{"id":89226,"date":"1971-12-09T00:00:00","date_gmt":"1971-12-08T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/indian-oxygen-limited-vs-their-workmen-on-9-december-1971"},"modified":"2016-03-09T11:18:25","modified_gmt":"2016-03-09T05:48:25","slug":"indian-oxygen-limited-vs-their-workmen-on-9-december-1971","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/indian-oxygen-limited-vs-their-workmen-on-9-december-1971","title":{"rendered":"Indian Oxygen Limited vs Their Workmen on 9 December, 1971"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Indian Oxygen Limited vs Their Workmen on 9 December, 1971<\/div>\n
Equivalent citations: 1972 AIR 471, \t\t 1972 SCR (2) 816<\/div>\n
Author: C Vaidyialingam<\/div>\n
Bench: Vaidyialingam, C.A.<\/div>\n
           PETITIONER:\nINDIAN OXYGEN LIMITED\n\n\tVs.\n\nRESPONDENT:\nTHEIR WORKMEN\n\nDATE OF JUDGMENT09\/12\/1971\n\nBENCH:\nVAIDYIALINGAM, C.A.\nBENCH:\nVAIDYIALINGAM, C.A.\nMATHEW, KUTTYIL KURIEN\n\nCITATION:\n 1972 AIR  471\t\t  1972 SCR  (2) 816\n 1972 SCC  (4) 578\n CITATOR INFO :\n R\t    1972 SC2195\t (10,14)\n\n\nACT:\nPayment\t of  Bonus Act, 1964 s. 6-Bonus paid in\t respect  of\naccounting  year  not to be deducted from grows\t profit\t for\ncomputing  direct taxes-Dividend declared during  accounting\nyear-Whether   to  be  deducted\t from  reserves\t  shown\t  at\ncommencement-  of  accounting year-Doubtful  debts'  whether\nrightly treated as part of reserves-Bonus paid in respect of\nyear preceding the accounting year to be deducted from gross\nprofits-Set on, directions as to.\n\n\n\nHEADNOTE:\nFor  its accounting year 1964-65 the Indian Oxygen Ltd.\t was\nliable\tto  pay bonus under the Payment of Bonus  Act  1965.\nThe accounts of the company for the said year were passed on\nFebruary 12. 1966.  The company calculated bonus at the rate\nof 17.58% of the total annual wages of salary plus  Dearness\nAllowance  and\tdeclared the said amount payable  by  notice\ndated March 23, 1966.  The workmen demanded a higher rate of\nbonus.\tThe resulting industrial dispute was referred to the\nNational  Industrial Tribunal.\tThe Tribunal fixed the\trate\nof  bonus  at  20%.  Against the decision  of  the  Tribunal\nappeals\t were filed in this Court.  The questions that\tfell\nfor consideration were- : (i) whether the tribunal was right\nin  calculating the direct taxes after deducting the  amount\nof  bonus payable for the accounting year 1964-65  from\t the\ngross  profits; (ii) whether the Tribunal was  justified  in\ndeducting the amount earmarked for distribution of dividends\nfrom  the  reserves  shown  in\tthe  balance  sheet  at\t the\ncommencement of the accounting year even though the dividend\nhad not been declared at the commencement of the  accounting\nyear'. (iii) whether the Tribunal was justified in  treating\nthe  amount  shown  against doubtful debts as  part  of\t the\nreserves; (iv) whether the Tribunal while calculating direct\ntaxes  was  justified in not taking into account  the  bonus\npaid for the year 1963-64; (v) whether the directions  given\nby the Tribunal regarding set on were justified.\nHELD  :\t (i) In Metal Box Co. this Court laid down  that  an\nemployer  is entitled to compute his tax  liability  without\ndeducting  first the amount of bonus, he would be liable  to\npay,  from and out of the amount computed under ss. 4 and  6\nof the Act.  After the above decision Parliament enacted the\nPayment\t of Bonus (Amendment) Act 1969.\t Parliament at\tthat\ntime  was  fully aware of the principle laid  down  by\tthis\nCourt  that the tax liability has to be worked out by  first\nworking\t out the gross-profits and deducting  therefrom\t the\nprior  charges under s. 6 but not the bonus payable  to\t the\nemployees.  Nevertheless Parliament did not make any  change\nin the Act enacting that a different method is to be adopted\nfor  computing the direct taxes.  If Parliament intended  to\nmake a departure from the principles laid down by this Court\nin  Metal  Box Co. that bonus amount  should  be  calculated\nafter  a  provision  for  tax was  made\t and  not  before  a\nprovision to that effect would have been incorporated by the\nAmendment  Act.\t That not having been done, the law as\tlaid\ndown  by this Court in Metal Box Co. and reaffirmed  by\t two\nlater  decisions namely William Jacks & Co. Ltd.  and  Delhi\nCloth  and  General  Mills Co. still  holds  the  field.  It\nfollows\t that the view of the National Tribunal\t that  bonus\nmust be deducted from the gross-profits before income-tax is\ncalculated, was not correct. [826 F-G; 829 C-F]\n 817\nFurther the view of the Tribunal that the tax concessions by\nway  of\t rebate that an employer will get under\t the  Indian\nIncome-tax Act on the bonus found to be payable has also  to\nbe taken into consideration in dividing the surplus  between\nthe  workmen and the company, was also erroneous in view  of\nthe  fact  that the Act which is a self contained  Code\t has\nprescribed  the\t manner in which available surplus  and\t the\nallocable surplus are to be calculated. [829 G]\nMetal Box Co. of India Ltd. v. Workmen,<\/a> [1969] 1 S.C.R. 750,\nWorkment  of  William  Jacks & Co.  Ltd.  v.  Management  of\nWilliam\t Jacks\t& Co.<\/a> [1971]1 L.L.J. 503 and Delhi  Cloth  &\nGeneral\t Mills\tCo.  Ltd. v. Workmen<\/a> [1971]  2\tS.C.C.\t695,\napplied.\n(ii) The  relevant accounting year in the present  case\t was\nOctober 1, 1964 to September 30, 1965.\tIn its balance sheet\nas  on September 30, 1964 the appellant had shown a  sum  of\nRs. 2,35,07,686 reserves.  Similarly in its balance sheet as\non  September  30, 1965 apart from showing its\treserves  on\nthat  date,  it had also shown a sum of Rs.  2,35,07,686  as\nreserves  at  the commencement of the accounting  year.\t  On\nDecember  5, 1964 a notice was issued regarding\t holding  of\nthe  Annual  General  Meeting on  February  12,\t 1965.\t The\ndividend was paid on March 9, 1965.  From the notice calling\nfor  the General Meeting the Directors' Report\tand  balance\nsheet  as on September 30, 1964 it was clear that a  sum  of\nRs. 43,68,000 out of the General Reserve of Rs.\t 2,35,07,686\nhad been set apart and was to be appropriated for payment of\ndividend   for\t the   previous\t year\t1963-64.    In\t the\ncircumstances the Tribunal correctly applied the  provisions\nof  s. 6(d) of the Act read with item 1 cl.  (iii)  together\nwith  the  material  part of the Explanation  to  the  Third\nSchedule of the Act when it deducted the sum earmarked to be\npaid  as  dividend,  i.e., Rs. 43,68,000  from\tthe  General\nRevenue\t at the beginning of the accounting year, i.e.,\t Rs.\n2,35,07,686  for  the purpose of determining the  return  on\nReserves.  The fact that the dividend had not been  declared\nat the commencement of the accounting year was not material.\nIn no case will a company be able to declare a dividend\t for\nthe year ending September 30, 1964 on the morning of October\n1, 1964.  Once the Directors have, on the basis of auditor's\nreport\tand other materials decided to declare a  particular\namount\tas dividend and have set apart the  required  amount\nfrom the General Reserve, it must relate back to the date of\nthe commencement of the accounting year. [830 G-H; 832\tC-F;\n833 A-C]\n(iii)\t  The  Tribunal\t was justified in holding  that\t the\nappellant was not in order in deducting Rs. 55,127 under the\nhead  'doubtful\t debts'\t an item  of  expenditure.   It\t was\nperfectly  justified in adding back the amount in  computing\nthe gross profits.  The creation of such an amount is really\na reserve and not a provision as contended by the appellant.\nThe appellant itself in its breach up had distinguished\t bad\ndebts from doubtful debts. [834 F-835 B]\nTextile\t Machinery Corpn.  Ltd. v. Workmen,<\/a> [1960] 1  L.L.J.\n34. applied.\n(iv) The   Tribunal  was  justified  in\t holding   that\t  in\ncalculating  direct taxes the bonus for the accounting\tyear\n1963-64\t though\t paid  during the  accounting  year  1964-65\nshould not be taken into account.  As the bonus year must be\ntaken as a unit, bonus paid for the previous accounting year\nfrom  and out of the profits of the said previous year\tdoes\nnot come into the picture. [836 E]\n(v)   On a proper computation even the bonus already paid by\nthe  company at 17.58% was on the big side.It  follows\tthat\nthe direction of\n818\nthe  National Tribunal regarding set on based as it  was  on\nthe  rate  20%\tbonus fixed by the Tribunal,  could  not  be\naccepted. [836 F-G]\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos. 415,\t 813
