Employers in Relation to The
Management of Indian Cable Co. Vs. Their Workmen  INSC 104 (11 April
MATHEW, KUTTYIL KURIEN
CITATION: 1972 AIR 2195 1973 SCR (1) 105 1974
SCC (3) 11
RF 1976 SC 611 (15)
Payment of Bonus Act, 1965, ss. 4 &
6-Calculation of available surplus-Notional tax liability must be worked out
without deducting bonus from gross profits-Ceiling of Rs. 750/under s.
2(13)-Payments made in respect of emoluments above ceiling whether
'deductible-Return on provision for doubtful debts whether deductible
Compensation to work-men for premature-retirement, whether must be added back
Right of respondent to support decision of Tribunal on grounds not accepted or
noticed by Tribunal.
The appellant company declared bonus for the
year 1955-56 at 13.51% The workmen demanded bonus at the rate of 20%, the maximum
provided in the Payment of Bonus Act, 1965. The dispute about the rate of bonus
and calculation of the available surplus was referred to the Industrial
The Tribunal held that a sum of Rs. 21,06,576
being bonus at 20% of the gross effective salaries and wages was payable for
the year in question and it directed the surplus amount of Rs. 1,46,252/to be
set on As the bonus at the rate of 13.51 % had already been declared and paid
by the Company, the Tribunal directed the payment of the balance 6.49% within a
prescribed period. In appeal to this Court against the Tribunal's award the
appellant company contended : (i) that the Tribunal erred in holding that under
ss. 6 and 7 of the Payment of Bonus Act the bonus payable for the relevant
accounting year has to be deducted from the gross profits for the calculation
of direct tax, (ii) that the Tribunal erred in refusing to deduct from the
gross profits the exgratia payment made to employees in respect of salary above
the ceiling of Rs. 750 fixed by the Act. (iii) that the Tribunal wrongly
refused to deduct the reserve for doubtful debts from the gross profits. On
behalf of the respondent workmen it was urged that the Tribunal was not
justified in allowing deduction of certain items from the gross-profits for
purposes of computing the available and allocable surplus.
HELD : (i) In the case of Metal Box Co., it
was held by this Court that the notional tax liability is to be worked out by
first working out the gross profits and deducting there from the prior charges
under s. 6, but not the bonus payable to the employees. It is clear from the
above decision that an employer is entitled to deduct his tax liability without
deducting first the amount of bonus he would be liable to pay from and out of
the amount computed under ss. 4 & 6 of the Act. This principle has been
upheld by the Court in later cases. This Court has also held that the amendment
of the Act in 1969 has not affected any change in the earlier decision that the
tax liability under the Act is to be worked out first by working out the
gross-profits and deducting there from bonus payable to the employees. It
followed that the Tribunal committed an error in law in computing direct tax
after deducting bonus. [109H-110D] Metal Box Co. of India Ltd. v. Their
Workmen, 1 S.C.R.
750, The Workmen of William Jacks, and
Company Ltd. Madras v. Management of William Jacks and Co. Ltd., Madras, A.I.R.
08SupCI/72 106 1821, Delhi Cloth and General
Mills Co. Ltd. v. Workmen  2 S.C.C. 695. and Indian Oxygen Ltd. etc. v.
Their Workmen, A.I.R. 1972 S.C. 471. applied.
(ii) Though officers drawing salary upto Rs.
1600 per mensem are employees under s. 2(13) of the Act and eligible for bonus,
the salary or wages per month will be taken at the maximum of Rs. 750/permensem.
What the company had done was to pay such men not only the bonus as calculated
under the Act, but also in additional amount representing bonus on the
emoluments above the ceiling of Rs. 750/-. Such additional amount paid to all
such officers totalling Rs.
