1),  accepted
\nthe life of the precision machinery of the Company concerned
\nin that case as 15 years, so that the conclusion arrived  at
\nby  us\ton  the\t evidence in the  present  case\t happens  to
\ncoincide with the figure of life accepted in that case.
\n    In this connection, we-may also take notice of one point
\nurged by Mr. De on behalf of the Company.  It appears  that,
\nwhen working out the divisor and finding out what  machinery
\nrequired  rehabilitation,  the Tribunal did  not  take\tinto
\naccount machinery installed during the bonus year itself for
\nmaking\tprovision  for mic life of 7 to 10  years.   In\t his
\nevidence, further, he made a dis-\n<\/p>\n
(1) Civil Appeals Nos. 356-357 of 1966 decided on 6-10-1967.\n<\/p>\n
330<\/span><\/p>\n
any machinery is installed in bonus1 year, the Company would
\nbe  justified  in claiming that it  must  immediately  start
\nmaking\tprovision for its rehabilitation, though the  period
\nfor rehabilitation of that machinery would only start at the
\nend of the bonus year. Once machinery has been installed and
\nis in existence. in the bonus year, the Company is entitled.
\nto  say that it will require= rehabilitation in\t future\t and
\nthat  provision\t should be made for rehabilitation  of\tthat
\nmachinery   also  and  the  Company  should  start   keeping
\nreserves.  for that purpose from the year of  bonus  itself.
\nThus,  in the present case, the machinery installed  in\t the
\nyear 1960-61 should have been included in the rehabilitation
\nstatement,  though the divisor in respect of that  machinery
\nwill, on our decision given above, be 15 on the basis of two
\nshifts and 10 on the basis. of three shifts, as the machines
\nwill  still  have  a  residuary life  of  15  or  10  years,
\ncomputing  the period from the bonus year which is also\t the
\nyear of installation.\n<\/p>\n
    The\t  second   factor  entering   the   calculation\t  of
\nrehabilitation requirement about which there was controversy
\nbetween\t the  parties is the multiplier.   We  have  already
\nmentioned  the\tfact  that,  in\t the  first  and  the  third
\nSchedules 1A, the Company gave one set of multipliers, while
\nin’  the second Schedule 1A higher multipliers\twere  given.
\nThe Tribunal took both sets of multipliers into. account and
\nworked\tout  the average and accepted that  as\tthe  correct
\nmultiplier, representing the rise in the price: rate of\t the
\nmachinery   requiring\trehabilitation.\t   Thereafter,\t the
\nTribunal  held that the machinery which was to\treplace\t the
\nold one would have a larger production and proceeded to work
\nout  figures for reducing the multipliers on  that  account.
\nThe  Tribunal held that it would be justified to reduce\t the
\naverage multipliers arrived at by 75 for machinery installed
\nup  to’\t 1951-52, by 55 for machinery installed\t during\t the
\nyears  1952-53\tto  1955-56, and by 35\tfor  that  installed
\nduring the years 1956-57 to 1960-61.  Before us, this method
\nadopted by the Tribunal was criticised by counsel’ for\tboth
\nparties.   On behalf of the workmen, it was  contended\tthat
\nthere  was  no justification for the Tribunal  to  take\t the
\naverage\t of  the  multipliers in the first  and\t the  second
\nSchedules  IA  and  that  the  Tribunal\t should\t only\thave
\nproceeded  on  the basis that the multipliers given  in\t the
\nfirst  Schedule\t IA were proved and were correct  ones.\t  On
\nbehalf of the Company, it was urged that the Tribunal should
\nhave  accepted the multipliers given in the second  Schedule
\nIA  and should not have reduced them by taking into  account
\nthose  given  in the first Schedule 1A, and,  further,\tthat
\nthere was no justification at all for the Tribunal to reduce
\nthe  figures  of the multipliers for the various  blocks  of
\nmachinery  by 75, 55 or 35 on the ground that the  machinery
\nto   be\t installed  in\treplacement  would  have  a   higher
\nproduction.\n<\/p>\n
331<\/span><\/p>\n
    We\twere taken by learned counsel for parties  into\t the
\nevidence  tendered  on behalf of the Company  to  prove\t the
\nmultipliers.   We  nave found that the\tcorrectness  of\t the
\nmultipliers  shown  in the first Schedule 1A has  been\tvery
\nsatisfactorily\tproved.\t It appears that those figures\twere
\narrived\t at  by comparing the prices of\t the  old  machinery
\ninstalled in various years with similar machinery  purchased
\nin  subsequent\t years.\t  That comparison  was\tcontained  m
\nstatement  Ext. 29.  The Company’s witness Bansal  not\tonly
\nproved\tthis  statement, but also clearly  stated  that\t the
\nmachines  originally  purchased and  those  purchased  later
\nshown  in, that statement Ext. 29 were the  same   machines.
\nIn  cross-examination, he further specifically arrested that
\nthe  production capacity of these new machines mentioned  in
\nExt.  29  was  very much the same as that  of  the  original
\nmachines  which were to be replaced when they were new.\t  It
\nis  also,  significant\tthat these  figures  of\t multipliers
\nincluded  in the first Schedule IA. were not  challenged  on
\nbehalf\tof the workmen before the Tribunal.  So far  as\t the
\nfigures contained in the second Schedule 1 A are  concerned,
\nit  was suggested on behalf of the Company that\t they  were’
\nbased  on  subsequent quotations  received  for\t replacement
\nmachinery  which formed part of a series Ext.  31.   Learned
\ncounsel\t for the Company was, however, unable to  point\t out
\nany  statement\tin the evidence of any witness\twhich  would
\nshow  that the figures for  multipliers incorporated in\t the
\nsecond\tSchedule  IA  were  actually  calculated  from\t the
\nquotations contained in Ext. 31.  In fact, no such  evidence
\nwas  possible, because the second Schedule IA was  filed  on
\nbehalf of the Company after the evidence of parties was over
\nand  that second Schedule IA not being a part of the  record
\nbefore\tthe Tribunal when evidence was recorded, it was\t not
\npossible  for  any witness to give  evidence  proving  those
\nfigures\t for multipliers.  In these circumstances,  we\tmust
\nhold  that  the. Tribunal committed an error in taking\tinto
\naccount the multipliers given in the second Schedule IA\t and
\nthat  the only figures for multipliers that could have\tbeen
\nand should be accepted are those in the first Schedule 1A.
\n    At the same time, we must also accept ‘the contention on
\nbehalf\t of   the  Company  that  the\tTribunal   had\t no.
\njustification fox reducing the multipliers by deducting\t 75,
\n55,  and  35  in respect of the three  blocks  of  machinery
\nsought\tto be replaced.\t As  we have indicated earlier,\t the
\nTribunal proceeded to hold that this deduction was justified
\non the ground that the new machines which had been purchased
\nand  which  were being compared with the  original  machines
\nsought to be replaced must necessarily have more  productive
\ncapacity.  We have not been able to find any evidence on the
\nrecord\tof any witness which would support this\t conclusion.
\nIt  is true that the statements. made by Company  witnesses,
\nparticularly Bansal  show that the new machines were
\n332<\/span>
\nmore  efficient\t and were likely to produce  better  quality
\ngoods.\tAt. no stage, however, in the  cross;examination  of
\nBansal\twas  any statement made admitting  that’  these\t new
\nmachines,  whose. prices. were being compared with those  of
\nthe old machines for rehabilitation, had a larger productive
\ncapacity than those original machines.\tIn fact, as we\thave
\npointed out earlier, in his cross-examination Bansal made  a
\ndefinite  statement  that these new  machines  will  produce
\nexactly\t the same number of pieces as the original  machines
\nwhen  they  were  new.\t This  Court  in  the  case  of\t the
\nAssociated Cement Companies Ltd.(1) had indicated that it is
\nonly  if, by the introduction of a modern plant or  machine,
\nthe  production\t capacity of the  industry  has\t appreciably
\nincreased  that\t it would be relevant for  the\tTribunal  to
\nconsider  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.\tit may be regarded as incidental to  replacement  or
\nmodernisation  and  the question of  apportionment  may\t not
\narise (p. 969).\t It is, of course, possible that Bansal,  in
\nstating\t that the new machines, the prices of  which  formed
\nthe  basis of calculation of multipliers, have\texactly\t the
\nsame  capacity as the original machines to be replaced,\t may
\nnot be quite correct; but there was no material at all\tfrom
\nwhich ‘the Tribunal could have justifiably inferred that the
\nincrease  in production would be so material as\t to  attract
\nthe principle ‘for apportionment laid down by this Court  in
\nthe  case cited above and, consequently, the  Tribunal\tfell
\ninto  an  error in reducing the multipliers  merely  on\t the
\nassumption  that  the new machines must necessarily  have  a
\nlarger\tproduction capacity than the original machines.\t  In
\nthese  circumstances,  we  hold\t that  the   rehabilitation,
\nprovision should have been calculated by the Tribunal on the
\nbasis of the. multipliers given by the Company in the  first
\nSchedule 1A, without taking an average of those\t multipliers
\nand  the  multipliers given in the second  Schedule  IA\t and
\nwithout\t decreasing  the  multipliers by 75, 55\t and  35  in
\nrespect of various blocks.\n<\/p>\n
     The   third   contested   question\t  with\t regard\t  to
\nrehabilitation\trelates to the deductions which have to.  be
\nmade  out of the total rehabilitation requirement to  arrive
\nat  the\t annual\t provision for that purpose  which  must  be
\nallowed\t  in   working\tout  the   available   surplus\t for
\ndistribution\tof   bonus.   In   the\t Associated   Cement
\nCompanies  Ltd.\t case  (1), when approving  the\t Full  Bench
\nFormula this Court indicated how the calculations should  be
\nmade.  It was held :–\n<\/p>\n
\t\t   “Before actually awarding an\t appropriate
\n\t      amount  in respect of rehabilitation  for\t the
\n\t      bonus year certain
\n(1) [1959] S.C.R. 925.\n<\/p><\/blockquote>\n
333<\/span><\/p>\n
\t      deductions   have\t to  be\t made.\t The   first
\n\t      deduction is made on account of the break-down
\n\t      value  of\t the plant and\tmachinery  which  is
\n\t      usually  calculated at the rate of 5 % of\t the
\n\t      cost price of the block in question. Then\t the
\n\t      depreciation   and  general  liquid   reserves
\n\t      available\t to the employer are deducted.\t The
\n\t      reserves\twhich have already  been  reasonably
\n\t      earmarked\t  for  specific\t purposes   of\t the
\n\t      industry are, however, not taken into  account
\n\t      in   this\t  connection.\tLast  of   all\t the
\n\t      rehabilitation  amount  which  may  have\tbeen
\n\t      allowed  to  the employer\t in  previous  years
\n\t      would  also have to be deducted if it  appears
\n\t      that the amount was available at the time when
\n\t      it was awarded in the past and that it had not
\n\t      been  used for rehabilitation purposes in\t the
\n\t      meanwhile.   These are the broad\tfeatures  of
\n\t      the  steps which have to be taken in  deciding
\n\t      the employer’s claim for rehabilitation  under
\n\t      the working of the formula.”(p.970).\n<\/p><\/blockquote>\n
The dispute in the present case relates to the deduction  of
\nthe depreciation and general liquid reserves.  One aspect in
\ncontroversy  in this behalf raised on behalf of the  Company
\nis  that even depreciation should not be deducted unless  it
\nis available to the employer for purposes of rehabilitation.