\nand 1302 of 1967.\n<\/p>\n
Appeals\t by special leave from the award dated\tJanuary\t 20,
\n1967  of  the  National\t Industrial  Tribunal,\tCalcutta  in
\nReference No. NIT-1. of 1966.\n<\/p>\n
G.   B. Pai and D. N. Mukherjee, for the appellant (in\tC.A.
\nNo.  415 of 1967) and respondent No. 1 (in C.As.  Nos.\t813
\nand 1302 of 1967.\n<\/p>\n
Janardan  Sharma and Indira Jaisingh, for respondent  No.  1
\n(in  C.A. No. 415 of 1967), the appellants (in C.A. No.\t 813
\nof 1967) and respondent No. 2 (in C.A. No. 1302 of 1967).
\nK.   R.\t Chaudhuri,  for respondent No. 3 (in  C.A.  415  of
\n1967).\n<\/p>\n
C.   L. Dudhia, C. G. Nadkarni, K. L. Hathi and P. C. Kapur,
\nfor respondent No. 4 (in C.As. Nos. 415 and 813 of 1967) and
\nthe appellants (in C.A. No. 1302 of 1967).\n<\/p>\n
Janardan Sharma, for the intervener,
\nThe Judgment of the Court was delivered by
\nVaidiyalingam,\tJ. AR these appeals, by special\t leave,\t are
\ndirected  against  the Award dated January 20, 1967  of\t the
\nNational Industrial Calcutta in Reference No. NIT-1 of 1966.
\nCivil Appeal No. 415 of 1967 is by the Company regarding the
\ndisallowance  of certain items by the Tribunal for  arriving
\nat the available and allocable surplus for calculating bonus
\nto be paid for the accounting year 1964-65.
\nCivil  Appeals\tNos.  813 and 1302 of 1967 are\tby  the\t two
\nUnions\trepresenting the workmen, against that part  of\t the
\nAward  rejecting  the claim of the Unions  for\tadding\tback
\ncertain\t items for the purposes of calculating the  rate  of
\nbonus to be paid by the appellant Company.\n<\/p>\n
As mentioned earlier, the year of account is 1964-65,  which
\nis  October  1,\t 1964 and ending September  30,\t 1965.\t The
\nappellant   Company  was  incorporated\tunder\tthe   Indian
\nCompanies Act, in 1935 and was made into a public company in
\n1958.\tIt  is\ta  venture of  the  British  Oxygen  Company
\nincorporated in England and the English Company still  holds
\na little over 66% of the shares of the Indian Company.\t The
\nmain  products of the Company are production  of  industrial
\ngases\tlike  oxygen,  dissolved  acetylene,  nitrogen\t and
\nhydrogen and also electrodes and
\n819<\/span>
\nwelding\t equipment and medical equipment.  The\tCompany\t has
\nbeen paying bonus to its workmen from 1948; and since,\tthen
\nit has been paying bonus by agreements with the union.\t The
\nbonus,\tso paid, has been more or less at five months  basic
\nwages,\tsubject\t to  a\tminimum\t and  maximum  as  per\t the
\nagreement.  For the year in question, 1964-65, there was  no
\nagreement, as the Payment of Bonus Act, 1965 (hereinafter to
\nbe  referred  as  the Act) came into  force.   There  is  no
\ncontroversy  that  this\t is the first  accounting  year,  in
\nrespect of which the bonus is to be paid under the Act.
\nThe  accounts  of  the Company were  passed  at\t the  Annual
\nGeneral\t Meeting  held on February 12,\t1966.\tThe  Company
\ncalculated  bonus at the rate of 17.58% of the total  annual
\nwages  or  salary plus Dearness Allowance and  declared\t the
\nsaid  amount  payable by notice dated March 23,\t 1966.\t The
\nCompany\t originally worked out the allocable  surplus  under
\nthe  Act for the said year at Rs. 30,35,958.  As the sum  of
\nRs.  1,72,69,770  was the total salary and  wages  including
\nDearness Allowance payable for the said year, the  allocable
\nsurplus worked out at 17.58% of the said total wage bill and
\nhence bonus was declared at that rate.\n<\/p>\n
 The Unions protested against the rate of bonus declared  by
\nthe  Company  and  demanded a substantial  increase  in\t the
\nquantum\t of  bonus.   The  claim  by  the  Indian  Oxygen  &
\nAcetylene  Employees’  Federation was for payment  of  bonus
\nequal  to eight months’ basic wages subject to a minimum  of
\nRs.  400\/-.   Another union, National Federation  of  Indian
\nOxygen\tWorkmen,  Jamshedpur, claimed bonus at\tthe  maximum
\nrate of 20% provided under the Act.  A third union, also the
\nBombay\tLabour Union, claimed bonus at the maximum  rate  of
\n20%.   A  fourth  union, Indian Oxygen\tEmployees  Union  of
\nRajawadi,  Bombay,  demanded  bonus  at\t 25%  of  the  total
\nearnings  or  at  six months’  basic  wages,  whichever\t was
\nhigher.\n<\/p>\n
As attempts at settlement failed, a strike notice was  given
\nby some of the Unions.\tOriginally, there was a reference of
\nthe dispute by the Government of West Bengal to a  Tribunal.
\nLater  on, this order of reference by the  State  Government
\nwas cancelled and the Central Government by order dated July
\n7,  1966  referred  the\t dispute  for  adjudication  to\t the
\nNational  Industrial  Tribunal at  Calcutta.   The  question
\nreferred was as follows :\n<\/p>\n
\t      “Whether the, workmen are entitled to a higher
\n\t      bonus than 17.5 per cent for the year  1964-65
\n\t      as  offered  by the management?  If  so,\twhat
\n\t      should  be the quantum of bonus for  the\tsaid
\n\t      year?”\n<\/p><\/blockquote>\n
820<\/span><\/p>\n
Though\tthe question referred was regarding the,  claim\t for
\nhigher\tbonus  than 17.5 per cent, all parties\twere  agreed
\nthat the appellant Company had actually offered and paid  as
\nbonus  for the said year at 17.58 per cent.  It is  on\tthis
\nbasis that the dispute also was adjudicated by the  National
\nIndustrial Tribunal.\n<\/p>\n
Though originally, the appellant, as mentioned earlier,\t had
\ncalculated   the  allocable  surplus  in  the  sum  of\t Rs.
\n30,35,958, during the proceedings before the Tribunal,\tthey
\nrecomputed the amount and filed a revised statement Ex.4, by
\nwhich  the  allocable  surplus was worked out  at  only\t Rs.
\n23,30,396.   This  reduced  figure  was\t explained  by\t the
\nappellant  Company  as\tdue  to\t omission  in  the  previous
\nstatement, to add back certain items in computing the  gross
\nprofits and higher figure for income-tax.
\nAll   the  unions  very\t strenuously  contested\t  both\t the
\ncalculations  of the Company.  According to the unions,-  in
\nthe  balance  sheet  and profit and  loss  accounts  of\t the
\nCompany\t various  items\t of  expenses  have  been  inflated.
\nDetails\t of such inflation were given by them.\t The  unions
\nalso  contested\t the  amount of direct taxes  shown  in\t the
\nstatement  of the Company.  It was the further case  of\t the
\nunions that if there is a proper computation, the  allocable
\nsurplus\t would be very much higher than 50 lacs\t as  against
\nthe   figure  of  Rs.  30,35,958  shown\t in   the   original
\ncalculation   and  miserably  reduced  in   the\t  subsequent
\ncalculation Ex.4.\n<\/p>\n
The National Industrial Tribunal, in its Award has disallow-
\ned  certain claims made by the appellant Company.   It\talso
\ndisallowed  certain  extreme  claims  made  by\tthe  unions.
\nUltimately, it fixed the available surplus in the sum of Rs.