2.5 lakhs could not be considered to be an
expenditure debited directly to Reserves. The Tribunal was justified in adding
back this amount to the gross-profits. [12A-C] (iii) In view of the decision of
this Court in Indian Oxygen Ltd. the Tribunal's decision adding back the
deduction claimed by the appellant on account of return on the provision for
doubtful debts must be upheld. [112E-F] (iv) The respondents were entitled to
support the decision of the Tribunal even on grounds which were not accepted by
the Tribunal or on other grounds which may not have taken notice of by the
Tribunal while they were patent on the face of the record. [113A, 114A-B]
Management, of Northern Railway Co-operative Society Ltd..
v. Industrial Tribunal, Rajasthan et. 
2 S.C.R. 476;
J. K. Synthetics Limited v. J.K. Synthetics
Mazdoor Union,  2 L.L.J. 552 and Ramanbhai Ashabhai Patel v. Dabhi
Ajitkumar Fulsinji and others,  1 S.C.R. 712, followed.
(v) The Voluntary Retirement Scheme had not
been challenged as mala fide by the Unions. The payment of Compensation. to
induce the workmen to retire prematurely was an item of expenditure incurred by
the company on the ground of commercial expense in order to facilitate carying
on of the business and it was an expenditure allowable under s. 37(i) of the
Income tax Act. It was not an expenditure of a capital nature. The Tribunal was
justified in declining to add back this item of expenditure to the gross
[115B-C] (vi) The Company had filed an appeal
against the order of the Income tax officer postponing consideration of the
company's claim for extra-shift allowance. The Company had produced figures of
depreciation and that had not been subjected to any serious challenge by the
Unions. In the circumstances the Tribunal rightly refused to add back the
amount claimed by the Company as extra-shift allowance. [1 15F-G] Jabalpur
Bijlighar Karamchari Panchayat v.The Jabalpur Electric Supply Co. Ltd. and
another, A.I.R. 1972 S.C.70 applied.
(vii) The amount claimed by the Company in
respect of repairs and renewals was supported by evidence and had been accepted
by the auditors. The contention of the Unions that the Company was not
justified in incurring the said expenditure had been rightly rejected by the
Tribunal. [1 15A] (viii) Since from the evidence produced on behalf of the
company it was clear that there was no surplus after paying bonus for 1964-65
the question of set on for the next year did not arise. The plea of the Unions
in this regard had to be rejected. [116F] [After working out the available and
allocable surplus on the basis of the above findings the Court fixed the bonus
payable at 14.02%].
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 855 of 1968.
Appeal by Special Leave from the Award dated
October 26, 1967 of the National Industrial Tribunal, Calcutta in Reference No.
NIT-3 of 1967.
D. N. Mukherjee, for the appellant.
P. S. Khera and S. K. Nandy, for respondents
Nos. 1 and 3.
The Judgment of the Court was delivered by
Vaidialingam, J. This appeal, by special leave, is directed against the Award
dated October 26, 1967 of the National Industrial Tribunal, Calcutta in
Reference No. NIT-3 of 1967, holding that for the accounting year 1965-66, the
quantum of bonus payable by the appellant to its workmen is 20% of the
effective salaries or wages with a further direction to set on a sum of Rs.
The appellant, Indian Cable Company Ltd.
(hereinafter to be referred as the Company) occupies a very prominent position
in the Cable Industry of India having its Head Office at Calcutta and its
factory at Jamshedpur. It has, branches in Bombay, Madras, New Delhi, Kanpur,
Ahmedabad, and Bangalore.
(In addition to insulated cables, the Company
manufactures Aluminium Rods, Radio Aerials, Fuse Wires and other products.).
Its paid up capital is Rs. 2,48,65,450. It employed workmen numberingover 5000.
The gross effective salaries and wages of its employees for the relevant
accounting year amounts to Rs. 1,05,32,880. Its accounting year is from 1st
April to 31st March of the succeeding year.