\nThe argument was-that in the sentence “Then the depreciation
\nand  general liquid reserves available to the  employer\t are
\ndeducted”  the word “depreciation” should be read  with\t the
\nwords\t“reserves   available\tto   the   employer”\tand,
\nconsequently,\tthe  deduction\tshould\tonly  be  made\t of.
\ndepreciation  reserves\tavailable to the employer.   We\t are
\nunable.\t  to  accept  this  submission,\t because  the\tvery
\nprinciple on which rehabilitation provision is allowed\twhen
\nmaking\tcalculations for awarding. bonus  militates  against
\nthis  interpretation.\tThis  Court, in\t the:same  case,  in
\nexplaining why rehabilitation is granted, held:\n<\/p>\n
\t\t   “We have already noticed that the  object
\n\t      of providing depreciation\t of wasting   assets
\n\t      in   commercial “accounting is to\t recoup\t the
\n\t      original capital invested in  the purchase  of
\n\t      such  assets; but the amount  of\tdepreciation
\n\t      which is allowed under the formula can  hardly
\n\t      cover the probable cost of replacement.\tThat
\n\t      is   why’\t the  formula  has  recognised\t the
\n\t      industry’s   claim   for\t rehabilitation\t  in
\n\t      addition to the admissible depreciation.”\t (p.<\/p><\/blockquote>\n
\t      966)
\nIt  will  thus\tbe seen that the purpose  of  providing\t for
\nrehabilitation\tcharges is to enable the industry  to  cover
\nthe  difference between the amount of depreciation which  is
\nrecouped by making provision for it in\taccordance with\t the
\nprinciples  of\tcommercial accounting and  the\tamount\tthat
\nwould  be  required  to\t purchase  the\tnew  machinery\t for
\nreplacement. Once the price of the new machinery
\nsup.C.1.\/68–7
\n334<\/span>
\nis known, the rehabilitation amount would, be the difference
\nbetween\t that price and the amount provided as\tdepreciation
\nof  wasting  assets  in accordance with\t the  principles  of
\ncommercial   accounting.   The\tdeduction  of\tdepreciation
\nprovision  made in ,the accounts is not, therefore,  on\t the
\nbasis  that  amount  must be available\tfor  purchasing\t the
\nreplacement  machinery even in the year when  provision\t for
\nrehabilitation is being made.  That amount is deducted\tfrom
\nthe  price  of the machinery Which will be  required  to  be
\npurchased in order to determine what amount the industry  is
\ngoing to require for rehabilitation in spite of having\tbeen
\nallowed\t depreciation.\tIn our view, therefore, this  Court,
\nwhen it later held that the depreciation and general  liquid
\nreserves  available  are to be deducted in  calculating\t the
\nrehabilitation\tamount, did not intend to lay down that\t the
\ndepreciation  must also be available in the year  of  bonus.
\nThe  words  “available\tto the employer”  were\tintended  to
\nqualify\t the expression “general liquid reserves”  only\t and
\nnot the word “depreciation”.  General liquid reserves are to
\nbe  deducted on the principle that if such reserves  are  in
\nthe hands of the industry and are not earmarked for  binding
\npurposes,  the\tindustry  must utilise\tthose  reserves\t for
\nrehabilitating\tthe  old  machinery instead  of\t asking\t for
\nprovision to be made out of profits in the year of bone\t and
\nin  future years.  The principle adopted is  that  provision
\nfor  rehabilitation is to be made only to the extent of\t the
\ndifference  between  the price of the machinery\t which\twill
\nhave  to  be paid for replacing the old\t machinery  and\t the
\namount\tof  depreciation  provision shown  in  the  accounts
\naccording  to the commercial system of accounting  and\teven
\nthat  rehabilitation  requirement must first be met  by\t the
\nindustry  out  of available liquid reserves rather  than  by
\nasking\tfor  provision to be made out of  profits.   In\t the
\npresent\t case, the Tribunal, when calculating the  provision
\nfor rehabilitation, took the entire price of the replacement
\nmachinery as required to be provided out of profits and\t did
\nnot take into account that price should have been reduced to
\nthe extent of the depreciation provided for in the accounts.
\nThe  annual  report of this Company for the  year  of  bonus
\n1960-61 was produced before us and at page 24 it showed that
\nat  the\t beginning of the year 1960-61 depreciation  to\t the
\nextent of Rs. 325.48 lacs had been provided in the  balance-
\nsheet  of  the Company.\t This amount has, therefore,  to  be
\ndeducted from the price of the machinery which is to replace
\nthe original machinery when rehabilitation is resorted to.