\n65,29,507.  On this basis it fixed the sum of Rs.  39,17,704
\nas the allowable surplus being 60% of available surplus.  As
\nthe  allocable\tsurplus so fixed was more than\t20%  of\t the
\nannual wage bill of Rs. 1,72,69,770, the ban-us was fixed by
\nthe Tribunal at the maximum rate of 20%.  It further gave  a
\ndirection  that\t a set on of Rs. 4,63,750 is to\t be  carried
\nforward.   In  the end the Tribunal made an Award  that\t the
\nworkmen are entitled to a higher bonus than 1.7.58% for\t the
\naccounting  year 1964-65 and fixed the quantum of  bonus  so
\npayable,  at  the  maximum  rate  of  20%,  with  a  further
\ndirection  that\t there\tshould be a set\t on  to\t be  carried
\nforward of Rs. 4,63,750.\n<\/p>\n
In  Civil  Appeal No. 415 of 1967, certain items  which\t the
\nCompany\t claimed to be added back to the net profit’,  shown
\nin  the profit and loss account, for arriving at the  gross-
\nprofits and which have been rejected by the Tribunal are  in
\ncontroversy.   Further, there is also a controversy, in\t the
\nsaid appeal, regarding certain deductions sought to be\tmade
\nfrom  the gross-profits for the purpose of arriving  at\t the
\nallocable surplus and which have
\n 821<\/span>
\nnot  been  allowed by the Tribunal.  But the major  item  in
\ncontroversy  in the appeal of the Company is  regarding\t the
\nmanner\tin which the calculation of direct taxes have to  be
\nmade under the Act.\n<\/p>\n
Though\tthe Unions support the Award of the Tribunal, in  so
\nfar  as\t it  is against the  Company,,\tgrievance  in  their
\nappeals Nos. 813 and 1302 of 1967 relates to the  Tribunal’s
\ndeclining  to add back certain further items in\t calculating
\nthe gross-profits and permitting the Company to deduct\tfrom
\nthe   gross-profits  certain  items  for  arriving  at\t the
\nallocable surplus.\n<\/p>\n
There  are  several items, which, according to\tthe  Unions,
\nshould\thave been either added back to the gross-profits  or
\nshould\tnot  have been deducted from  the  gross-profits  to
\narrive\tat the allocable surplus.  We are not  referring  in
\ndetail to the various items, referred to in the two  appeals
\nof  the Unions, as their counsel have represented before  us
\nthat  if  the claim of the Company regarding the  manner  in
\nwhich the computation of direct taxes, is accepted’. by this
\nCourt, they are not pressing their appeals.
\nIn  order  to appreciate the points in\tcontroversy  we\t are
\ngiving below the statement, which will show the calculations
\nof  the\t Company,  as well as the computation  made  in\t the
\nAward.\n<\/p>\n
“COMPUTATION  OF ALLOCABLE SURPLUS FOR THE YEAR ENDED  30-9-
\n1965.<\/p>\n
\n    Appellant\t   Company's\t    Computation as per the\n\t\t\t computation\t\t  award\n1.   Net profit as per P & L\nAccount\t   67,74,315\t\t      67,74,315\n2.   Add back\n (a) Bonus for 64-65\t30,00,000      30,00,000\n (b) Depreciation\t70,44,600      70,44,600\n (c) Direct taxer.    1,04,00,000    1,04,00,000\n<\/pre>\n
 (d) Development rebate\t 5,00,000\t5,00,000\n<\/p>\n
 (e) Other reserves pr-\n<\/p>\n
ovision for doubtful\t  2,09,44,600\t 55,127 2,09,99,727
\ndebts.\n<\/p>\n
3.   Add back also\n<\/p>\n
(a)  Bonus paid for pre-\n<\/p>\n
vious year\t    25,21,347\t\t\t25,21,347\n(b)  Donations in excess\nof incometax\t\t4,569\t\t\t    4,569\n(c)  Capital expenditure\n(i)Patent fees\t\t\t      10,000\n-L736 SupCI\/72\n822<\/span>\n(ii) Plant transfer\ncharges\n\t\t\t\t     72,516\n(iii)Disallowable rent 25,25,960    74,000\t26,82,432\n     4.Gross profits\t     3,02,44,8313,04,56,474\n     5.\t  Less\n     (a) Depreciation\t     76,10,540\t      76,10,540\n<\/pre>\n
(b) Development rebate\t 6,11,42582,21,965 6,11,42582,21,965
\n\t\t\t       2,20,22,8662,22,34,509\n<\/p>\n
6.   Less direct taxes\n<\/p>\n
(a)  Income-tax at 55%
\n     of the balance\t    1,21,12,576\t    1,04,68,219\n<\/p>\n
(b)  Surtax\t\t    14,67,236\t  9,39,802\n<\/p>\n
(e)  Additional income-\n<\/p>\n
     tax\t 54,600\t  1,36,34,412  54,600\t1,14,62,621
\n\t\t    83,88,454\t\t     1,07,71,888\n<\/p>\n
7. (a)Return on paid up capital at 8.5% on
\nRs. 3,64,00,000\t\t     30,94,000\t\t 30,94,000\n<\/p>\n
(b)Return on reserves at 6 % on Rs.\n<\/p>\n
2,35,07,686   14,10,461\t 45,04,461  11,48,38142,42,381
\nBalance\t\t\t   38,83,993\t\t 65,29,507
\n8:   Allocable Surplus\t      23,30,39639,17,704\n<\/p>\n
9.   Bonus at 20% on annual wages amounting to Rs.\n<\/p>\n
1,72,69,770\t\t\t\t\t 34,53,954\n10.  Set on to be carried for-\n     ward\t\t\t\t\t  4,63,750\n<\/pre>\n
In the Award, the Tribunal has given its computationas
\nwell  as  the  manner  in  which  direct  taxes\t have\tbeen
\ncalculatedfor the   year 1964-1965.\n<\/p>\n
At  this stage we may indicate that while the  Company\tcom-
\nputed\tthe  direct  taxes  on\tthe  gross-profits,   before
\ndeducting  any amount on account of bonus, the Tribunal\t has
\ncalculated  the taxes, after deducting the amount  of  bonus
\nfrom  the gross-profits.  A decision on this really  depends
\nupon  the  construction of certain provisions  of  the\tAct,
\nhaving due regard to the principles laid down by this Court.
\nWe  have stated earlier that the claim for bonus is for\t the
\nyear  1964-65, i.e., from October 1, 1964 to  September\t 30,
\n1965.  There is no controversy that for this period bonus is
\nto be calculated under the Act, which had become applicable.
\nThe  Company worked out the allocable surplus under the\t Act
\nand paid a sum of Rs. 30,35,958 as bonus for the said  year.
