Jabalpur Bijlighar Karamcharipanchayat
Vs. Jabalpur Electric Supply Co., Ltd. & ANR  INSC 184 (9 August
REDDY, P. JAGANMOHAN
CITATION: 1972 AIR 70 1972 SCR (1) 60 1971
SCC (2) 502
CITATOR INFO :
RF 1972 SC2195 (21) RF 1973 SC2766 (9)
Industrial Law-Bonus-Principles for awarding
festival bonusAvailable surplus for distribution-Principles for calculation of.
The employees of the respondent claimed bonus
on two counts festival bonus at IO % of their total earnings as an implied term
of the contract of employment and as an established practice of payment from
1940-41 without any break; and (2) bonus out of the profits quantified at 50 %
of the said total earnings. The Industrial Tribunal rejected the claims. In
appeal to this Court,
HELD : (1) The criteria to be considered when
a question of customary or traditional bonus arises are: (a) whether the
payment was uniform and has been over an unbroken series of years; (b) whether
it has been for a sufficiently long period, the length depending on the
circumstances of each case (the period may have to be longer to justify an
inference of traditional and customary festival bonus than in the case when the
claim for festival bonus is based on an implied term of employment); (c)
Whether it was connected with a festival; and (d) it must be shown that the
payment was made even in a year of loss, that is, it was not a bounty depending
on the earning of profits. [67 G-H; 68A.
70F-G.] In the present case, it was proved that
the payment of bonus was made at 10% for a large number of years and at 11% for
an intervening period. But the payment was not related either to any festival
or to an implied term of employment between the parties. In fact, for tile
years from 1940-41 to 1945-46 there was no claim for the payment of either
customary bonus or festival bonus. On the other hand, the express claim was
made for war bonus. The major part of the entire period was covered by awards
and excepting in one of those awards there was no reference to any festival
The intervening period was covered by an
express agreement between the parties. Further, the rate was not uniform.
Consequently, the claim made by the employees
that they should be paid 10% either as festival bonus or under an implied term
of employment could not be accepted. [71A-D] lspahani Ltd. Calcutta v. Ispahani
Employees Unions, 1 S.C. R. 24, The Graha Trading Co. (India) Ltd v. Its
Workmen,  1 S.C.R. 107, M/s Tulsidas Khimji v. Their Workmen,  1
S.C.R. 675, Vegetable Products Ltd v.
Their Workmen A I R 1966 S.C, 1449 and
Management of Churkutlam Tea Estate (P) Ltd. v. The Workmen  1 S.C.R.
61 (2) The amount of bonus must be computed
in terms of the Full Bench formula as accepted by this Court in the case of
Associated Cements Co. Ltd. v. Its Workmen,  S.C.R. 925. [71 D-E] (i) In
the present case, in calculating the net profits the Tribunal should have
Included the following three items, in the gross profits.
(a) The cost of coal and fuel shown in the
'summary of technical and Financial Particulars' for the year, prepared under
r. 26(3) of the Indian Electricity Rules, 1937 was less than the figure shown
by the respondent in its revenue account. The respondent had failed to explain
the discrepancy. Therefore the amount of difference between the two, figures
should have been added to the gross profits in the revenue account. [71
H,72A-B,H;73A-B] (b) There was no proper explanation supported by accounts for
the large amount for repairs to furniture as shown in the revenue account..
Therefore the much smaller amount suggested in the oral evidence should alone
have been taken into account. The difference between the two figures should
also be added to the gross profits. [73F-H] (c) Although the statutory
contigency reserve fund investments. are not to be taken into account in the
statement of surpluses and deficiercies of profits, the interest earned was
included by the respondent in the statement of net profits for the calculation
of the managing agetns' commission. If the managing agents were entitled to
claim a share of it the workers were equally entitled to claim its inclusion in
the revenue account. The result is that the gross profits of the company would
have to be augmented by this sum also. [74D-G] (ii) The employees' contention
regarding the following four items should be rejected.
(a) The rebate to the consumers is not to be
utilised by the Electric supply company. Therefore if the respondent could not
have the benefit of it, neither could the employees ask for a share and claim
its. inclusion in the gross profits. [75F-G] (b) The respondent claimed that
the normal depreciation for the year as pet the assessment order of the
Income-tax Officer and double shift allowance should be allowed in computing
the net profits. The employees contended that it was only the lesser amount
towards depreciation shown in the respondent's profit and loss account that
should be allowed.
But according to the formula propounded by
the Full Bench of the Labour Appellate Tribunal in U.P. Electricity Supply Co..
Ltd. v. Their Workmen,  2 L.L.J. 431 and approved in the Associated
Cement Companies case and in T.T.E. Supply Co. Ltd. v. Its Workmen,  3
S.C.R. 68 and in Ahmedabad Miscellaneous Industrial Workers Union v. Ahmedabad
Electricity Supply Company Ltd.,  2 S.C.R. 934 the respondent's claim
should be upheld. [75G-H;76A-D E-G] Hamdard Dawakhana Wakf v. Its Workmen,
 2 L.L.J.
(S.C.) 772, followed.