For the accounting year 1964-65, the Company
declared and paid bonus at 20% to all employees in accordance with the
provisions of the Payment of Bonus Act, 1965 (hereinafter to be referred as the
Act). For the year in question 1965-66, it calculated a sum of Rs. 23,68,785 as
This amount was arrived at by the Company
after calculating direct tax without deducting the provision for payment of
bonus payable to its workmen. A sum of Rs. 14,21,271 being 60% of the said
available surplus was declared as bonus for the year 1965-66. This amount
represented 13-51% of the wage bill. The workmen were dissatisfied with this
offer of bonus at 13.51% and demanded payment of bonus at the maximum rate of
20% as provided in the Act. In consequence they raised a dispute with the
Company. In view of the agreement dated November 24, 1966 between the parties
to refer the claim for additional bonus for adjudication to a Tribunal, the workmen
received the bonus at 108 the rate of 13.51% offered by the Company. The
Central Government by order dated June 23 1967 referred for adjudication to the
National Industrial Tribunal, Calcutta, the following dispute "What should
be the quantum of bonus payable to the Workmen of the Indian Cable Company
Limited Calcutta for the accounting year 196566" The Unions contended
before the Tribunal that the computation of allocable surplus by the Company
has not been properly made in accordance with the Act and that several items
shown in the profit and loss account as expenditure have to be added back to
arrive at the actual gross profits.
The Unions further alleged that the Company
has spent large amounts for payment of liability for future years with a view
to reduce the available and allocable surplus, which in consequence has
resulted in, the reduction of percentage of bonus. The Company on the other
hand maintained that it has kept proper accounts which have been audited by a
reputed firm of auditors Messrs Lovelock & Lewes and that the computation
of allocable surplus has been properly arrived at having due regard to the
provisions of the Act. The Company denied the allegations of the Unions that
enormous expenditure has been shown with a view to reduce the quantum of bonus.
On the other hand, the Company pleaded that all items of expenditure were
justified and those items are deductable in considering, the claim for bonus.
At this stage it may be mentioned that the
Unions served interrogatories requiring information on various matters and
there is no controversy that the Company furnished all the informations that
were 'Called for.
Before the Tribunal the Company required
various deductions to be made from the net profits shown in its profit and loss
account. On the other hand, the Unions required various items to be added back.
The Tribunal accepted the contentions of both the parties with regard to
certain items. We will in due course refer to the items which are in dispute
before us at the instance of both the Company and the Unions. The Tribunal
computed the, available surplus at Rs. 37,54,713, 60% of this amount being Rs.
22,52,828 was fixed as allocable surplus. The Tribunal held that a sum of Rs.
21,06,576 being bonus at 20% of the gross effective salaries and wages was
payable for the year in question and it directed the surplus amount of Rs.
1,46,252 to be set on.
As the bonus at the rate of 13.51% had
already been declared and paid by the Company, the Tribunal directed the
payment of the balance 6.49% within the period mentioned 109 in the Award. One
aspect which has to be acted is that (in calculating the available surplus, the
Tribunal before calculating the notional direct tax, deducted the bonus payable
for the accounting year in question.
The grievance of the Company, as placed
before us by its learned counsel Mr. D. N. Mukherjee, relates to three items
(1) the method of computation of notional direct tax; (2) disallowance of the
deduction from gross-profits of the sum of Rs. 2.65 lakhs made as ex-gratia
payment for the accounting year 1964-65 to employees drawing emoluments
exceeding Rs. 750 per mensem; and (3) disallowance of the claim for return on
provision for doubtful debts.
The first contention relates to the principle
to be adopted for calculating direct tax when computing the available and
allocable surplus for payment of bonus under the Act.
According to the Tribunal, under ss. 6 and 7
of the Act, the bonus payable for ,the relevant accounting year has to be
deducted from the gross profits for calculation of direct tax or alternatively
rebate for bonus found payable has to be calculated and 60% of the rebate has
to be added back as allocable surplus. The Tribunal took notice of the fact
that the Income-tax Authorities did not object to deduction of the provision
made by the Company for payment of bonus for the accounting year 1965-66. On
this reasoning the Tribunal added back to the gross-profits as per the profit
and loss account the provision made for payment of bonus.