\nIf that calculation
\n 823<\/span>
\nis  correct,  there  is\t no  controversy  that\tthe   amount
\nrepresents 17.58% of the total wages earned by the  eligible
\nemployees  during the said accounting year.  Later  on,\t the
\nappellant  Company in view of the provisions of the  Finance
\nAct,  1966 recomputed the allocable surplus and fixed it  in
\nthe  sum of Rs. 23,30,396.  It is the, claim of the  Company
\nthat  they  paid  bonus\t at a  higher  percentage  than\t is,
\nwarranted under the Act.  There is also no controversy\tthat
\nthe Annual Wage Bill of the employees throughout the country
\nwas  Rs. 1,72,69,770.  Though the claim of the\tCompany\t was
\nthat they paid bonus at a higher percentage, its Chief\tExe-
\ncutive,\t Finance,  M.W. 1 has given evidence to\t the  effect
\nthat the Company would not seek to recover the excess amount
\npaid.  Before us also, Mr. G.B. Pai, learned counsel for the
\nappellant Company represented, that even, if on the basis of
\nthe  decision of,’ this Court, it is found that bonus  at  a
\nhigher\tpercentage  has\t been paid  to\tthe  employees,\t the
\nappellant  Company  will  not seek to,\trecover\t any  excess
\namount\tpaid.  That is, even if after accepting any  of\t the
\ncontentions  of\t the appellant.\t Company, it is\t found\tthat
\nbonus  is payable at a percentage lesser than the  rate,  at
\nwhich  it  has\tbeen paid, the excess  amount  will  not  be
\nrecovered  from\t the employees, nor adjusted  in  any  other
\nmanner.\n<\/p>\n
From the chart, given above, the tribunal has computed\tthe;
\nallocable surplus in the sum of Rs. 65,29,507 and fixed\t the
\nbonus  at  the\trate  mentioned\t in  the  Award.   The\tmain
\ncontroversy  under  this  head centres\tround  the  question
\nwhether\t the  Tribunal should have estimated the  amount  of
\ndirect\ttaxes on the balance of gross-profits as worked\t out
\nunder  ss. 4 and 6 of the Act, but without deducting  bonus,
\nas  contended  by  the\tappellant  Company  or\twhether\t the
\nTribunal was justified in deducting the amount of bonus from
\nthe  gross-profits  before calculating the tax as  urged  on
\nbehalf of the Unions.\n<\/p>\n
The  contention\t of  the appellant Company in  brief  is  as
\nfollows: The Scheme of the Act clearly indicates that gross-
\nprofits are first to be calculated and certain prior charges
\nare  to\t be deducted therefrom.\t One of\t the  Prior  charges
\nunder s. 6 is “direct tax”.  The tax is to be calculated  by
\nreference  to the profits as they emerge at the\t stage\twhen
\ndeduction of prior charges begins.  After the prior  charges
\nare  deducted from the gross-profits, the balance,left\tover
\nis  the\t available  surplus. 60% of  the  available  surplus
\nrepresents  the\t allocable surplus payable as bonus  to\t the
\nemployees.  At the stage of calculating the tax, bonus\tdoes
\nnot  come into the picture as the same is ascertained  after
\ndeduction-  the\t tax.\tHence ,the  order  of  the  Tribunal
\nholding\t that bonus, which is payable on the profits of\t the
\nyear in question, i.e., 1964-65, should be deducted from the
\ngross-profits  for the purpose of computation  of  incometax
\nunder s.6(c) of the Act, is erroneous.\tIn this connection
\n824<\/span>
\nMr.  G.\t B.  Pai, learned counsel  for\tthe  appellant,\t has
\nreferred  us  to  certain  provisions of  the,\tAct  and  in
\nparticular to the decision of this Court in Metal Box Co. of
\nIndia Ltd. v. Their Workmen<\/a>(1).\n<\/p>\n
According  to  the Unions bonus for both the  years  1963-64
\nand. 1964-65 included in the profit and loss account of\t the
\nappellant Company  and added back for computation of  gross-
\nprofits have   to  be deducted for ascertaining the  taxable
\nincome for the yearyear 1964-65.  They have made  reference
\nto the debate in parliament   at the time of the passing  of
\nAct.  In  particular  Mr. Dudhiya learned  counsel  for\t the
\nfourth respondent,whose contentions\t  have\t  been
\nacceptedby the learned counsel for other respondents,  has
\nurged  that  the  decision  in\tMetal  Box  Co.(1)  has\t not
\nconsidered  several relevant matters, which, if\t taken\tinto
\naccount,  would\t clearly  indicate  that  the  intention  of
\nParliament  was\t that  direct tax is to\t be  computed  after
\ndeducting  the\tbonus payable for  the\trelevant  accounting
\nyear.\tThe  counsel, therefore urged that the\tdecision  of
\nthis Court in Metal Box Co. (1) should be reconsidered.
\nThe  National Tribunal considered the question\twhether\t the
\nprovision for bonus in question in the sum of Rs.  30,00,000
\nand  the  bonus\t paid to the employees\tin  respect  of\t the
\nprevious accounting year, namely, Rs. 25,21,347, which\thave
\nbeen  added  in\t the Company’s statement  in  computing\t the
\ngross-profits under the Act should or should not be deducted
\nfrom the gross-profits before Income-tax is computed.  It is
\nthe  view  of the Tribunal that the bonus for  the  previous
\naccounting year 1963-64 is payable out of the profits of the
\nsaid  previous\tyear and that amount cannot be\tdeducted  in
\ncalculating  the Income-tax of the accounting year  1964-65.
\nBut it accepted the contention of the Company that in  order
\nto ascertain the gross-profits, bonus which is found payable
\non the profits for the year 1964-65 can be added back to the
\nnet  profit  shown  in\tthe Profit  and\t Loss  Account,\t but
\nrejected  its  contention that the tax liability  is  to  be
\ncomputed  without deducting the said amount.   The  Tribunal
\nhas  further  held  that it has to  take  into\taccount\t the
\nconcession by way of rebate which an employer is entitled to
\nget under the Income-tax Act on the amount of bonus paid  to
\nworkmen.   On  this  basis the Tribunal held  that  a  rough
\ncalculation shows that the allocable surplus will exceed 20%
\nof the Annual Wage Bill and that the maximum statutory bonus
\nof 20% must be subtracted from the gross-profits before\t the
\nIncometax  is calculated.  It is now necessary to  refer  to
\nthe  provisions\t of, the Act, as it stood  at  the  material
\ndate, without the amendment effected to it in 1969.
\nUnder  section\t1(4), the Act has effect in respect  of\t the
\naccounting  year commencing on any day in the year 1964\t and
\nin
\n(1)  [1969] 1 S.C.R. 750.\n<\/p>\n
 825<\/span><\/p>\n
respect\t of  every subsequent accounting  Year.\t  Section  2
\ncontains   definitions\t of   various\texpressions.\t The
\nexpressions “allocable surplus” “available surplus”  “direct
\ntax” “gross-Profits” and the “Incometax Act” are defined  in
\nclauses\t 4, 6, 12, 18 and 19 respectively. As the  appellant
\nCompany\t is  not a Banking Company, its\t gross\tprofits,  in
\nrespect\t of any accounting year, is to be calculated  under
\ns. 4(b) in the manner specified in the Second Schedule.\t The
\n“available  surplus” in respect of any accounting  year,  as
\nprovided  under\t s. 5, is the gross-profits for\t that  year,
\nafter deducting therefrom the sums referred to in section 6.
\nSection\t 6  enumerates\tthe various sums  which\t are  to  be
\ndeducted  from the gross-profits as prior charges.   We\t are
\nconcerned with the relevant provision in Cl. (c) which is as
\nfollows:\n<\/p>\n
\t      “Section\t6.  The\t following  sums  shall\t  be
\n\t      deducted\tfrom  the  gross  profits  as  prior
\n\t      charges namely,\n<\/p><\/blockquote>\n
\t      (c)   subject to the provisions of section  7,
\n\t      any direct tax which the employer is liable to
\n\t      pay for the accounting year in respect of\t his
\n\t      income, profits and gains during that year.”\n<\/p><\/blockquote>\n
Section 7 deals with the method of calculation of direct tax
\npayable by an employer “for the purpose of cl.(c) of section\n<\/p>\n
6.”  Section 11 fixes the maximum amount of bonus at 20%  of
\nthe  salary or wage.  Section 15 deals with set on  and\t set
\noff  of\t allocable surplus in  the  circumstances  mentioned
\ntherein.   Section  19 fixes the time limit for\t payment  of
\nbonus.\n<\/p>\n
As the entire scheme of the Act, as well is the principle to
\nbe  adopted  for  ascertaining the  direct  tax,  have\tbeen
\nconsidered  by this Court in certain decisions, to which  we
\nwill  refer presently, it is not necessary for us  to  cover
\nthe  ground over again.\t In Metal Box Co. of India  Ltd.  v.
\nTheir  Workmen<\/a>(1),  one\t of the\t questions  that  arose\t for
\nconsideration was the method of working out the direct taxes
\nunder the Act.\tThe Company in that case claimed that direct
\ntaxes  are  to be worked out under s. 6 (c)  on\t the  gross-
\nprofits\t worked\t out  under s. 4,  less\t the  prior  charges
\nallowable  under s. 6, namely, depreciation and\t development
\nrebate,\t but without deducting from such balance, the  bonus
\npayable\t by the Company in the particular  accounting  year.
\nThe  Tribunal, in that case, had accepted the said claim  of
\nthe  Company.\tOn behalf of the workmen  it  was  contended
\nbefore\tthis  Court that the said manner of  calculation  of
\ndirect\ttaxes was contrary to the scheme and  provisions  of
\nthe Act.  According to the workmen, the Tribunal must  start
\nits  calculation, from the net profits shown in\t the  Profit
\nand Loss Account, which would have,
\n(1)  [1969] 1 S.C.R. 750.\n<\/p>\n
826<\/span><\/p>\n
made  provisions for direct taxes and then deduct  from\t the
\ngross-profits  calculated  under  s.  4\t the  prior  charges
\npermissible under S. 6. The provisions for direct taxes made
\nin  the\t Profit and Loss Account would\thave  been  computed
\nafter  deducting  from\tgross  receipts,  such\t deductions,
\nallowances,  reliefs  and rebates etc.\tas  are\t permissible
\nunder  the Income,-tax Act.  It was the further case of\t the
\nworkmen\t that the bonus amount payable during  a  particular
\nyear  would have been deducted from the gross  receipts,  as
\nwithout\t such deduction, the Profit and Loss  Account  would
\nnot reflect the true net profit of an employer.