\n    The\t second\t question  on this  aspect  that  arises  is
\nwhether\t there\twere  any liquid  reserves  available  which
\nshould also have been deducted.\t In the balance-sheet of the
\nCompany\t contained  in the Annual Report, various  kinds  of
\nreserves   have\t been  shown.  There.  was  a  reserve\t for
\ncontingencies  to the extent of Rs. 10.00 lacs on  31-3-1960
\nand a development rebate reserve of Rs. 39.51 lacs on
\n335<\/span>
\nthe same date.\tOn behalf of the workmen, it was urged\tthat
\nthis  amount of Rs. 39.51 lacs should at least\tbe  deducted
\nwhen  calculating the requirement for rehabilitation.\tFrom
\nthe balance-sheet itself an inference was sought to be drawn
\nthat  this reserve existed in the form of a  liquid  reserve
\navailable for rehabilitation. For this purpose reference was
\nmade to the entries on the assets side of the  balance-sheet
\nwhich shows a sum of Rs. 220 lacs as lying in fixed  deposit
\naccount.   The argument was that if the Company had  such  a
\nlarge  sum as Rs. 220 lacs in the fixed deposit account,  it
\ncould  not possibly urge that the sum of Rs. 39.51  lacs  in
\nrespect\t of development rebate reserve was not a part of  it
\nand  was  not  available as a liquid  reserve.\t It  is\t but
\nnatural that in the balance-sheet the Company could not show
\nany  correlation.  between the amounts entered\ton  the\t two
\nsides,\tliabilities and’ assets, as that is not required  by
\nany  principle\tof commercial accounting.  The\targument  of
\nlearned\t counsel for the company was ,that this\t development
\nrebate\treserve\t had been used’ as a part   of\tthe  working
\ncapital of the Company represented by various items shown on
\n‘the  assets side and this fact was proved by the  affidavit
\nof Satya Narayan Murarka, Commercial Manager of the Company,
\nwho  categorically  stated that all the\t reserves  had\tbeen
\nutilised  as  part of the working capital.  It seems  to  us
\nthat  a\t mere statement by the Commercial Manager  that\t the
\nreserves have been utilised in the working capital cannot be
\naccepted  as  conclusive evidence of that  fact.   When\t the
\nbalance-sheet itself shows that cash amounts in the form  of
\nfixed  deposits were available which were far in  excess  of
\nthe development rebate reserve in question there would be no
\njustification  for  holding  that  this\t development  rebate
\nreserve\t was not available as a liquid asset and   had\tbeen
\nincluded  by  the Company in its working  capital.   At\t the
\nstage it is not necessary, therefore, to go into any-further
\ndetails\t to arrive at the conclusion that  this\t development
\nrebate\t reserve   was\t a  liquid   asset   available\t for
\nrehabilitation\tand,  consequently, liable to’\tbe  deducted
\nwhen  calculating  the rehabilitation requirement  We  shall
\ndeal in greater detail with the question of what items\twere
\nincluded  in  the  working capital at  a  later\t stage\twhen
\ndealing\t with the controversy relating to the claim  of\t the
\nCompany for return on working capital which is allowed under
\nthe  Full  Bench  Formula,  when  calculating  the   surplus
\navailable for distribution of  bonus.\n<\/p>\n
     On\t the  question\tof  calculation\t for  provision\t for
\nrehabilitation,\t the  only  point raised on  behalf  of\t the
\nworkmen\t with regard to buildings was that the Tribunal,  in
\ntaking\tthe  life of the factory buildings at 25  years\t and
\nnon-factory buildings at 40 years, was not correct and\tthat
\nthe  life  of the two types of buildings  should  have\tbeen
\ntaken at 40 years and 50 years respectively.  At the
\n336<\/span>
\n      time  of the hearing before the Tribunal, the  Company
\nhad claimed  that factory buildings have a normal life of 25
\nyears  only and\t non-factory buildings 30 years,  while\t the
\nclaim  of the workmen  was that the factory buildings had  a
\nlife of 40 years and the non-factory buildings 50 years.  In
\narriving  at its decision, the Tribunal primarily took\tinto
\naccount\t the provisions of Rule 9 of the Rules framed  under
\nthe  Income-tax Act, 1922 which lays down the principle\t for
\ncalculation  of\t depreciation in respect  of  buildings.That
\nprinciple,  no doubt, cannot be taken as giving any  correct
\nindication  of\tthe  life  of  buildings  for  purposes\t  of
\ncalculation of rehabilitation provision, but, in this  case,
\nthere  was the difficulty that the Tribunal did\t not  accept
\nthe  evidence given by\tthe Company to prove the age of\t the
\nbuildings as claimed by it,  while no evidence was given  on
\nbehalf\tof  the workmen in support of their claim  that\t the
\nlife  of  the  buildings  should be  taken  at\tthe  figures
\ncontended  on  their  behalf.  In the  course  of  arguments
\nbefore us. all that learned counsel did was to refer to\t the
\ndecision  of this Court in the Associated  Cement  Companies
\nLtd.  case(1) at p. 993 where the calculations made  in\t the
\nChart show that the life of the various buildings  concerned
\nin  that case were taken to be between 30 and 35 years.\t  We
\ndo  not think that, in the absence of evidence showing\tthat
\nthe buildings of the Company were similar to those buildings
\nwhose  life  came  up for consideration in  the\t case  cited
\nabove,\tit  is possible to derive any  assistance  from\t the
\nfigures accepted in that case.\tIn these circumstances,\t the
\nposition before us is that neither on behalf of the Company,
\nnor on behalf of the workmen is there any reliable evidence
\nbrought to our notice on the basis of which we can arrive at
\na  correct  estimate  of the life of the  buildings  of\t the
\nCompany\t and, consequently, we do not think that there\twill
\nbe  any justification for us to vary the decision  given  by
\nthe Tribunal in this behalf.\n<\/p>\n
      The   last  controversy  in  the\t calculations\t for
\nrehabilitation\tprovision  is on the  question\twhether\t the
\ndepreciation  and  the liquid reserves available  should  be
\ndeducted from the total amount of rehabilitation requirement
\nor whether it should be taken into account at the very first
\nstage when the machinery or the buildings requiring earliest
\nrehabilitation\tare taken into consideration and the  annual
\nrequirement in respect of them is worked out.  On behalf  of
\nthe  workmen,  we  think,  it was  rightly  urged  that,  if
\ndepreciation  and  liquid  reserves  available\tare  to\t  be
\ndeducted, they must be incorporated in the accounts  against
\nthe   replacement  cost\t of  those  items   which   required
\nreplacement  earliest in time.\tIt is obvious that if  funds
\nin  the\t form  of depreciation provision  and  other  liquid
\nreserves  are available, the Company claiming provision\t for
\nrehabilitation must utilise them in rehabilitating those
\n(1) [1959] S.C.R. 925.\n<\/p>\n
337<\/span><\/p>\n
machines  and buildings which require rehabilitation at\t the
\nearliest  point of time.  There is no principle at all\tthat
\nthe  depreciation in respect of a particular machinery\tmust
\nbe deducted when calculating the rehabilitation\t requirement
\nin respect of that machinery itself.  The Full Bench Formula
\napproved by this Court only recognises the industry’s  claim
\nto  make  provision  out of profits  for  rehabilitation  of
\nmachinery  which  might require replacement even  in  future
\nonly on the ground that the industry may not be able to meet
\nthose replacement cost out of funds available in its  hands.
\nThe provision for future requirement of rehabilitation\tmust
\nat  any time depend upon what is immediately  available\t and
\nwhat  is going to be required in future.  If  some  machines
\nhave  fully  run out their lives, they fast  necessarily  be
\nreplaced  out of resources available immediately  and  there
\nwould\tbe  no\tjustification  for  keeping  the   available
\nresources  in reserves for future rehabilitation, while\t not
\nproviding  out\tof those available resources  for  immediate
\nreplacement  of\t the machinery.\t Then, there is\t the  second
\naspect\tthat  an employer in order to claim  more  and\tmore
\nrehabilitation\tprovision, will have a tendency to keep\t old
\nblocks of machinery running and to avoid adoption of such  a
\ndevice\tit  would  be fair that he is  required\t to  utilise
\navailable  resources at the very first opportunity when\t the
\nold blocks of machinery require replacement and claim annual
\nprovision for future only in respect of that machinery which
\nwill  require  replacement later on.  It appears  that\tthis
\nCourt  in  The\tAssociated  Cement  Companies  Ltd.  case(1)
\nproceeded   on\t this  very  basis  when   calculating\t the
\nrehabilitation\trequirement, though without discussing\tthis
\nquestion in detail.  In that case, reserves to the extent of
\nRs.  311  lacs were found to be\t available.   The  machinery
\nwhich  required\t to be rehabilitated was divided  into\tfour
\nblocks, the earliest block consisting of machinery installed
\nup   to\t 1939  in  respect  of\twhich\tthe   rehabilitation
\nrequirement was Rs. 1172.76 lacs.  In respect of three later
\nblocks,\t the rehabilitation requirement was Rs. 70.40  lacs,
\n270.37 lacs and Rs. 768.50 lacs. The total requirements\t for
\nrehabilitation\tin respect of all the four blocks  was\tthus
\nRs.  2282.03 lacs.  When calculating the annual\t requirement
\nthe Court  did not deduct the sum of Rs. 311 lacs in respect
\nof  available  reserves ‘out of this total  of\tRs.  2282.03
\nlacs, but instead deducted this amount from the cost of\t the
\nmachinery  required to replace the pre-1939 block for  which
\nthe amount arrived at was Rs. 1172.76 lacs.  After deducting
\nthis  amount of reserves from the replacement cost  of\tthat
\nblock,\tthe balance was divided by the divisor 7  which\t was
\ntreated\t as  the  remainder life of  the  machinery  falling
\nwithin\tthat block.  This calculation adopted in that  case,
\ntherefore,  fully bears out our view that  the\tdepreciation
\nand  available\treserves  must be taken\t into  account\twhen
\ncalculating the annual
\n(1) [1959] SC. R, 925.\n<\/p>\n
338<\/span><\/p>\n
provision  in  respect\tof that\t machinery  which   requires
\nearliest  replacement and should not be deducted out of\t the
\ntotal  rehabilitation cost as urged by learned\tcounsel\t for
\nthe. Company.\n<\/p>\n
    Mr.\t De  in\t this connection drew  our  attention  to  a
\ndecision of the kabour Appellate Tribunal in Saxby &  Farmer
\nMazdoor\t Union, Calcutta(1) at pp. 711-712.  In\t that  case,
\nthe  Tribunal first worked out the total rehabilitation\t and
\nreplacement  cost of ‘the machinery at Rs. 43.81 lacs.\tFrom
\nthis amount were deducted a sum of Rs. 14.75 lacs in respect
\nof  available reserve, a sum of Rs 9, 03 lacs as  the  total
\ndepreciation  on the plants and machinery and a sum  of\t Rs.
\n0.737  lac  in\trespect\t of  the  break-down  value  of\t the
\nmachinery at 5 % of the cost price, leaving a balance of Rs.