For coming to this view the Tribunal followed
its previous decision in Indian Oxygen Ltd. v. Their Workmen (N.I.T.-1 of
1966). The Tribunal has also noted that its Award in the Indian Oxygen Ltd. was
pending appeal in this Court.
According to Mr. D. N. Mukherjee, this method
of calculation of direct tax under the Act, adopted by the Tribunal is contrary
to the decisions of this Court.
We are in entire agreement with this
contention of Mr. Mukherjee. In view of the decisions of this Court, to which
we will immediately refer, Mr. P. S. Khera, learned counsel for the Unions was
unable to support the reasoning of the Tribunal on this aspect.
The question of calculation of direct tax
under the Act was considered for the first time by this Court in Metal Box Co.
of India Ltd. v. Their Workmen.(1) It was
held therein that the nationalc tax liability is to be worked out by first
working out the gross-profits and deducting therefrom the prior charges under
s. 6, but not the bonus payable to the employees. Therefore, it is clear from
this decision that an employer is entitled to deduct (1)  1 S.C.R. 750.
110 his tax liability without deducting first
the amount of bonus he would be liable to pay from and out of the amount
computed under ss. 4 and 6 of the Act. The same principle, has been reiterated
in The Workmen of William Jacks and Company Ltd. Madras v. Management of
William Jacks and Co., Madras,(1) Delhi Cloth and General Mills Co. Ltd. v. Workmen(2)
and Indian Oxygen Ltd. etc. v. Their Workmen. (3) In fact the last decision
overruled the decision of the National Industrial Tribunal in Reference No.
NIT-1 of 1966, which has been followed by the present Tribunal. We may also
state that after the first decision of this Court, referred to above, the Act
was amended in 1969. The last three decisions
of this Court considered the question whether the amendments effected to the
Act had made' any change in the principle laid down by this Court in the first
decision. It was uniformly held in all the three decisions that the amendment
has not affected any change in the principle laid down in the earliest decision
that the tax liability under the Act is to be worked out first by working out
the gross-profits and deducting there from bonus payable to the employees.
Therefore, it follows that the Tribunal committed an error in law in
corrupting, direct tax after deducting bonus. Therefore, this point will have
to be held in favour of the appellant.
The second item relates to the disallowance
of Rs. 2.65 lakhs which represented the ex-gratia payment made by the Company
to certain employees drawing, emoluments exceeding Rs. 750 per mensem for the
year 1964-65. The Company claimed that this amount should be deducted from the
grossprofits whereas the Unions contended that the same has to be added back to
the gross-profits shown in the profit and loss account. The factual position
relating to this claim is as follows: From the letter dated February 4, 1966,
Ext. 1, written by the Company to one of its officers Mr. S. N. Banerjee, it is
seen that the Company in appreciation of the officer's services during the year
1964-65 made an ex-gratia payment of Rs. 90. Mr. Banerjee has given evidence on
behalf of the Unions. He has deposed to the fact that he was drawing about Rs.
1,000 per mensem and that he received the letter Ext. I as well as the sum of
Rs. 90 mentioned therein. He has further stated that over and above this sum of
Rs. 90 he has also, received the bonus payable to him under the Act for the
year 1964-65. He has also deposed to the effect that the ex-gratia payment of
Rs.( 90 was paid to him in lieu of bonus calculated on the difference in
emoluments drawn by him and the ceiling of Rs. 750 per mensem fixed by the Act.
It was (1) A.I.R. 1971 S.C. 1821. (2)  2 S.C.C. 695 (3) A.I.R. 1972 S.C.
111 the practice of the Company to pay bonus
to all the members of its staff without application of any ceiling. In view of
the fact that a ceiling had been fixed under the Act, to make up for the lesser
amount that the employees like Mr. Banerjee will get under the Act, this amount
of Rs. 2.65 lakhs was paid to all such officers. The Tribunal accepted the
evidence of Mr. Banerjee that the ex-gratia amount was paid to keep up the old
practice of the Company of paying all the members of the staff without the
application of any ceiling. The Tribunal held that such a payment was not an
item which could be deducted from the gross-profits under the Act as claimed by
the management. Accordingly, it added back the sum of Rs. 2.65 lakhs to the
gross-profits shown in the profit and loss account.