\nIn  dealing with the above contentions, this Court,  in\t the
\nabove decision, has referred to the views expressed by\tthis
\nCourt  on  earlier occasions that the deduction\t by  way  of
\nIncome-tax is not the actual amount payable, but what  would
\nbe  nationally payable on the profits determined  under\t the
\nFull  Bench  Formula.\tThis Court  further  considered\t the
\nquestion  whether  the\tconcept of  notional  tax  liability
\nadopted\t for a long time, has been altered or given the\t go-
\nbye  by Parliament in enacting ss. 6(c) and 7. After a\tvery
\nelaborate  reference  to  the  scheme  of  the\tAct  and  in
\nparticular to ss. 4 to 7 read with the Second Schedule, this
\nCourt ultimately accepted the contention of the Company that
\nthe  tax liability is to be worked out by first working\t out
\nthe gross-profits and deducting therefrom the prior  charges
\nunder  s.  6, but not the bonus payable\t to  the  employees.
\nThis Court further observed as follows :\n<\/p>\n
\t      “If  Parliament intended to make\ta  departure
\n\t      from   the  rule\tlaid  down  by\tcourts\t and
\n\t      tribunals\t that  the bonus  amount  should  be
\n\t      calculated  after provision for tax  was\tmade
\n\t      and  not\tbefore, we would  have\texpected  an
\n\t      express provision to that effect either in the
\n\t      Act or in the Schedules.”\n<\/p><\/blockquote>\n
This  decision has categorically laid down that an  employer
\nis entitled to compute his tax liability, without  deducting
\nfirst  the amount of bonus, he would be liable to pay,\tfrom
\nand out of the amount computed under ss. 4 and 6.
\nAfter the decision of this Court in Metal Box Co.(1) Parlia-
\nment  enacted  the Payment of Bonus (Amendment)\t Act,  1969,
\n(hereinafter to be referred as the Amendment Act).   Section
\n2 of the Amendment Act, added a proviso to s. 5 of the\tAct.
\nSimilarly section 3 of ‘the Amendment Act deleted in s. 7 of
\nthe Act, the opening words “for the purpose of cl. (c) of s.
\n6  any direct tax payable by the employer’ and\tsubstituted
\nthe words “any direct tax payable by the employer.”
\n(1)  [1969] 1 S.C.R. 750.\n<\/p>\n
 827<\/span><\/p>\n
In  The\t Workmen of William Jacks and Co.  Ltd.\t  Madras  v.
\nManagement of Will<\/a> lacks and Co. Ltd., Madras(1), one of the
\nquestions  that\t arose\tfor  consideration  related  to\t the
\ncorrectness of the method adopted by the Company therein  in
\ncalculating  the amount of Income-tax, without\ttaking\tinto
\naccount the bonus which would be payable to the workmen\t for
\nthe relevant year.  It was urged on behalf of the Union that
\nthe  Income-tax\t should\t be  calculated\t after\ttaking\tinto
\naccount\t the bonus.  This contention again was\trejected  by
\nthis  Court  relying on its previous decision in  Metal\t Box
\nCo.(2)\t. The principle laid down in Metal Box Co.  (2)\t was
\napproved  and reiterated.  That principle, we  have  already
\npointed\t out,  is  that the Income-tax liability  is  to  be
\nworked\tout  by\t first working\tout  the  gross-profits\t and
\ndeducting  therefrom the prior charges under s. 6,  but\t not
\nthe bonus payable to the employees in a relevant  accounting
\nyear.\tIt is significant to note that in William Jacks\t and
\nCo.(1) the Union referred to the Amendment Act and  strongly
\nurged  that the principle laid down by this Court  in  Metal
\nBox Co.(2) regarding the method of computing direct tax\t has
\nbeen  modified by the Legislature.  This Court, in the\tsaid
\ndecision  referred to the provisions of the  Amendment\tAct,
\nand  observed that no amendment has been effected to  s.  6,
\nand  that the amendment in s. 7 is only to, the effect\tthat
\nthe principles laid down therein are to be applied not\tonly
\nin respect of s. 6(c) but also to other sections of the Act.
\nIt  was\t further  stated  that the change  in  s.  7  became
\nnecessary  cause of certain amendments effected in s.  5  by
\nmaking,\t certain additions, which referred to  direct  taxes
\nincluding   Income-tax.\t  It  was  further  held  that\t the
\namendment  in s. 5, has no bearing on the  question  whether
\nIncome-tax, to be taken into account in calculation,  should
\nbe  worked out after taking into account the  bonus  payable
\nunder  the Act or without having regard to it.\t Ultimately,
\nthis Court wound up the discussion on this point as  follows
\n:\n<\/p>\n
\t      “…….. Consequently, there is no reason for
\n\t      us  to differ from the view expressed by\tthis
\n\t      Court  in\t Metal Box Co. (2). This  ground  of
\n\t      challenge also, therefore, fails.”\n<\/p><\/blockquote>\n
Therefore, it will be noted that the principle laid down  in
\nMetal  Box  Co. (2) regarding the manner of  computation  of
\ndirect\ttax  has been reiterated and reaffirmed\t in  William
\nJacks  and Co.,(1) and it has also been further pointed\t out
\nthat the Amendment Act had made no change whatsoever on this
\naspect.\n<\/p>\n
The  same question again came, up for  consideration  before
\nthis  Court  in Delhi Cloth and General Mills  Co.  Ltd.  v.
\nWorkmen<\/a>(3)
\n(1) [1971] 1 L.L.J. 503.\t   (2) [1969] 1 SC.R. 750.
\n(3)  [4971] 2 S.C.C. 695.\n<\/p>\n
828<\/span><\/p>\n
The  workmen  therein  again  contended\t that  many  of\t the
\nobservations  in Metal Box Co.(1) were obiter and  that\t the
\nsaid  decision\tshould not be followed as  a  precedent\t for
\ndetermination of the question regarding the manner in  which
\ndirect\ttaxes  have  to be computed.  Again,  after  a\tvery
\nelaborate consideration of the scheme of the Act, this Court
\nrejected  the  contention  of the  Union,  and\tobserved  as
\nfollows :\n<\/p>\n
\t      “Strong reliance was placed by learned counsel
\n\t      for  the\tappellant on the  decision  of\tthis
\n\t      Court  in Metal Box Co. v.  Workmen.   Counsel<\/a>
\n\t      for  the respondents made valiant\t efforts  to
\n\t      persuade\t us  to\t hold  that  many   of\t the
\n\t      observations  therein were obiter and as\tsuch
\n\t      the case should either be distinguished or  be
\n\t      not   followed   as  a   precedent   for\t the
\n\t      determination of the question before us. While
\n\t      no doubt the dispute in that case was somewhat
\n\t      different\t from  the  one\t which\twe  have  to
\n\t      resolve  and  there  are\tsome  distinguishing
\n\t      features in that case, namely, that the  Court
\n\t      was not called upon to examine the computation
\n\t      of the figures of gross profits, etc.,-for  an
\n\t      establishment which came within the proviso to
\n\t      Section  3,  the observations bearing  on\t the
\n\t      question\tof  the computation  of\t direct\t tax
\n\t      under Section 6(c) of the Act are certainly in
\n\t      point.  It was pointed out there at p. 775 :
\n\t      “What  Section  7\t really means  is  that\t the
\n\t      Tribunal\thas to compute the direct  taxes  at
\n\t      the  rates  at  which the\t income,  gains\t and
\n\t      profits  of the employer are taxed  under\t the
\n\t      Income-tax Act and other such Acts during\t the
\n\t      accounting  year\tin question.   That  is\t the
\n\t      reason  why  Section 6(c) has  the  words\t “is
\n\t      liable  for” and the words “income, gains\t and
\n\t      profits”.\t  These words do not, however,\tmean
\n\t      that the Tribunal while computing direct taxes
\n\t      as  a  prior charge has to assess\t the  actual
\n\t      taxable income and the taxes thereon.”
\n\t      With respect, we entirely agree with the above
\n\t      observation and in our view no useful  purpose
\n\t      will  be\tserved\tby referring  to  the
\n\t      other observations bearing on a question\twith
\n\t      which we are not directly concerned.”\n<\/p><\/blockquote>\n
This  decision again reiterates the principle laid  down  in
\nMetal Box Co.(1).\n<\/p>\n
In  view of the fact that the two later\t decisions,  William
\nJacks and Co. (2) and Delhi Cloth and General Mills Co.\t (s)
\nhave  approved and adopted the principles laid down by\tthis
\nCourt in
\n(1) [1969] 1 S.C.R. 750.       (2) [1971] 1 L.L.J. 503.