\n19.364\tlacs  as the rehabilitation requirement.   Then\t the
\nTribunal noticed that, on the basis of total requirement  of
\nRs.  43.81  lacs  over\tthe  several  periods  during  which
\nrehabilitation and replacement was to take place, the annual
\nrequirement  was worked out at Rs. 8.04 lacs.  Applying\t the
\nsimple\tarithmetic  of\tratio, the Tribunal  held  that\t the
\nproportionate annual requirement would be Rs. 3.54 lacs,  if
\nthe  total requirements are reduced to Rs. 19.364 lacs.\t  In
\nthat  case, thus, the Tribunal proceeded on the basis  which
\nhas been canvassed on behalf of the Company before us.\t The
\ntotal rehabilitation requirement was first worked out, while
\nthe  annual requirement was also worked out on the basis  of
\nthat   requirement,.   without\ttaking\tinto   account\t the
\ndepreciation,  available liquid reserves and the  break-down
\nvalue\tof  the machinery to be replaced.   Thereafter,\t the
\ntotal rehabilitation requirement was reduced. by the  amount
\nof  depreciation, liquid reserves available  and  break-down
\nvalue  of  the\tmachinery, and the  annual  requirement\t was
\nreduced\t in respect of each block of machinery in  the\tsame
\nproportion  as the proportion between the total\t requirement
\nand  the  net amount available arrived at,  after  deducting
\ndepreciation,  ,available  liquid  reserves  and  break-down
\nvalue.\t We do not think that the principle adopted  by\t the
\nlabour\t Appellate  Tribunal  was  correct  and\t should\t  be
\naccepted.  On the face of it, it introduces a very anomalous
\nposition.   In\ta  case where  some  machinery\tmay  require
\nimmediate  replacement in the year of bonus in question\t and
\nresources  may\tbe  available for meeting the  cost  of\t the
\nentire\tmachinery  required  to replace\t it,  the  principle
\nadopted by the Tribunal would still permit the industry\t not
\nto  replace that machinery, but claim future  provision\t for
\nits  replacement on the basis that the\tavailable  resources
\nare  to be proportionately allocated to machinery which\t may
\nrequire\t replacement in much later years.  We hold  that  in
\napproving  this\t course,  the Tribunal\tdid  not  adopt\t the
\ncorrect\t principle according to which calculation should  be
\nmade, when applying the, Full Bench
\n(1) [1955] L.A.C. 707.\n<\/p>\n
339<\/span><\/p>\n
Formula\t for  calculation of bonus.   Learned  counsel\talso
\nreferred us. to the decision of this Court in M\/s.  Titaghur
\nPaper Mills Co. Ltd. v. Its Workmen<\/a>(1) to show that, in that
\ncase,  this Court also, when calculating the  rehabilitation
\nprovision,  deducted  the entire depreciation  and  reserves
\navailable from the total rehabilitation requirement and\t did
\nnot  adopt the course of deducting it from different  blocks
\nof machinery requiring rehabilitation.\tThat case,  however,
\ndoes  not  support the view taken by  the  Labour  Appellate
\nTribunal,  because in that case this Court had accepted\t the
\ndecision of the Tribunal that all the machinery in whichever
\nyear it may have been installed had a uniform residuary life
\nof   10\t years,\t so  that  all\tthe  machinery\twas  to\t  be
\nrehabilitated  simultaneously  during  the  next  10  years.
\nThere  was,  therefore,\t no  distinction  between  machinery
\ninstalled  in  one year and that installed  in\tother  years
\ninsofar\t as  the  year in which it was to  be  replaced\t was
\nconcerned.It  is true that, in some cases  while  describing
\nthe  Full  Bench Formula,this Court has mentioned  that\t the
\ntotal depreciation  and liquid reserves available are to  be
\ndeducted from the total\t rehabilitation\t requirement,but  we
\ndo not think that it was intended to lay down in those cases
\nthat  the  method  of deduction to be adopted is  that\tlaid
\ndown  by the Labour Appellate Tribunal in Saxby\t and  Farmer
\nMazdoor\t Union, Calcutta(2).  On the other hand as  we\thave
\nalready\t indicated  this  Court, in  The  Associated  Cement
\nCompanies Ltd. case(a), very clearly proceeded to apply\t the
\nprinciple   which   we\t are   accepting   in\tthis   case.
\nConsequently, we hold that the depreciation provision of Rs.
\n325.48 lacs and available development rebate reserve of\t Rs.
\n39.51 lacs must be taken in to account when calculating\t the
\nannual provision for rehabilitation required for replacement
\nof  the earliest installed machinery until it is  exhausted,
\nwhereafter  the annual requirement for the remaining  blocks
\nof  machinery  will have to be\tcalculated,  ignoring  these
\navailable resources.\n<\/p>\n
    The\t next  contest between the parties  in\tthis  appeal
\nrelates\t to the claim of the Company to return\ton  reserves
\nand  other  funds used as working capital during  the  bonus
\nyear when calculating the surplus available for distribution
\nof bonus.  That a Company is entitled to return on  reserves
\nused as working capital was recognised by the  Full Bench of
\nthe   Labour   Appellate   Tribunal   in   The\t Millowners’
\nAssociation’s(4)  case,\t when laying down  the\tformula\t for
\ncalculation of available surplus which was approved by\tthis
\nCourt  in  the case of The   Associated\t  Cement   Companies
\nLtd.(a).  In the latter case in dealing\t with this aspect of
\nthe  matter, the Court pointed out that no  distinction\t has
\nbeen  made  by Tribunals between reserves  used\t as  working
\ncapital and depre-\n<\/p>\n
(13  [1959] Supp. 2 S.C.R. 1012 at p. 1042.\n<\/p>\n
(2)  [1955] L.A.C. 707.\n<\/p>\n
(3) [1959] S.C.R. 925.\n<\/p>\n
(4)  [1950] L.L.J. 1247.\n<\/p>\n
340<\/span><\/p>\n
ciation\t fund  similarly  used.\t  The  Court  approved\t the
\ndecision of the Labour Appellate Tribunal in The Millowners’
\nAssociation  Bombay v. The Rashtriya Mill Mazdoor  Sangh(1),
\nwhere  the  objection  of the labour  to  depreciation\tfund
\nearning any return, even if it was utilised for or about the
\nbusiness  of  the  year, was  ovre-ruled  and  the  Tribunal
\nobserved that “no essential difference could be made between
\nthe  depreciation fund and any other fund belonging  to\t the
\nCompany which could be invested so as to earn return.’\t The
\nCourt further held:\n<\/p>\n
\t\t     “It is thus clear that what is material
\n\t      is not the origin of the fund.  It is the fact
\n\t      that the fund in the hands of the concern\t has
\n\t      been  used as working capital  that  justifies
\n\t      the  claim  for an adequate return on  it.  We
\n\t      think  it is common-sense that if the  concern
\n\t      utilises\tliquid funds available in its  hands
\n\t      for   the\t purpose  of  meeting  its   working
\n\t      expenses\trather\tthan  borrow  the  necessary
\n\t      amounts,\t it  is\t entitled  to\tclaim\tsome
\n\t      reasonable  return  on the funds\tthus  used.”
\n\t      (pp. 964-65).<\/p><\/blockquote>\n
    In\tthis appeal, it is not disputed that the Company  is
\nentitled  to claim a return on reserves which were  actually
\nutilised  as working capital during the year of\t bonus,\t but
\nMr. Sen on behalf of the workmen urged that this return must
\nbe allowed only on reserves used as working capital and\t not
\non  any other funds used at such, ,On the face of  it,\tthis
\nargument cannot be accepted in view of the decision of\tthis
\nCourt  in  the\tcase  of  The  Associated  Cement  Companies
\nLtd.,(2)  where\t it   has  been\t clearly   held\t  that\t the
\norigin\t of  the  fund\tis  immaterial,\t though\t  with\t the
\nqualification that the fund should be one which is available
\nfor  investment before a claim can be made by  the  employer
\nfor  a\treturn on it. This principle has  been\taffirmed  or
\nfollowed  in a number of cases subsequently decided by\tthis
\nCourt, but we do not consider it necessary to refer to\tthem
\nin  view of the fact that Mr. De on behalf of  the  employer
\nconceded  that\tthis is the settled law and  only  contended
\nthat,  in this case, the Company has in fact discharged\t the
\nburden\tof  proving  that  all the  reserves  shown  in\t the
\nbalance-sheet  for the year of bonus were actually  utilised
\nas  working  capital.  Consequently, we proceed\t to  examine
\nthis submission made on behalf of the Company.
\n    Mr.\t De,  in  support  of  this  submission,  drew\t our
\nattention  to the affidavit of Satya Narayan Murarka who  is
\nthe Commercial ‘Manager of the Company.\t In this  affidavit,
\nMurarka\t stated.  that all the sums shown  as  reserves\t and
\nsurpluses  in  the balance-sheet ‘were available  for  being
\nutilised as working capital and were, in
\n(1) [1952] 1.L.L.J. 518, 522.\t  (2) [1959] S.C.R. 925.\n<\/p>\n
341<\/span><\/p>\n
fact,  so  utilised.  Murarka was also tendered\t for  cross-
\nexamination,  so  that the workmen hand\t an  opportunity  of
\ntesting\t the correctness of his evidence by  cross-examining
\nhim.  It was urged by Mr.. De that there was nothing in\t the
\ncross-examination  of Murarka which would justify  rejection
\nof the statements made by him in his affidavit that all\t the
\nreserves  and surpluses available had been employed as\tpart
\nof  the\t working  capital  of  the  Company,  and,  in\tthis
\nconnection,  drew  our attention to some decisions  of\tthis
\nCourt where the evidence given on behalf of the employer  on
\naffidavit  has\tbeen accepted by this  Court  as  sufficient
\nproof.\tThe  first case cited by him is The Tara  Oil  Mills
\nCo.,  Ltd. v. IIts Workmen and Others<\/a>(1).  In that  case,  a
\nquestion arose whether the Company concerned was entitled to
\nclaim return on the amount of depreciation reserves used  as
\nworking capital.   Dealing with this claim, the Court held:\n<\/p>\n
\t\t  “An  affidavit was made on behalf  of\t the
\n\t      Company  that  it had used its  reserve  funds
\n\t      comprising premium on ordinary shares, general
\n\t      reserve,\t depreciation  reserve,\t   workmen’s
\n\t      compensation  reserve,   employees’   gratuity
\n\t      reserve,\tbad and doubtful debt  reserves\t and
\n\t      sales  promotion reserve as  working  capital.