Mr. Mukherjee urged that the Company was
justified in claiming the above amount by way of deduction. He referred us to
the definition of "employee" in s. 2(13) of the Act as also to the
employees declared eligible for bonus under s.8. He also relied on ss. 10 and
11 which make it obligatory on an employer to pay the minimum bonus and also
the maximum bonus upto 20% respectively.
We are not inclined to agree with the
contention of Mr.Mukherjee that the Tribunal committed an error when it added
back the sum of Rs. 2.65 lakhs. From the evidence of Mr. Banerjee, which has
been accepted by the Tribunal, read along with the letter Ext. 1, it is clear
that Mr. Banerjee received not only bonus due to him under the Act, but also
the extra amount of Rs. 90. Mr. Banerjee was admittedly drawing a salary of Rs.
1000 per mensem. For a person to be an "employee" under s. 2(13),
among other things, he is a person drawing a salary or wage not exceeding Rs.
1600 per mensem. Under s. 8, it is provided that every employee is entitled to
be paid in an accounting year bonus as per the Act provided he has worked in
the establishment for not less than thirty working days in that year. Section
10, provides for payment of minimum bonus to every employee. Similarly s. 11
provides for payment of bonus to every employee subject to a maximum of 20% of
his salary or wage.
According to Mr. Mukherjee there is no
prohibition in the Act from paying bonus to officers like Mr. Banerjee, upto a
maximum of 20%. Therefore, when the payment as in Ext. 1, has been made to
officers like Mr. Banerjee and others, such amounts have to be computed as an
item of expenditure, under the Second Schedule of the Act. It is no doubt true
that an officer drawing a salary not exceeding, Rs. 1600 per mensem is an
employee under s. 2(13) and he will also be eligible for payment of bonus under
s. 8 read with ss. 10 and 11 of the Act. But ,the point that is missed by the
learned counsel is the limitation 112 contained in s. 12. Though officers
drawing salary upto Rs. 1600 per mensem are employees under s. 2 (13) and
eligible for bonus, still for purposes of calculation of bonus payable under
ss. 10 and 11, such officers, whose salary exceeds Rs. 750 per mensem, for
calculating bonus, the, salary or wages per month will be taken at the maximum
of Rs. 750 per mensem. That is, if an officer is getting, Rs.1500, per mensem.
he will be eligible for onus; nevertheless for calculating bonus payable to him
he will be treated as drawing a salary of only Rs. 750 per mensem. Therefore,
Mr. Banerjee, in the case before., us, has admittedly to be paid bonus, which
is due to him under the Act for the year 196465 on the, basis that his salary
is only Rs. 750 per mensem.
What the Company has done was to pay him not
only the bonus as calculated under the Act, but also an additional amount.
Such additional amount paid to all such
officers totalling Rs. 2.65 lakhs cannot be considered to be an expenditure
debited directly to Reserves. The Tribunal was justified in adding back this
amount to the gross-profits.
The third item relates to return on provision
for doubtful debts. The Company had calculated return of Share capital and
Reserves. It further claimed a return at 6% on Rs. 2.5 lakhs, which according
to it was a revision for doubtful debts. The amount claimed as return under
this head was Rs.
15,000 and the Company claimed to deduct this
amount from the gross-profits as an item of expenditure. The Tribunal has
rejected this claim of the Company. It is not necessary for us to dwell on this
point at any great length in view of the decision of this Court in Indian
Oxygen Ltd. etc. v.
Their Workmen(1), where the decision of the
Tribunal directing such an amount to be added back in computing the gross-profits
has been approved. The legal position has been dealt with in the said
_judgment. Accordingly, we hold that the Tribunal was justified in adding back
the said amount to gross-profits.