\n(3)  [1971] 2 S.C.C. 695.\n<\/p>\n
 829<\/span><\/p>\n
Metal  Box Co.(1) that decision holds good and\tgoverns\t the
\nprinciples  to be applied to the case on hand.’ We  are\t not
\npersuaded  by  the  request made by  Mr.  Dudhiya  that\t the
\ndecision  in  Metal Box Co.(1) has to be  reconsidered.\t  In
\nfact we have already pointed out that even the effect of the
\nAmendment  Act has been considered by this Court in  William
\nJacks  and  Co.\t Ltd.(2)  and it  has  been  held  that\t the
\nAmendment Act has made no change in the principles laid down
\nby this Court in Metal Box Co. (1).\n<\/p>\n
It is rather significant to note that the, Amendment Act was
\npassed,\t after\tthe  decision of this  Court  in  Metal\t Box
\nCo.(1).\t Parliament  at\t that time was fully  aware  of\t the
\nprinciple laid down by this Court that the tax liability has
\nto be worked out by first working out the gross-profits\t and
\ndeducting  therefrom the prior charges under s. 6,  but\t not
\nthe   bonus   payable  to  the\t employees.    Nevertheless,
\nParliament did not make any change in the Act enacting\tthat
\na  different  method is to be adopted for  computing  direct
\ntaxes.\tIf the Parliament intended to make a departure\tfrom
\nthe principle laid down by this Court in Metal Box Co.,\t (1)
\nthat  bonus amount should be calculated, after\ta  provision
\nfor tax was made and not before, a provision to that  effect
\nwould have been incorporated by the Amendment Act.  That not
\nhaving\tbeen  done, the law as laid down by  this  Court  in
\nMetal Box Co.(1) and reaffirmed by the two later  decisions,
\nreferred to above, still holds the field.\n<\/p>\n
One must in fairness state that the National Tribunal in the
\ncase  before  us,  was\tfor  the  first\t time  applying\t the
\nprovisions of the Act and it did not have the benefit of the
\ndecision  of this Court in Metal Box Co. (1).  From what  is
\nstated\tabove,\tit  follows that the view  of  the  National
\nTribunal  that\tbonus  must be subtracted  from\t the  gross-
\nprofits before Income-tax is calculated, is not correct.
\nBefore\tclosing\t the  discussion  on  this  aspect,  it\t  is
\nnecessary  to  point  out  that the  view  of  the  National
\nTribunal  that the tax concession by way of rebate  that  an
\nemployer  will\tget under the Income-tax Act  on  the  bonus
\nfound to be payable has also to be taken into  consideration
\nin dividing the surplus between the workmen and the Company,
\nis also erroneous in view of the fact that the Act, which is
\na  self-contained  Code has prescribed the manner  in  which
\navailable  surplus  and\t the allocable\tsurplus\t are  to  be
\ncalculated.\n<\/p>\n
The second claim made by the Company related to deduction of
\nRs.  14,10,461 from the gross-profits as Return on  reserves
\nat 6% on Rs. 2,35,07,686.  As against the amount claimed  by
\nthe Company, the National: Tribunal has allowed a sum of
\n(1) [1969] 1 S.C.R. 750.\n<\/p>\n
(2) [1971] 1 L.L.J. 503.\n<\/p>\n
830<\/span><\/p>\n
Rs. 11,48,381.\tThis claim of Return on reserves made by the
\nCompany\t was based on s. 6, clause (d) read with Item 1\t Cl.\n<\/p>\n
(iii)together  with the material part of the Explanation  to
\nthe ThirdSchedule  of  the Act.\t Section 6  enumerates\tthe
\nvarious sums whichare  to  be  deducted\t from  the  gross-
\nprofits as prior charges. Section 6 (d) runs as follows :\n<\/p>\n
\t      “Section\t6  :  The following  sums  shall  be
\n\t      deducted\tfrom  the  gross-profits  as   prior
\n\t      charges, namely\n<\/p><\/blockquote>\n
\t      (d)such  further sums as are  specified  in
\n\t      respect\tof   the  employer  in\t the   Third
\n\t      Schedule.”\n<\/p><\/blockquote>\n
In  the\t Third\tSchedule there are three  columns.   As\t the
\nappellant  is  a Company other than a Banking  Company,\t the
\nrelevant item is Item No. 1, of Column I and clause (iii) of
\nColumn 3, which are as follows :\n<\/p>\n
Item   Category of employer  Further sums to be deducted
\nNo.\n<\/p>\n
1\t\t\t2\t\t      3\n<\/p>\n
1.   Company, other than a banking company.\n<\/p>\n
\t      (iii) 6 per cent of its reserves shown in\t its
\n\t      balance  sheet as at the commencement  of\t the
\n\t      accounting year, including any profits carried
\n\t      forward from the previous accounting year.
\nThe  material part of the Explanation in the Third  Schedule
\nis as follows :\n<\/p>\n
“The expression “reserves” occurring in\t\t     column
\n(3)  against  Item No. 1 (iii) * * * shall not\tinclude\t any
\namount set apart for the purpose of\n<\/p>\n
(iii)\t payment    of\t  dividends    which\thave\tbeen
\ndeclared…………\n<\/p>\n
We  have  already  referred to the fact\t that  the  relevant
\naccounting  year with which we are concerned is\t October  1,
\n1964  to  September 30, 1965.  In its  balance-sheet  as  on
\nSeptember  30,\t1964, the appellant had shown a sum  of\t Rs.
\n2,35,07,686.  as reserves.  Similarly, in its balance  sheet
\nas on September 30, 1965, apart from showing its reserves as
\non that date, it had also shown a sum of Rs. 2,35,07,686  as
\nreserves  at  the commencement of the accounting  year.\t  In
\nview of the circumstances the claim for Return at 6% of this
\namount has been made’ by the Company.\n<\/p>\n
 831<\/span><\/p>\n
The National Tribunal,- on the other hand, though  accepting
\nthe figure as correct, held that from the reserves shown  in
\nthe balance-sheet a sum of Rs. 43,68,000 has been  earmarked
\nand paid as dividend for the year ending September 30, 1964,
\nand,  therefore, this amount will have to be  deducted\tfrom
\nthe  reserves  shown at the commencement of  the  accounting
\nyear 1964-65.  After so deducting this amount, the  Tribunal
\nfixed the reserve at the commencement of the accounting year
\nin the sum of Rs. 1,91,39,686.\tIt allowed 6% Return on this
\namount\tand  thus arrived at the sum of\t Rs.  11,48,381,  as
\nagainst\t ‘,he  claim  of  the Company  in  the\tsum  of\t Rs.
\n14,10,486.\n<\/p>\n
This method of approach by the National Tribunal is attacked
\nby  Mr. G. B. Pai on the ground that it is clearly  contrary
\nto  the provisions referred to above.  According to him\t the
\namount\tclaimed\t as reserve has been shown in  the  balance-
\nsheet  “as at the commencement of the accounting year”\ti.e.
\nOctober\t 1,  1965.   So\t according  to\thim  the   essential
\nrequirement of cl. (iii) in Column 3 relating to Item No.  1
\nin  the\t Third Schedule is satisfied.  In  the\tsaid  amount
\nshown as reserve, the appellant Company will not be entitled
\nto  include any amount which is governed by the\t Explanation
\nin  the Third Schedule.\t So far as Item No. 1 (iii)  of\t the
\nThird  Schedule\t is  concerned,\t in  order  to\tattract\t the
\nExplanation,  the amount should have been set apart for\t the
\npurpose of payment of dividend which have been declared.
\nIn  this case, the counsel pointed out, no amount  has\tbeen
\nset  apart for payment of dividend; nor has any\t payment  of
\ndividend  been declared as on October 1,  1964.\t  Therefore,
\ngoing  by the clear wordings of the relevant provision,\t the
\ncounsel\t criticised,  the deduction by the Tribunal  of\t the
\ndividend declared for the year 1963-64 some time during\t the
\naccounting year, 1964-65.\n<\/p>\n
Mr.  Dudhiya,  learned counsel for the Unions,\tpointed\t out
\nthat  the  approach made by the Tribunal  is  correct.\t The
\ncounsel\t pointed  out that on no occasion will\tdividend  be
\ndeclared for the accounting year ending September 30,  1964,
\non  October 1, 1964, which is the beginning of the  relevant
\naccounting  year  now  under  consideration.   The   counsel
\nreferred  us to the notices issued calling for\tthe  general
\nmeeting of the shareholders as well as the declaration\tmade
\nby  the Directors regarding setting apart of th e  necessary
\namounts\t in the General Reserve for payment of dividend\t for
\nthe  year  1963-64.   He further  pointed  out\tthat  though
\ndividend  for the year 1963-64 was actually paid  only\tsome
\ntime in March, 1965, the appellant is not entitled to  claim
\nReturn\ton the entire amount shown as Reserve on October  1,
\n1964 as it is from and out of that Reserve that the dividend
\nfor the previous year has been paid.\n<\/p>\n
832<\/span><\/p>\n
In   our  opinion,  there  is  considerable  force  in\t the
\ncontention   ,of   Mr.\t Dudhiya.    Going   by\t  a   strict
\ninterpretation\tof the language of the provisions relied  on
\nby Mr. G. B. Pai, his argument, no doubt, looks\t attractive.