\n\t      The Tribunal, however, allowed return at 4 per
\n\t      centum on a working capital of Rs. 31.88 lacs.
\n\t      This  excluded  the depreciation\treserve\t but
\n\t      included all other reserves which were claimed
\n\t      by  the  company\tand  having  been  used\t for
\n\t      working capital.”\n<\/p><\/blockquote>\n
Proceeding further, the Court held :-\n<\/p>\n
\t\t  “It is enough to say that the affidavit of
\n\t      the  Chief Accountant filed on behalf  of\t the
\n\t      company\twas   not  challenged\tbefore\t the
\n\t\t\t    Industrial\t Tribunal   on\t behalf
\nof    the
\n\t      respondents.    It   would,   therefore,\t  be
\n\t      impossible   for\tus  now\t to  overlook\tthat
\n\t      affidavit, particularly when the Tribunal gave
\n\t      no reason why it treated\tthe  working capital
\n\t      as Rs. 31.88 lacs only.”\n<\/p><\/blockquote>\n
The  Court,  thus, accepted the evidence of  the  affidavit,
\nthough\tit was added that it will be open to the workmen  in
\nfuture to show by proper cross-examination of the  Company’s
\nwitnesses or by proper evidence that the amount shown as the
\ndepreciation  reserve was not available in whole or in\tpart
\nto  be\tused  as working capital and that  whatever  may  be
\navailable  was\tnot in fact so used in the  sense  explained
\nabove.\n<\/p>\n
     In Anil Starch Products  Ltd.  v.\tAhmedabad   Chemical
\nWorker’s  Union and Others<\/a>(2) this Court, dealing  with\t the
\nques-\n<\/p>\n
(1) [1960] 1 S.C.R. 1 at p. 10.\n<\/p>\n
(2)  A.I.R. 1963 S.C, 1346 at p. 1348.\n<\/p>\n
342<\/span><\/p>\n
tion  of  proof that depreciation reserve had been  used  as
\nworking capital, held:\n<\/p>\n
\t\t     “It is enough to say in that connection
\n\t      that an affidavit was filed by the manager  of
\n\t      the  company  to\tthe  effect  that  all\t its
\n\t      reserves\tincluding the depreciation fund\t had
\n\t      been  used  as working capital.\tThe  manager
\n\t      appeared\tas a witness for the company  before
\n\t      the Tribunal and swore that the affidavit made
\n\t      by him was correct.  He was cross-examined  as
\n\t      to  the  amount required\tfor  rehabilitation,
\n\t      which was also given by him in that affidavit;<\/p><\/blockquote>\n
\t      but  no. question was put to him to  challenge
\n\t      his  statement  that the\tentire\tdepreciation
\n\t      reserve had been used as working capital.\t The
\n\t      Tribunal\talso  did not go into  the  question
\n\t      whether\tany  money  was\t available  in\t the
\n\t      depreciation   reserve  fund  and\t  had\tbeen
\n\t      actually\t used\tas  working   capital.\t  It
\n\t      dismissed\t  the  claim  for  return   on\t the
\n\t      depreciation  reserve  on\t entirely  different
\n\t      grounds.\t In  the  circumstances,   we\tmust
\n\t      accept  the affidavit so far as.\tthe  present
\n\t      year  is concerned and hold that\tthe  working
\n\t      capital was Rs. 34 lacs.\tIt will, however, be
\n\t      open  to\tthe  workmen in future\tto  show  by
\n\t      proper  cross-examination\t of  the   company’s
\n\t      witnesses.  or  by proper\t evidence  that\t the
\n\t\t\t    amount  shown as depreciation reserve
\n was  not
\n\t      available\t in  whole or in part  as  explained
\n\t      above  to be used as working capital and\tthat
\n\t      whatever\twas  available was not\tin  fact  so
\n\t      used.”\n<\/p>\n
    In Khandesh Spg. & Wvg. Mills Co. Ltd. v. The  Rashtriya
\nGirni  Kamgar Sangh, Jalgaon,<\/a>(1) this Court,  again  dealing
\nwith  the question of proof of working capital, referred  to
\nthe earlier cases and held:\n<\/p>\n
\t\t    “This judgment again reinforces the view
\n\t      of  this Court that proper opportunity  should
\n\t      be   given   to  the  labour  to.\t  test\t the
\n\t      correctness of the evidence given on affidavit
\n\t      on  behalf of the management in regard to\t the
\n\t      user of the reserves as working capital.”\n<\/p><\/blockquote>\n
On the basis of these views expressed by this Court, it\t was
\nurged  that, in the present case, the affidavit\t of  Murarka
\nshould\tbe accepted as sufficient evidence in proof  of\t the
\ncompany’s claim that all the reserves and funds mentioned in
\nthe affidavit were in fact used as working capital, so\tthat
\nthe company  is\t entitled claim a return on them.
\n    It\tappears to us that the affidavit of Murarka  in\t the
\npresent\t case  is  not\tsuch that it can  be  held  to\thave
\ndischarged the burden
\n(1) [1960] 2 S.C.R. 841 at p. 850.\n<\/p>\n
343<\/span><\/p>\n
which  lay upon the Company to prove that all  the  reserves
\nand  other  funds  had, in fact, been  utilised\t as  working
\ncapital.  In the affidavit, Murarka referred to the balance-
\nsheet  and stated that the various funds claimed  as  having
\nbeen used as working capital were shown at the beginning  of
\nthe  bonus  year  as in existence and  the  further  entries
\nindicated that those amounts were still intact at the end of
\nthe  bonus year and were carried forward to the\t next  year.
\nSuch  a statement was made by him in respect of reserve\t for
\ncontingencies amounting to Rs. 10 lacs, forfeited  dividends
\namounting  to Rs. 450 lacs, profit and loss account  balance
\namount\t to  Rs.  3.63\tlacs,  provision  for\tdepreciation
\namounting to Rs. 325.48 lacs, and development rebate reserve
\namounting  to Rs. 39.51 lacs.  It is to be noticed that\t the
\nfact  that these amounts were shown as in existence  at\t the
\nbeginning  of the bonus. year as well as at the end of\tthat
\nyear can certainly lead to a reasonable inference that these
\nfunds  were all available to the company for being  utilised
\nin its business during the year; but the mere fact of  these
\nentries\t showing  the  existence  of  these  funds  at.\t the
\nbeginning and at the end of the year cannot be the basis for
\na  conclusion  that these funds must have been\tutilised  as
\npart  of  the working capital of the Company.  In  order  to
\nclaim a return, it is not enough for a Company to show\tthat
\nthe  amounts  were  available  during  the  year  for  being
\nutilised  as  working capital.\tThe Company has\t further  to
\ndischarge  the\tburden of proving that those funds  were  in
\nfact  so utilised.  This principle was clearly indicated  by
\nthis  Court in Bengal Kagazkal Mazdoor Union and  Others  v.