Mr. P. S. Khera, learned counsel for the
Unions has contended that the Tribunal was not justified in allowing deduction
of certain items from the gross-profits for purposes of computing the available
and allocable surplus.
The Unions no doubt have not filed any
appeal. In fact in the particular circumstances of this case the could not have
filed an appeal because they have been awarded the maximum 20% allowable under
the Act. But, according to Mr. Khera, if the items on which he has relied on
had been added back, the Award of the Tribunal can be maintained even on the basis
that the principle adopted by the Tribunal in respect of direct tax is found to
be erroneous by this Court.
(1) A.I.R. 1972 S.C. 471.
113 The right of parties like the respondents
before us even in labour adjudication to support the decision of the Tribunal
on grounds which were not accepted by the Tribunal or on other grounds which
may not have been taken note of by the Tribunal, has been recognised by this
Court in Management of Northern Railway Co-operative Society Ltd. v. Industrial
Tribunal, Rajasthan etc.("') In fact this decision had to deal with an
appeal filed a Co-operative Society against the Award of the Tribunal setting
aside the order passed by the Society removing from its service an employee.
This Court permitted the Union concerned, which was respondent in the appeal,
to support the Award of the Tribunal, directing reinstatement of the employee
on grounds which had not been accepted by the Tribunal and also on ground which
had not been taken notice of by the Tribunal. Similarly, in J. K. Synthetics
Limited v. J. K. Synthetics Mazdoor Union(1), this Court permitted the Union,
which was the respondent in the appeal, to support the decision of the
Industrial Tribunal on a method of computation regarding bonus which was not
adopted by the Tribunal. Though 'the management appellant therein challenged
the right of the Union to support the award on other grounds without filing an
appeal, that contention was rejected by this Court as follows :
"On behalf of the management the right
of the union to challenge the multiplier and divisor, in the absence of an
appeal by it, is strenuously contested but in our view there is little force in
this objection. The appeal by the employer is against the grant of bonus to,
the employees which implies that the method of computation of the gross
profits, as well as of the available surplus and the rate at which the bonus is
granted can subjected to scrutiny. It is needless to recount the several
priorities that have to be deducted and the items in respect of which amounts
have to be added, before arriving at the available surplus. In an appeal, the
sevetat steps which have to be taken for computation of the available surplus,
either in respect of the actual amounts or the method adopted, can be
challenged. If so, the union, even where it has not appealed against ,the
award, can support it on a method of computation, which may not have been
adopted by the Tribunal but nonetheless is recognised by the Full Bench formula
of this Court so longing in the final result the amount awarded is not
exceeded. We are supported in this view by a decision of this Court in
Management of Northern Railway Cooperative Society Ltd. v. Industrial Tribunal,
Rajasthan, (1)  2 S.C.R. 476.
(2)  2 L.L.J 552 114 Jaipur and
another(1), where it was held that the respondents were entitled to support the
decision of the Tribunal even on grounds which were not accepted by the
Tribunal or on other grounds which may not have been taken notice of by the
Tribunal while they were patent on the face of the record." In the sand
decision this Court also found support for the above view in the decision of
Ramanbhai Ashabhai Patel v. Dabhi Ajitkumar Fulsinji and others(1), though the
latter decision related to an election appeal.
We will now deal with the items, which,
according to ('the Unions should not have been allowed to be deducted from the
gross-profits. The first item relates to a sum of Rs. 18,24,047 paid by the
Company to retired workmen at Jamshedpur Workshop under a Voluntary Retirement Scheme.
This Scheme is Ex. G. and it was framed on
August 9, 1965.