\nBut  from  the\tother proceedings, to which  we\t will  refer
\nimmediately,  it will be seen that the approach made by\t the
\nTribunal  is correct.  In the Schedule to the  balance-sheet
\nas on September 30, 1964, the appellant Company has shown  a
\nsum  of Rs. 1,23,00,000 as General Reserve.  It has  further
\nshown  a sum of Rs. 43,68,000 as the amount  transferred  to
\nappropriation account for payment of dividend subject to tax
\nin  respect  of the previous year, namely, 1962-63.  it\t has
\nalso  shown a sum of Rs. 63,00,000 as added to\tthe  General
\nReserve\t during\t the  year ended  September  30,  1964.\t  On
\nDecember  5, 1964, a notice was issued regarding holding  of
\nthe Annual General Meeting on February 12, 1965.  One of the
\nitems  in  the agenda for the said meeting  was\t to  declare
\ndividend.  It is further stated in the said notice that\t the
\ndividend to be declared at the meeting will be payable on or
\nbefore\tMarch 9, 1965, to those members whose names  are  on
\nthe  Company’s Register of Members as on February 12,  1965.
\nIn  the\t Directors’ Report accompanying the  notice,  it  is
\nstated\tthat  a sum of Rs. 43,68,000 has  been\tappropriated
\n“for payment of dividend for the previous year’ (paid during
\nthe  year).  The reference to the “previous year”  obviously
\nis  to the accounting year ended September 30, 1964.  It  is
\nalso clear that the amount so appropriated for payment of
\ndividend is to be paid “during the year” namely, 1964-65. It
\nis also stated that this amount for payment of dividend\t has
\nbeen  transferred  from\t the General  Reserve.\t The  notice
\nfurther\t states\t that  the Directors  recommend\t payment  of
\ndividend  for  the  year ended September  30,  1964  at\t 12%
\nsubject to deduction of tax at the appropriate rate and that
\nthe  said  payment  will absorb Rs. 43,68,000,\tout  of\t the
\nGeneral Reserve.\n<\/p>\n
It will be seen that from the notice calling for the General
\nMeeting,  the  Directors’  Report  and\tthe   balance-sheet,
\nreferred  to above, that a sum of Rs. 43,68,000 out  of\t the
\nGeneral\t Reserve ,of Rs. 2,35,07,686 has been set apart\t and
\nis  to\tbe  appropriated for payment  of  dividend  for\t the
\nprevious year 1963-64.\tIn no case will a Company be able to
\ndeclare a dividend for the year ending September 30, 1964 on
\nthe morning of October 1, 1964.\t Therefore, it is clear that
\nfrom the Reserve shown at the commencement of the accounting
\nyear i.e. October 1, 1964, a sum of Rs. 43,68,000 has to  be
\ndeducted  as per the Explanation to the Third  Schedule,  as
\nthe  said amount must be considered to ‘have been set  apart
\nfor  payment of dividend.  No doubt, Mr. Pai urged that\t the
\nnotice calling for a General Meeting on February
\n 833<\/span>
\n12,  1965  was\tissued\ton December 5,\t1964  and  that\t the
\ndividend  was actually declared only on a later date and  in
\nfact  the dividend was paid only as late as March  9,  1965.
\nTherefore,  he\tpointed out that in any event it  cannot  be
\nconsidered  that  the  said amount has been  set  apart\t for
\npayment of dividend which have been declared.
\nIt  is\tnot possible to accept this contention of  Mr.\tPai.
\nOnce  the  Directors  have, on the basis  of  the  auditor’s
\nreport and other materials, decided to declare a  particular
\namount\tas dividend and have set apart the  required  amount
\nfrom the General Reserve, it must relate back to the date of
\nthe commencement of the accounting year.  The mere fact that
\ndividend  was actually paid only on March 9, 1965,  in\tthis
\nview,  is  of  no  consequence.\t  Therefore,  the   National
\nTribunal was perfectly justified in allowing interest at  6%
\nonly  on  the  sum  of Rs.  1,91,39,686.   Therefore  is  no
\ncontroversy  that  6% Return on this  amount,  as  correctly
\nstated in the Award, is the sum of Rs. 11,48,381.
\nAnother\t amount that has been added back by the Tribunal  to
\nthe net profits shown in the Profit and Loss Account is\t the
\nsum of Rs. 55.127\/-. According to the appellant this  amount
\nrepresents  doubtful debts and as such the  Tribunal  should
\nnot have added back the same.  In this connection Mr. G.  B.
\nPai,  learned counsel for the appellant, drew our  attention
\nto s. 211 of the Companies Act, 1956, which provides for the
\nForm  and  Contents  of balance-sheet and  Profit  and\tLoss
\nAccount.   He  also  invited our attention to  Part  II\t and
\nSchedule  Six of the same Act regarding the requirements  as
\nto  Profit and Loss Account as well as to Part HI  regarding
\nthe  interpretation of the expressions contained in Parts  I
\nand  III of the said Schedule.\tHe has also referred  us  to
\nthe auditor’s report for the year ending September 30,\t1965
\nand  also  to certain passages in Pickles and  Dunkerley  on
\nAccountancy.\n<\/p>\n
All the above matters were relied on by the learned  counsel
\nto support his contention that the doubtful debts have\tbeen
\nproperly  excluded  by the Company in computing\t the  gross-
\nprofits,  Here\tagain,\tit is not  possible  to\t accept\t the
\ncontention  of Mr. Pai.\t In the Profit and Loss Account\t for
\nthe  year ended September 30, 1965, the appellant under\t the
\ncolumn Expenses, had given one item as Miscellaneous.  Under
\nthis heading it had shown a sum of Rs. 71,71,072.  Later on,
\nunder Ex. 3B, the appellant gave a break up of this  amount.
\nIn  particular,\t it is only necessary to note  that  it\t had
\nreferred  to two separate items, namely, Rs. 41,099  as\t bad
\ndebts  and  the sum of Rs. 55,127 as doubtful  debts.\tThis
\nclearly\t shows\tthat  the appellant  Company  made  a  clear
\ndistinc-\n<\/p>\n
834<\/span><\/p>\n
tion between bad debts and doubtful debts.  The claim of the
\nappellant that this amount of Rs. 55,127, shown as  doubtful
\ndebts is really a Provision and not a Reserve.
\nMr. Pai has referred us to the decision in Metal Box  Co.(1)
\nto  show that doubtful debts have been treated\tas  Reserve.
\nWe  have gone through the said decision.  This Court had  no
\noccasion-  at  all to express any opinion on this  point  as
\nthere  appears\tto  have been  no  controversy\tbetween\t the
\nparties\t  therein.    This  Court   in\t Textile   Machinery
\nCorporation  Ltd.  v. Their Workmen<\/a>(2) did  not\t accept\t the
\nclaim  of  the management therein regarding  certain  amount
\ntreating it as a Reserve to meet possible losses in  future.