\nTitagarh Paper Mills Company, Ltd. and Others<\/a>(1).  It was in
\nthat  case  that this Court gave an indication\tof  how\t the
\navailability of reserves and other funds for use as  working
\ncapital\t can  be inferred from the  balance-sheet.   It\t was
\nsaid:\n<\/p>\n
\t\t    “What  is usually done is to  take\tinto
\n\t      account  the’ liquid assets of  various  kinds
\n\t      available\t at  the beginning of  the  relevant
\n\t      year and the total of such assets available at
\n\t      the  beginning  of the year is  considered  as
\n\t      working  capital\tfor that year, if  there  is
\n\t      evidence\tthat  it  has.\tbeen  actually\tused
\n\t      during the year.\tBut when we come to the\t end
\n\t      of the year and look at the balance-sheet,  we
\n\t      have  to find out the liquid assets  available
\n\t      at  the end of the year from which the  amount
\n\t      available as working capital for the next year
\n\t      may  be  arrived at.  But\t the  liquid  assets
\n\t      available at the end of the year will  usually
\n\t      be  of two kinds firstly, there will  be\tcash
\n\t      assets  in the various reserves and  secondly,
\n\t      there  will  be  assets in the  shape  of\t raw
\n\t      materials, etc., and both together become\t the
\n\t      available\t working capital for the  next\tyear
\n\t      subject
\n(1) [1963] 11 L.L.J. 358 at p. 364.\n<\/p><\/blockquote>\n
344<\/span><\/p>\n
\t      to  necessary adjustments and also subject  to
\n\t      the  evidence that they were actually used  as
\n\t      working capital.”\n<\/p><\/blockquote>\n
Proceeding further, the Court, while dealing with the  bonus
\nyear 1955-56, held :-\n<\/p>\n
\t\t  “Now\tthe  working  capital  is  generally
\n\t      arrived  at  by finding  the  liquid  reserves
\n\t      available\t on  1st April, 1955.  These  liquid
\n\t      reserves\tmay  be in the form of\treserves  of
\n\t      various  kinds, i.e.,  depreciation  reserves,
\n\t      general  reserve, renewal reserve, and so\t on,
\n\t      and also in the form of investments,  advances
\n\t      and  raw materials, etc. in stock.  All  these
\n\t      have  to be taken into account in arriving  at
\n\t      the    working   capital\t  after\t   necessary
\n\t      adjustments.  As we have already pointed\tout,
\n\t      the amount of working capital thus arrived at,
\n\t      if there is evidence that it was actually used
\n\t      as  working  capital  for\t the  year,  may  be
\n\t      allowed  interest in accordance with the\tFull
\n\t      Bench Formula.”\n<\/p><\/blockquote>\n
In that case, thus, the two steps necessary for proving\t the
\nclaim were separately indicated.  The first step in  proving
\nthat  reserves\t and other funds have been used\t as  working
\ncapital\t is to show that they were available by proving\t the
\nbalance-sheet in which those reserves and funds are shown in
\nexistence  at the beginning of the  year.  The\tsecond\tstep
\nindicated  is  that evidence must be given   to\t prove\tthat
\nthese  reserves and funds were actually utilised as  working
\ncapital\t during the year.  Obviously, this proof is  needed,
\nbecause,   even\t though\t the  reserves\tand  funds  may\t  be
\navailable,  they may not be utilised as part of the  working
\ncapital\t and  may   form part of cash amounts  kept  by\t the
\nCompany or may be  utilised for purposes other than that  of
\nworking\t capital.   The mere existence of the  reserves\t and
\nfunds at the beginning of the year, even taken together with
\ntheir existence at the end  of the year, cannot lead to. any
\ninference  that these reserves and funds  must\thave  formed
\npart  of the working capital during the year and  could\t not
\nform   part   of  other\t items\tsuch  as   fixed   deposits,
\ninvestments,  etc.   Murarka in his affidavit,\tas  we\thave
\nindicated  above,  gave\t his  conclusion  that\tthe  various
\nreserves  were used as part of the working capital  only  on
\nthe  basis that these reserves and funds were  in  existence
\nboth  at  the  beginning and at the end of  the\t year.\t The
\nconclusion drawn by Murarka had, therefore, no basis at all.
\nThe facts on which he relied could only justify an inference
\nthat these reserves and funds were available, but they could
\nnot  exclude the possibility that  they were   utilised\t for
\npurposes other than that of working capital.  The  affidavit
\nof  Murarka  in\t this  case cannot  thus  be  held   to\t  be
\nsufficient proof of this second ingredient that the reserves
\nand
\n345<\/span>
\nfunds  were in fact utilised as working capital.  So far  as
\nthe  cases  referred to by learned  counsel  are  concerned,
\nwhich  we  have\t discussed  earlier, they  do  not,  in\t our
\nopinion,  lay  down the principle that, if in  an  affidavit
\nfiled  on behalf of the employer a broad statement is  ‘made
\nthat  all reserves and other funds were used as part of\t the
\nworking\t capital,  that\t statement  must  be  accepted\t as.
\nsufficient proof, even when the statement is coupled with an
\nadmission that it is based on an inference from the balance-
\nsheet  only  and no other proof is furnished  to  show\tthat
\nthese  available reserves and funds were in fact brought  in
\nas  working  capital  by the employer  during  the  year  in
\nquestion.  In these circumstances, even though in the cross-
\nexamination  of\t Murarka on behalf’ of the  workmen  nothing
\nvery material was elicited on this question, we have to hold
\nthat  the  affidavit  given by\tMurarka\t is  not  sufficient
\ndischarge the burden which lay on the Company to prove\tthat
\nall the reserves and other funds shown in the  balance-sheet
\nas in existence at the beginning and at the end of the bonus
\nyear in question were utilised as working capital.
\n    The\t balance-sheet,\t it appears to us, itself  gives  an
\nindication.  that this claim made on behalf of\tthe  Company
\ncannot be fully justified.  In the balance-sheet, the assets
\nof the Company are shown under various heads and it seems to
\nus  that  items\t falling under certain\theads  only  can  be
\ntreated\t as working capital of the Company during the  year,
\nwhile others have to be excluded. The items which cannot  be
\ntreated as part of the working capital are: fixed assets  of
\nthe  value of Rs. 411.08 lacs, investments of the  value  of
\nRs. 14.48 lacs, fixed deposit amount of Rs. 220 lacs,  loans
\nand advances recoverable in cash or in kind or for value  to
\nbe  received  or pending adjustment amounting to  Rs.  11.74
\nlacs,\tand  loans  and\t advances  from\t Trust\t and   other
\nauthorities amounting to Rs. 8.09 lacs.\t On the other  hand,
\nthe  working capital would consist of current assets of\t the
\nvalue of Rs. 31.34 lacs, Stock in Trade of the value of\t Rs.
\n337 lacs, sundry debts of the value of Rs. 69.82 lacs,\tbank
\nand cash balances of the value of Rs. 37.98 lacs, loans\t and
\nadvances  of the value of Rs. 14.27 laes, and insurance\t and
\nother  claims  of the value of Rs. 7.61 lacs. Thus,  in\t the
\npresent case, the balance-sheet gives an ‘indication that  a
\nsum of Rs. 498.02 lacs was the amount shown at the beginning
\nof the year against items of assets which can be  classified
\nas part of the working capital, whereas the remaining sum of
\nRs.  665.38  lacs represent fixed  assets,  fixed  deposits,
\ninvestments  and  other loans and advances which  cannot  be
\nclassified as part of working capital.\n<\/p>\n
     Similarly,\t an examination of the items entered on\t the
\nside of liabilities in the balance-sheet shows what were the
\nsources\t from which moneys became available for\t acquisition
\nof these assets.\n<\/p>\n
346<\/span><\/p>\n
Amongst\t these, the reserves shown are only Rs. 10 lacs\t for
\ncontingencies  and  Rs.\t 39.51 lacs  as\t development  rebate
\nreserve.  Though the balance-sheet does not itself show\t the
\ndepreciation  fund,  it\t is also  clear\t from  the  Schedule
\nattached  to the balance-sheet that, up to the beginning  of
\nthe  year,  a depreciation provision had been  made  to\t the
\nextent\tof  Rs.\t 325.48 lacs.  In order not to\tshow  it  as
\navailable development reserve or fund in the  balance-sheet,
\nwhat  the Company did was to show the depreciated  value  of
\nthe capital assets at Rs. 411.07 Iacs instead of the  actual
\nvalue  of Rs. 736.56 lacs which was the amount paid in\tcash
\nfor  acquiring those fixed assets.  For purposes of  dealing
\nwith  the question whether any reserve was used\t as  working
\ncapital, we must, therefore, proceed on the basis that there
\nwas  a\tdepreciation reserve of Rs. 325.48 lacs,  while\t the
\ninvestment  on the fixed assets was Rs. 736.56 lacs and\t not
\nmerely\tRs.  411.07 lacs. Taking this  depreciation  reserve
\nalso  into account, it would thus appear that  the  reserves
\navailable at the beginning of the year Were of the amount of
\nRs.  374.99  lacs.   The  subscribed  capital  and   capital
\navailable from forfeited shares was Rs.\t 819.57 lacs.  Funds
\navailable  from\t other resources, such as  profit  and\tloss
\naccount\t balance, unsecured loans, current  liabilities\t and
\nprovisions,  provision for taxation, proposed dividends\t and
\ncontingent  liabilities\t not provided for, amounted  to\t Rs.
\n294.33\tlacs.  The question that arises. is how\t much  money
\nfrom  each  of\tthese’ sources had  gone  into\tthe  working
\ncapital\t and how much into fixed assets or  other  items  of
\nassets\tindicated by us above.\tIn examining this  position,
\nthe  value of the fixed\t assets\t has  to  be  taken  as\t Rs.
\n736.56\tlacs which was the actual amount spent in  acquiring
\n‘those\tassets\tand not at the written down value  of  those
\nassets\tat Rs. 411.08 lacs.  It seems to us that this  being
\nthe  position,\tthere was no justification  for\t Murarka  to
\nclaim  that  all the amounts available in reserve  had\tgone
\ntowards\t the  working capital and did  not  represent  other
\nassets,\t such  as  the fixed deposit of\t Rs.  220  lacs\t and
\nsimilar\t other items.  In these circumstances, we  have.  to
\nhold  that  no reliance can be placed on  the  affidavit  of
\nMurarka\t that all the reserves, including  the\tdepreciation
\nreserve and the\t contingent anti development rebate  reserve
\nwere  actually\tused as part of the working  capital  during
\nthis year.\n<\/p>\n
    The question that next arises on this conclusion of ours
\nis  whether  any  return at all should\tbe  allowed  to\t the
\nCompany\t on reserves or other funds claimed as\thaving\tbeen
\nutilised  as  working capital during this year.\t  The  exact
\nfigure on which the Company could claim return has not\tbeen
\nproved by it, but it seems to us that at least some part  of
\nthe  reserves  must necessarily have been  utilised  in\t the
\nworking\t capital.  The-Company had a paid up capital of\t Rs.