The Scheme states that the Company has been
suffering, from an acute shortage of imported raw materials in view of the
difficulty in getting foreign exchange and as such production could not be
maintained for some, considerable time. In view of these difficulties it is
stated that the Company has found it necessary substantially to reduce the
number of workers in the Workshop. The Scheme offered substantial benefits to
workmen who choose to retire voluntarily, namely, ex-gratia payment equal to
retrenchment compensation under s. 25 of the Industrial Disputes Act, and
gratuity admissible to the workmen. There is evidence on the side of the
Company that about 450 workmen availed themselves of the Voluntary Retirement
Scheme and a sum of Rs. 18,24,047 was paid. This item has been included in the
profit and loss account under the heading "Salary, Wages, Bonus and
Retirement gratuities." The Company gave a break,up of these items in
answer to the interrogatories furnished to it by the workmen.
The contention on behalf of the Unions is
that under the Retirement Gratuity Scheme, which is in force, a workman retires
at the age of 60 and normally during the year 196566, the payment of gratuity
to persons so retired would have come to Rs. 1.21 lakhs. Therefore, it was
argued that the payment of Rs. 18.24 lakhs and odd paid as lumpsum under the
Voluntary Retirement Scheme during the year 1965-66 was not proper as that
amount would have in the ordinary course been spread over eight or ten years.
The Tribunal has rejected this claim of the
Unions, and in ,,our opinion, quite rightly. If there had been a retrenchment
and compensation had been paid to all these workmen, ;the Unions cannot raise
any objection in law to the payment of such amount.
(1) (1967) 2 S.C.R. 476.
(2) 1 S.C.R. 712.
115 If retrenchment had been restored, the
junior most men under the principle "last come first go" would have
been sent out of service. On the other hand, the Voluntary Retirement Scheme
enabled the younger workmen to continue in service while it offered a
temptation for the older employees to retire from service. The Voluntary
Retirement Scheme has not been challenged, as mala fides by the Unions. We are
in agreement with the view of the Tribunal that the payment of compensation to
induce the workmen to retire prematurely was an item of expenditure incurred by
the Company on the ground of commercial expense in order to facilitate carrying
on of the business and it was an expenditure allowable under s. 37(1) of the
Income-tax Act. It was not an expenditure of a capital nature. The Tribunal was
justified in declining to add back this item of expenditure to the
The second item, which according to the Unions
should have been added back is the sum of Rs. 65,764 which was claimed as extra
shift allowance of plants and machinery added during the year. The
consideration of this claim was postponed by the Income-tax Officer on the
ground that the Company had not furnished the requisite particulars. The
Company claimed a sum of Rs. 36,10,594 as depreciation allowable under s. 32(1)
of the Income-tax Act. According to the Unions, as the sum of Rs. 65,764 has
not been accepted by the Income-tax Officer, the Company can claim depreciation
only in the sum of Rs. 35,44,830. The Tribunal did not accept this contention
of the Unions on the ground that the amount of Rs. 65,764 has not been
disallowed by the Income-tax Officer. It is now stated in an affidavit filed in
this Court on March 23, 1972 by the Chief Financial Accountant of the Company
that the Company has filed an appeal against the order of the Income-tax
Officer refusing to allow Rs. 65,764 as extra shift allowance for the year
1965-66. In our opinion, the rejection of the Unions' contention in this regard
by the Tribunal is justified. It is seen that the Company has produced figures
for depreciation and that has not been subjected to any serious challenge by
the Unions. Hence the objection regarding extra shift allowance has also to be
rejected in view of the decision of this Court, in Jabalpur Bijlighar
Karamchari Panchayat v. The Jabalpur Electric Supply Co. Ltd. and another. (1)
The third item objected to by the Unions related to the expenditure shown by
the Company for repairs and renewals.
According to the Unions the expenses shown
are very heavy and large and that the Company was not justified in incurring
'the same. In our opinion, this contention also has been properly rejected by
the Tribunal. Apart from the fact that the Unions (1) A.I.R. 1972 S.C.70 116
are not technically entitled to raise this objection, as they have not pleaded
the same in their statement of case filed before this Court, this contention
can be rejected even on merits. The Unions had furnished interrogatories
requiring the Company to furnish certain particulars. Mr. R. N. Gupta, the
Chief Financial Accountant of the Company filed an affidavit before the
Tribunal giving answers to the interrogatories. He had categorically given
details as to how the amount of Rs. 12.94 lakhs has been incurred as expenses
for repairs and renewal. Mr. Gupta had also given evidence about this matter.