\nThe Tribunal added back the said amount for determining\t the
\ngross-profits.\t This Court in rejecting the  contention  of
\nthe management that the Tribunal was in error in adding back
\nthe said amount observed as follows :\n<\/p>\n
\t      “It is true that some of the debts due to\t the
\n\t      appellant may not be fully realised but it  is
\n\t      difficult to understand how the appellant\t can
\n\t      create  a\t reserve solely for the\t purpose  of
\n\t      meeting any possible losses on account of\t bad
\n\t      or  irrecoverable debts and claim a  deduction
\n\t      of this amount while determining the available
\n\t      surplus.\t The creation of such a\t reserve  is
\n\t      wholly   inconsistent  with  the\tFull
\n\t      Bench   formula\tin  question.\t There\t is,
\n\t      therefore,  no substance in the argument\tthat
\n\t      this amount should not have been added back.”\n<\/p><\/blockquote>\n
No  doubt,  this Court was considering the question  on\t the
\nbasis  of  the Full Bench formula; but in our  opinion\tthat
\nprinciple applies with equal force to the case on hand\teven
\nunder  the Act.\t In fact the above decision also shows\tthat
\ncreation  of  such an amount is really a reserve and  not  a
\nProvision,  as contended by the appellant.  Even apart\tfrom
\nthe  above circumstances, there is a crucial fact  that\t the
\nappellant itself in its break-up has distinguished bad debts
\nfrom  doubtful debts.  The Tribunal had not added  back\t the
\namount\tshown by the appellant in the break-up\tsheet  under
\nthe heading “bad debts”.  We may also refer to the  evidence
\nof Mr. Banerji, W.W.1, who was a Chartered Accountant.\t In
\nchief  examination  he\thas stated that under  the  Act\t the
\namount claimed by the appellant as  doubtful debts has to be
\nadded  back  for  ascertaining the  gross-profits.   He\t has
\nfurther stated that under the Income-tax Act.  Provision for
\ndoubtful  debts\t cannot\t be deducted in\t computing  the\t net
\nprofits.  On this point, so far as we could see, there is
\n(1) [1969] 1 S.C.R. 750.     (2) [1960] 1 L.L.J. 34.\n<\/p>\n
 835<\/span><\/p>\n
no  cross-examination  on  be-half  of\tthe,  Company.\t The
\nTribunal  was justified in holding that the,  appellant\t was
\nnot  in\t order\tin  deducting  Rs.  55,127  under  the\thead
\n“doubtful  debts”  as  an  item\t of  expenditure.   It\t was
\nperfectly justified in adding back this amount in  computing
\nthe gross-profits.\n<\/p>\n
The  last point in controversy relates to three items  shown
\nas capital expenditure in Ex.4. Those items are : (1) Patent
\nfees Rs. 10,000; (2) Plant transfer charges Rs. 72,516;\t and
\n(3)  Disallowable  rent Rs. 74,000.  The above\tthree  items
\nwere  claimed  by the appellant as revenue  expenditure\t and
\nhence  should not be added back for ascertaining the  gross-
\nprofits.\n<\/p>\n
So far as Plant transfer charges of Rs. 72,516\/- is concern-
\ned,  it\t is seen that though this was claimed as  a  revenue
\nexpenditure,  Mr. K. B. Bose, appearing for  the  appellant,
\nhad  conceded before the National Tribunal that this  amount
\nis  an\titem of capital expenditure which  should  be  added
\nback.  This concession has been recorded in the Award and it
\nhas  not  been\tchallenged  before  us\ton  behalf  of\t the
\nappellant.   Therefore.\t it follows that  the  Tribunal\t was
\njustified  in adding back this amount for  ascertaining\t the
\ngross-profits.\n<\/p>\n
Similarly,  regarding Patent fees of Rs. 10,000, the  appel-
\nlant’s\twitness\t Mr.  Basu, M.W. I has\tadmitted  in  cross-
\nexamination that Patent fees is also regarded as an item  of
\ncapital\t expenditure.\tIf  that is  so,  the  Tribunal\t was
\njustified in adding back this amount also.
\nThe same witness has also admitted that rent paid for godown
\nfor  storing capital goods in the process of erection  of  a
\nfactory\t is not allowable as an item of revenue\t expenditure
\nand that the Income-tax authorities would treat the same  as
\nPart   of  capital  expenditure\t for  erecting\ta   factory.
\nTherefore,  from the evidence on the side of the  appellant,
\nit  is\tclear that this amount also is an  item\t of  capital
\nexpenditure and has to be added back in computing the gross-
\nprofits.\n<\/p>\n
Similarly,  Mr.\t Banjerji, Chartered  Accountant,  who\tgave
\nevidence  on  the  side of the Union, as W.W.  1,  has\talso
\nstated\tthat the appellant itself originally added  back  in
\ncomputing  gross-profits  the  amount  under  Patent   Fees,
\nDisallowable Rent and Plant Transfer Charges and that it was
\nonly at a later stage that it claimed these items as revenue
\nexpenditure.   Under these circumstances, the  Tribunal\t was
\njustified  in adding back the amount of Rs.  74,000\/-  under
\nthe heading Disallowable Rent.\n<\/p>\n
So  far as the calculation of Surtax is concerned, the\tTri-
\nbunal has held that the method of calculation made by the
\n836<\/span>
\nCompany\t in  Ex.  4 is correct, but it\thas  to\t be  altered
\nbecause\t the  income-tax calculated by\tit  after  deducting
\nbonus was less.\t Now, that we are accepting the claim of the
\nappellant that bonus should not be deducted for\t calculating
\ndirect\ttaxes, it follows that the view of the\tTribunal  in
\nthis respect is not correct.\n<\/p>\n
We  have already pointed out that the National Tribunal\t has
\nheld  that  direct tax has to be calculated  without  taking
\ninto  account  the bonus paid for the year 1963-64  and\t the
\nbonus payable  for  the accounting year 1964-65.  So far  as
\nthe bonus payable   for\t the  accounting  year\t1964-65\t  is
\nconcerned, we have already    discussed the matter and\theld
\nthat  the  view of the Tribunal is erroneous.  But,  in\t our
\nopinion,  the  Tribunal\t was justified in  holding  that  in
\ncalculating direct taxes, the bonus for the accounting\tyear
\n1963-64,  though  paid during the  accounting  year  1964-65
\nshould not be taken into account, is correct.  As the  bonus
\nyear  must be taken as a unit, bonus paid for  the  previous
\naccounting  year  from and out of the profits  of  the\tsaid
\nprevious year does not come into the picture.
\nFrom the discussion above, it follows that except the  error
\ncommitted by the National Tribunal in the matter of computa-
\ntion  of direct taxes after excluding bonus payable for\t the
\naccounting  year  1964-65,  in all  other  respects  it\t was
\njustified  in  rejecting  the various  claims  made  by\t the
\nCompany.  Even on the basis of the rejection of the claim of
\nthe   appellant\t that  the  bonus  paid\t for  the   previous
\naccounting  year 1963-64 has also to be taken  into  account
\nfor  purposes  of calculation of direct taxes, there  is  no
\ncontrovert that on a proper calculation, the bonus to  which
\nthe  workmen will be entitled, will be very much  less\tthan
\n17.58%\talready\t given\tby the Company.\t  Hence\t it  is\t not
\nnecessary  for us to recompute the figure, as the  appellant
\nhas  agreed  not to claim a refund or in  any  other  manner
\nadjust\tor collect the excess bonus that has  been  already
\npaid.\n<\/p>\n
But it follows that the view of the Tribunal that the  work-
\nmen are entitled to bonus at the maximum rate of 20% and the
\nfurther\t direction  regarding  the  set\t on  to\t be  carried
\nforward, cannot be sustained.  From the calculation given by
\nus  earlier, it will be seen that the National Tribunal\t had
\ndirected  that\ta  sum of Rs. 4,63,750\thad  to\t be  carried
\nforward\t as set on in the succeeding year.’ This  direction’
\nhas  been  given on its finding that the  allocable  surplus
\nwork@  out  at more than 20% of the Annual Wage,  Bill.\t  If
\nthat finding is correct, the direction regarding set on will
\nbe  justified  under  s.. 15 of the Act.   But\tas  we\thave
\nalready\t held  that  parties are agreed\t that  on  a  proper
\ncomputation,  on the basis, indicated by us in\tthe  earlier
\npart of
\n 837<\/span>
\nthe judgment, even the bonus already paid at 17.58%, will be
\non  the\t high side, it follows that the\t direction  of\tthe,
\nNational Tribunal regarding set on cannot be accepted.
\nIn  the view that we have taken about the appellant’s  claim
\nregarding  direct  taxes,  it has been\trepresented  by\t the
\ncounsel\t appearing for the various unions that they are\t not
\npressing their appeals Nos. 813 and 1302 of 1967.
\nIn  the result, the Award of the National Tribunal is  modi-
\nfied to the extent indicated above and Civil Appeal No.\t 415
\nof 1967 allowed in part.  In other respects the said  appeal
\nwill  stand dismissed.\tCivil Appeals Nos. 813 and  1302  of
\n1967  are dismissed as not pressed.  There will be no  order
\nas to costs in all the appeals.\n<\/p>\n
G.C.\n<\/p>\n
6-L736Sup CI\/72
\n838<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Indian Oxygen Limited vs Their Workmen on 9 December, 1971 Equivalent citations: 1972 AIR 471, 1972 SCR (2) 816 Author: C Vaidyialingam Bench: Vaidyialingam, C.A. PETITIONER: INDIAN OXYGEN LIMITED Vs. RESPONDENT: THEIR WORKMEN DATE OF JUDGMENT09\/12\/1971 BENCH: VAIDYIALINGAM, C.A. BENCH: VAIDYIALINGAM, C.A. MATHEW, KUTTYIL KURIEN CITATION: 1972 AIR 471 1972 SCR […]<\/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-89226","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nIndian Oxygen Limited vs Their Workmen on 9 December, 1971 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/indian-oxygen-limited-vs-their-workmen-on-9-december-1971\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Indian Oxygen Limited vs Their Workmen on 9 December, 1971 - 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