\n819.57\tlacs  and  it  can  safely  be\tassumed\t that  ‘this
\nmoney:was  utilised for acquiring the fixed assets, as\tthat
\nwill
\n347<\/span>
\nbe the primary purpose of obtaining capital from the share-
\nholders.   A  sum of Rs. 736.56 lacs must,  therefore,\thave
\ngone  in cash into the fixed assets out of this sum  of\t Rs.
\n819.57\tlacs, leaving a balance of Rs. 83.01 lacs.  The\t sum
\navailable  from other resources was Rs. 294.33\tlacs  which,
\ntogether  with\tthe balance of the subscribed  capital\tleft
\nover, gives a figure of Rs. 377.34 lacs.  Consequently,\t for
\npurposes  of  the working capital, a maximum amount  of\t Rs.
\n377.34\tlacs could have been available from  the  subscribed
\ncapital\t or  other resources and the balance of\t the  amount
\nmust  necessarily  come out of the reserves.  The  items  of
\nassets classified as representing the working capital, as we
\nhave indicated above, have a total value of Rs. 498.02 lacs.
\nDeducting  from\t this  amount the sum  of  Rs.\t377.34\tlacs
\navailable from subscribed capital or other resources,  there
\nremains\t a  balance  of\t Rs. 120.68  lacs  which  must\thave
\nnecessarily come out of the various reserves, including\t the
\ndepreciation reserve, and this amount at least must be\theld
\nto represent reserves acually used as working capital during
\nthe   year  by\tthe  Company.\tWe  think   that,since\t the
\ninformation  available from the balance-sheet  itself  shows
\nthat  at least Rs. 120.68 lacs out of the reserves did\tform
\npart of the working capital of the Company, it would be fair
\nto  allow the Company 4% return on this amount, even  though
\nwe  are not inclined to accept the evidence of\tMurarka\t and
\nhave  to hold that the Company on its part failed  to  prove
\nthat this amount or the whole of the amount of reserves\t had
\nbeen  utilised as part of them working capital\tduring\tthis
\nyear.  Consequently,  the  amount  which the Company has  to
\nbe allowed as return on reserves utilised as working capital
\ncomes to Rs. 4.83 lacs.\n<\/p>\n
In  this connection, we may also take  notice of  the  claim
\nmade  by the Company that return should also be\t allowed  on
\ncertain other sums. used as working capital which have\tbeen
\ndescribed  as working income.  The Company claimed  that  it
\nhad  money  available  from  four  different  sources.\t The
\ndetails given were Rs. 249.71 lacs from profit as worked out
\nin  the Profit and Loss Account at the end of the year,\t Rs.
\n63.07  lacs as reserve for depreciation for the\t year.\t Rs.
\n36.00 lacs as development rebate for this year and Rs.\t4.71
\nlacs  as value of discarded fixed assets written  off.\t The
\nclaim was that at least half the amount represented by these
\nfigures\t should\t be treated as a fund  which  was  available
\nduring\tthe  bonus  year  for  being  utilised\tas   working
\ncapital.This submission, in our opinion, cannot be accepted.
\nThere is nothing to show whether any of these amounts became
\navailable  to  the Company during the year and if  so,\twhen
\nthey became available.\tIn fact, the profit as worked out in
\nthe  Profit and Loss.\tAccount can be held to have  accrued
\nto  the\t Company only when the Profit and Loss\tAccount\t was
\nworked out at the end of the year.  We have already referred
\nto the decision of this Court in
\n348<\/span>
\nBengal\tKagazkal  Mazdoor Union and Others(1) where  it\t was
\nheld that amounts shown as liquid assets at the beginning of
\nthe  year  are\tthe only amounts which can  be\theld  to  be
\navailable  for utilisation as working capital in that  year.
\nAmounts\t which accrue during the year or at the end  of\t the
\nyear cannot be held to be available, unless evidence is\t led
\non  the basis of which a positive finding can  ‘be  recorded
\nthat  those  amounts became available on a  particular\tdate
\nduring\tthe  year and were thereafter actually\tutilised  as
\npart  of  the  working capital.\t Profit\t for  the  year\t and
\nreserve\t or  development  rebate for the  year\tin  question
\ncannot\tbe  proved to have accrued on  any  particular\tdate
\nduring\tthe year and, therefore, it is also not possible  to
\nhold that they were utilised as part of the working  capital
\nduring that very year.\tThis claim which is a novel one\t put
\nforward\t on  behalf  of the Company for the  first  time  in
\napplying the Full Bench Formula for calculation of available
\nsurplus\t for  distribution  of bonus,  must,  therefore,  be
\nrejected.\n<\/p>\n
    A  point that was raised on behalf of the  workmen,\t but
\nwhich  was  not\t seriously argued before us,  was  that\t the
\nreturn on paid up capital should not be allowed at least  to
\nthe  extent  to\t which\tmoney  had  been  invested  in\t the
\nsubsidiary or other companies. The amount in question is Rs.
\n14.48  lacs already noticed by us earlier when dealing\twith
\nthe question of proof of utilisation of reserves as  working
\ncapital.   In  dealing with that question, we  have  already
\nproceeded  on the basis that the paid-up capital was  either
\ninvested in fixed assets, or must have been utilised as part
\nof the working capital, and have not accepted the plea\tthat
\nthis  sum  of Rs. 14.48 lacs of investment came out  of\t the
\npaid-up\t capital.   Consequently, no question can  arise  of
\nreducing this amount from the paid-up capital when  allowing
\n6% return on it in accordance with the Full Bench Formula.
\n   Another  deduction, while calculating the surplus out  of
\nthe  profits available for distribution of bonus, which\t has
\nbeen  challenged  on behalf of the workmen  relates  to\t the
\nincome\tfrom home delivery commission.\tFrom the  facts,  it
\nappears\t  that\tthis  Company  was  manufacturing  cars\t  in
\ncollaboration with a foreign concern and the arrangement was
\nthat,if that foreign concern sold any of its goods in India,
\nthe  Company  would be entitled to its commission  on  those
\nsales,\teven  though the Company may not be a party  to\t the
\ntransactions   of  those  sales.   This\t  arrangement\tthus
\nrecognised the exclusive right of the Company in respect  of
\nsale  of its cars and to reimbursement in case\tthe  foreign
\ncollaborator  entered  into  transactions  infringing\tthat
\nright.\tIt seems to us that the income thus accruing to\t the
\nCompany\t has  to be treated as extraneous income  which\t was
\nearned by the Company without
\n(1) [1963] 2 L.L.J. 358.\n<\/p>\n
349<\/span><\/p>\n
any   activities  in  which  the  workmen  participated\t  or
\ncontributed  their labour.  Learned counsel for the  workmen
\nreferred  us to the decisions of this Court in the Tata\t Oil
\nMills Co. Lid. Q) and Voltas Limited v. Its workmen(1).\t The
\nsituations   that  were\t discussed  in\tthose\tcases\twere
\ndifferent.   In\t those cases, the principle  laid  down\t was
\nthat,  if any income was earned in the course of the  normal
\nbusiness  of  the  Company in which the\t workmen  were\talso
\nengaged, that income must be included  in  the\tprofits\t for
\ncalculation of surplus available for distribution of  bonus.
\nNone  of the instances that came up for\t consideration\twere
\nsimilar to the one before us.  The home delivery  commission
\nearned in the present case did not require any\tcontribution
\nof work or labour on the part of the workmen, and accrued to
\nthe Company simply because of its agreement with the foreign
\ncollaborator’  which  entitled\tthe  Company  to  claim\t the
\ncommission   without   going   through\t any   process\t  of
\nmanufacturing  or selling the cars or their components.\t  In
\nthe  circumstances,  the  deduction  of\t the  home  delivery
\ncommission from the profits was fully justified.
\n    The\t last point urged related to the interest  on  fixed
\ndeposits  earned by the Company during the bonus  year.\t  We
\nhave  already indicated earlier that a sum of Rs.  220\tlacs
\nwas in fixed deposit account and the profit and loss account
\nshows  that a sum of Rs. 5.17 lacs was received as  interest
\non  it\tby the Company. This has also to  be  excluded\twhen
\ncalculating the available surplus, because this income\talso
\naccrued to the Company without any contribution on the\tpart
\nof  the\t workmen.  It was not the regular  business  of\t the
\nCompany\t to keep money in fixed deposits and  earn  interest
\nthereon.’  At  the  same  time, however,  we  feel  that  on
\nequitable  grounds,  the Company should not be\tentitled  to
\nclaim  the  sum of Rs. 2.16 lacs as an\texpenditure  of\t the
\nbusiness of the Company in respect of interest paid to\tbank
\nand others. When the Company was receiving interest on fixed
\ndeposits,  it  would  be proper to hold that  at  least\t the
\ninterest  paid\tby  the.  Company should  come\tout  of\t the
\ninterest  earned by it.\t There seems to be no  justification
\nfor  permitting a Company to keep money in a  fixed  deposit
\nand treat the interest accruing on it as extraneous  income,
\nwhile,\tat  the\t same time permitting the  Company  to\ttake
\nloans,\tpay  interest and treat that  interest\tas  business
\nexpenditure.   Consequently, in this case, when\t calculating
\nthe available surplus, a sum of Rs. 5.17 lacs minus Rs. 2.16
\nlacs  Rs.  3.01\t lacs only will be  deducted  as  extraneous
\nincome\twhich was earned without any contribution  from\t the
\nworkmen\t and which cannot therefore, be taken  into  account
\nwhen calculating available surplus.\n<\/p>\n
    On\tthe  basis of these decisions, we  have\t worked\t out
\nCharts bowing the amount of annual rehabilitation  provision
\nwhich
\n(1) [1960] 1 S.C.R. 1.\t   (2) [1961] 3 S.CR. 167.