In cross-examination he had stated that all the vouchers for repairs and
renewal were scrutinised by the auditors and this evidence has been accepted by
the Tribunal. Therefore, the Tribunal was justified in rejecting this claim of
The last item relates to the claim made by
the Unions that after distribution of bonus at 20% for the year 1964-65, there
must have been a surplus and it. should have been set on for the next year,
namely, 1965-66. This amount so set on should be taken into account for
computing bonus for the year 1965-66. This assertion made on behalf of the
Unions was controverted by the Company on the ground that there was no surplus
left after paying, the maximum 20% bonus for the accounting year 1964-65.
In fact the evidence of Mr. Gupta shows that
apart from there not having been any surplus, the Company Raid 20% bonus merely
because they had already announced that they will pay the same. It is clear
from his evidence that bonus at 20% could not have been declared for the year
1964-65 and in order to honour the declaration made by the Company, bonus was
paid at that percentage. This evidence of Mr. Gupta has been, in our opinion,
rightly accepted by the Tribunal. No evidence contra has been adduced by the
Unions. Once the evidence of Mr. Gupta is accepted, it is:
clear that there was no surplus after paying
bonus for 1964
65. Therefore, the question of set on does
not arise. This plea of the Unions also has to be rejected.
From what is stated above, it is seen that
the only aspect in respect of which the Award of the Tribunal requires
modification is in respect of the principle to, be adopted for calculating
direct tax. As we have accepted the contention of the Company in that regard,
it follows that re computation of the available and allocable surplus will have
to be made after making a calculation of direct tax without deducting bonus
payable for the year 1965-66.
In the original calculation filed by the
Company, it calculated tax only in the sum of Rs. 98,10,893. It has later on
corrected this figure by adding a sum of Rs. 1,34, 921 being surtax. Therefore,
the total direct tax will be Rs. 99,45,814. Here again Mr. 117 Gupta in his
affidavit dated March 23, 1972 has given the correct figures. Therefore the re-computation
of the available surplus, allocable surplus and the percentage of bonus for The
accounting year 1965-66 on the basis of our judgment will be as follows Rs. Rs.
Gross Profit as pier Award 216,16,195 of
National Tribunal Less (1) Depreciation admissible under s.32 (1) of I.T.
Act... 36,10,594 (2) Development Rebate admissible 6,76,22442,86,818 -----1,73,29,377
Less: Direct Tax as Per cl. 6 (c) including Dividend Tax 99,45,814 ----------73,83,563
Less Statutory Deductions Share Capital Rs. 248,65,45021,13,56349,22,387 @ 8
.5%. Reserves Rs. 46,81,37,73928,08,824 @ 6% (without taking into account 6 %
of Rs. 250,000/being provision for Doubtful debts) -----Available Surplus......
24,61,176 Allocable Surplus60% of above 14,76,706 Effective Gross salary
105,32,880 Bonus paid @ 13.51% 14,22,992 Balance .51% 53,714
-------------------------------------From the above, it will be seen that the
workmen will be entitled to bonus at 14.02% of their total salary or wages and
the amount will be Rs. 14,76,706 and not Rs. 20% as awarded by the Tribunal.
From this it follows that the further direction in the Award of the Tribunal
regarding set on cannot be accepted. Admittedly, the Company has already
declared and paid Rs. 14,22,922 representing 13.51% of the total wages or
salary. Therefore, the balance additional amount that the Company will have to
pay by way of bonus to make up the 14.02%, as stated above, is Rs. 53,714. This
amount will be paid by the Company within a period not exceeding two months
The Award of the Industrial Tribunal is
accordingly modified and the appeal allowed in part. Parties will bear their
G.C Appeal allowed in part.