\nLISupCl\/688
\n350(a)
\n\t\t      CHART
\nYear\t  Original Cost\t   Discarded   Price\t   Replace-\n<\/p>\n
\t\t\t   and\t       Factor\t   ment Cost\n\t\t\t    written\tor Multi-\n\t\t\t    off from\tplier\n\t\t\t    books\n1\t\t    2\t     3\t\t 4\t      5\n1942-43 to\n1946-47\t\t    2.17      ..\t 2.80\t     6.08\n1947-48\t\t    89.75     0.35\t 2.80\t   250.32\n1948-49\t\t    44.77     ..\t 2.50\t   111.93\n1949-50\t\t    37.60     ..\t 2.30\t    86.48\n1950-51\t\t     5.29     ..\t 2.40\t    12.70\n1951-52\t\t    14.63     ..\t 2.70\t    39.50\n1952-53\t\t    11.06     0.39\t 2.50\t    26.68\n1953-54\t\t     9.09     ..\t 1.50\t    13.64\n1954-55\t\t    38.65     24.33\t 1.90\t    27.23\n1955-56\t\t    30.05     8-01\t 1.80\t    39.69\n1956-57\t\t    34.47     5.95\t 1.60\t    45-63\n-1957-58\t    75.32     7.79\t 2.00\t   135.06\n]958-59\t\t    53.74     ..\t 1.25\t    67.17\n1959-60\t\t   140.15     ..\t 1.15\t   161.17\n1960-61\t\t    98.52     ..\t 1.10\t   108.37\n350(b)\n(All figures in lacs of rupees)\n<\/pre>\n
Less 5 %  Balance   Deduct\t Balance   Resi-  Annual
\nCost\t\t    deprecia-\t require- duary\t  Rehabili-\n<\/p>\n
\t\t    tion & other   ment\t    Age\t tation\n\t\t    reserve\t\t\t require-\n\t\t     available\t\t\t ment\n6\t      7\t\t8\t    9\t     10\t    11\n0. 11\t    5.97     364.99\t   Nil\t Immaterial  ..\n4.47\t 245.85\t  359.02\t  Nil\t      \"\t    ..\n2.24\t 169.69\t  113.17\t  Nil\t      \"\t    ..\n1.88\t  84-60\t   3.48\t\t  81.12\t    3\t    27.04\n0.27\t  12.43\t\t\t  12.43\t    3\t     4.14\n0-45\t  13.19\t   ..\t\t  13.19\t    5\t     2.64\n0-72\t  26.51\t\t\t  26.51\t    6\t     4.42\n1.43\t  44.20\t\t\t  44.20\t    7\t     6.31\n3.37\t 131.69\t  ..\t\t131.69\t   8\t   16.46\n2.69\t  64.48\t\t\t  64-48\t    9\t     7.16\n7.01\t 154.16\t\t\t154.16\t   9\t   17.13\n4.93\t  103.44\t\t 103.44\t   10\t    10.34\n\t\t\t\t\t\t    -----\n\t\t\t\t\t\t    116.70\n351<\/span>\n\t\t\t CHART II\n\t\t\t    (All figures in lacs of rupees)\n<\/pre>\n
———————————————————–
\nAnnual Requirement for Rehabilitation for all
\nthe Machinery\t\t\t\t\t    116.07
\nLess Depreciation Provision for the Year of
\nBonus 1960-61\t\t\t\t\t      63.07
\nNet Requirement for Rehabilitation of Machinery
\nin the Year 1960-61\t\t\t\t      53.00
\nRequirement for Rehabilitation of Buildings\t      11.97
\nTotal Rehabilitation Requirement\t\t      64,97
\n\t\t\t   CHART III
\n\t\t\t    (All figures in lacs of rupees)
\nProfit as per Profit&Loss Account\t\t     249’71
\nAdd :\n<\/p>\n
Provision for Depreciation\t      63.07\nReserve for Development Rebate\t      36.00\nCharity and Donation\t\t       0.35\nExpenses pertaining to previous years\n(Sales tax)\t\t\t       0,01\n\t\t\t\t    ---------\n\t\t\t\t      99-43\t   99,43\n\t\t\t\t\t\t  349,14\nLess:\nIncome pertaining to previous years\nand Provisions no\nlonger required\t\t\t\t 5.70\nSurplus on Sale of Fixed Assets\t\t 0,09\nHome Delivery Commission\t\t 1.03\nInterest on Fixed Deposits\t\t 3,01\nNormal Notional Depreciation\t\t69,26\nIncome-tax Liability for the year      112,37*\n<\/pre>\n
6% Return on Ordinary Share Capital\t29,77*
\n8.57% Return on Preference Share
\nCapital\t\t\t\t\t27,55
\n4%Return on Working Capital\t\t 4,83
\nProvision for Rehabilitation\t\t64,97\n<\/p>\n
\t\t\t\t      ———\n<\/p>\n
\t\t\t\t\t318.58\t  ———\n<\/p>\n
\t\t\t\t\t\t   318,58\n<\/p>\n
\t\t\t\t\t\t  ———\n<\/p>\n
Net Surplus Available for Payment of Bonus\t      30.56\n<\/p>\n
\t\t\t\t\t\t   ——–\n<\/p>\n
   *These  figures  have  been\tcorrected  by  us.  In\t the
\nstatement filed by the Company they were wrongly entered  as
\n12.18 lacs and 129′ 89 lacs respectively.\n<\/p>\n
359.
\nmust  be  allowed  to  the Company  and,  taking  that\tinto
\naccount, the amount of surplus available out of the  profits
\nfor  distribution  as  bonus.\tChart  1  shows\t the  annual
\nrehabilitation requirement for machinery which works out  at
\nRs.  116.07  lacs.  Chart II gives the calculation,  on\t the
\nbasis  of  this\t figure,  of the  net  amount  required\t for
\nrehabilitation\tduring the year of bonus for  the  machinery
\nand  buildings, after taking into account  the\tdepreciation
\nprovision  for\tthe year of bonus.  This net amount  is\t Rs.
\n64.97  lacs. Chart 111, based on these figures and on  other
\nfigures\t arrived at by us in our judgment, shows that a\t net
\namount of Rs. 30.56, lacs would be available as surplus\t for
\npayment\t of  bonus  during this\t year.\t The  Tribunal\twas,
\ntherefore,  not right in arriving at its decision that\tthis
\nCompany was not in a position to pay bonus at all.
\n    As\twe have indicated earlier, the workmen have  claimed
\nbonus equivalent to 6 months’ wages which would amount to  a
\nsum  of Rs. 24 lacs.  We do not find any  justification\t for
\ngranting bonus at such a high rate.  Though the Company\t has
\nearned a large amount of profit during the year of bonus, it
\nis  to be noticed that, for quite a large number  of  years,
\nthe Company has been running at a loss.\t The Company has  an
\nexpanding business and the total amount of surplus available
\nfor  allocation\t between the capital and the labour  is\t Rs.
\n30.56 lacs.  In all these circumstances, we consider it just
\nand  proper that bonus should be paid to the workmen.  20%
\nof their annual wages, so that a total sum of Rs. 9.60\tlacs
\nout  of this surplus will be paid out as bonus, leaving\t the
\nbalance\t of  Rs.  21.03\t lacs with  the\t Company  for  being
\nutilised for other purposes.\n<\/p>\n
    The\t appeal is, consequently, allowed, the\tdecision  of
\nthe Tribunal is set aside and it is hereby ordered that\t the
\nCompany shall pay to the workmen a total amount of Rs.\t9.60
\nlacs  as bonus, representing 20% of the annual wage  of\t the
\nworkmen.   In  the  circumstances of this  case,  we  direct
\nparties to bear their own costs of this appeal.\n<\/p>\n
G.C.\t\t\t\t\t    Appeal allowed.\n353<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Workmen Of M\/S. Hindustan Motors … vs M\/S. Hindustan Motors,Ltd.,& Anr on 21 November, 1967 Equivalent citations: 1968 AIR 963, 1968 SCR (2) 311 Author: V Bhargava Bench: Bhargava, Vishishtha PETITIONER: WORKMEN OF M\/S. HINDUSTAN MOTORS LTD. Vs. RESPONDENT: M\/S. HINDUSTAN MOTORS,LTD.,& ANR. DATE OF JUDGMENT: 21\/11\/1967 BENCH: BHARGAVA, VISHISHTHA BENCH: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-236644","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nWorkmen Of M\/S. Hindustan Motors ... vs M\/S. 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Hindustan Motors … vs M\/S. 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