(c) According to the Full Bench formula to
arrive at the available surplus it is not the income-tax actually paid by the
respondent that 62 should be deducted but the amount computed nationally at 45%
after making the appropriate deductions from the gross profits. In the present
case, the amount of income tax so calculated would be greater than the amount
allowed by the Tribunal because the gross profits would be enhanced by items
(i), (a), (b) and (c). [77F-H] (d) According to the Full Bench formula return
at 6% of the working capital should also be deducted to arrive at the available
surplus for distribution. The employees contended that the working capital
should be computed in accordance with Schedule VII of the Electricity Supply
Act. But according to the T.T.E. Supply Company case, and the Ahmadabad
Miscellaneous Industrial Workers Union case even with respect to an electric
supply undertaking in the field of industrial relations it is not proper to
inject therein, the provisions contained in the Seventh Schedule to the Electric
Supply Act. [78C,E-F;79,A-B] In the result the amounts in item (i) (a), (b) and
(c) had to be added to the gross profits. The amount in item (ii) as was not to
be so added. Depreciation including double shift allowance was to be deducted
as also the notional amount of income-tax at 45 % ' after making the
appropriate deductions from gross profits. So far as rating on working capital
was concerned the computation should be in term of the Full Bench Formula and
not in accordance with Schedule VII of the Electricity Supply Act. In the
instant case even ignoring the said section on working capital there was no
surplus left in terms of the Full Bench Formula. The question of payment of
bonus did not arise. [79E-H; 80 A-B]
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 752 of 1967.
Appeal by special leave from the Award dated
January 30, 1967 of the Industrial Court, Madhya Pradesh, Indore in Reference
M. N. Phadke, Gulab Gupta and Vineet Kumar,
fir the appellant.
M. C. Chagla, D. N. Mukherjee and M. M.
Sapre, for respondent No. 1.
The Judgment of the Court was delivered by
Mitter, J. This appeal arises out of an award dated January 30, 1967 of the
Industrial Court of Madhya Pradesh (hereinafter referred to as the 'Tribunal').
The term of reference to the Tribunal was:
"Whether the employees of Jabalpur
Electric Supply Company Ltd., have a case for payment of bonus for the year
1960-61 and what should be its quantum and terms of payment?" 63 The claim
for bonus was made under two heads : the first was for bonus out of the profits
quantified at 50 % of the total earnings of the employees; and the second was
for festival bonus at 10 % of the said total earnings which was claimed as an
implied term of the contract of employment and as an established practice,
having been paid irrespective of profits or losses before Diwali every year
continuously from 1940-41 without any break. The Tribunal found itself unable
to hold in favour of the employees under either of the heads. The appeal to
this Court is by special leave.
We propose to take the two heads under which
bonus was claimed in the order in which the arguments were advanced before us.
The first head of bonus canvassed for was the second mentioned above i.e. at 1O
% of the total earnings.
So far as this claim-is concerned, we are not
on uncharted seas as the question cropped up in the past in numerous cases
before this Court wherein certain well defined principles were formulated. But
before we apply the principles, we have to take note of the relevant facts and
circumstances relating to this claim.
It cannot be disputed that the employees had
been receiving at least 10% of their earnings from the company from 1940-41
onwards. This period can be conveniently split up into several parts to mark
off the claims made from time to time and the settlements by mutual agreement
or payments under awards of industrial courts or even made voluntarily.
The first period relates to the years 1940-41
The Provincial Government made a reference
arising out of a dispute which led to the award of the Labour Commissioner of
C. P. and Berar in regard, inter alia, to (a) claim by the employees to a bonus
equal to three months' wages for the year ending 31st March, 1946, and (b) war
bonus equal to six months' wages. The adjudicator decided that.
(1) The company should pay to each of its
employees 1/10th of his total earnings including dear food allowance during the
year ending 31st March 1946 by way of bonus; and (2) The Company should also
pay to each of its employees as bonus 1/10th of his total earnings including
dear 64 food allowance in respect of each of the years 1940-41, 1941-42,
1942-43, 1943-44 and 1944-45 against the claim for War bonus." It has to
be noted that there was no mention of any festival bonus at that time and so
far as the years 1940-41 to 1944-45 are concerned, it was given on the footing
that it was a War bonus.
The next period relates to the years 1946-47
to 1949 50.
Admittedly, the payment for these years was
made under an agreement between the parties as found by the Tribunal. The
finding of the Tribunal is that a consolidated amount of Rs.74,850/was paid by
the company on 25th January 1951. The Tribunal observed that there was
"abundant documentary evidence (Exs. D-1/A to D-1/F wherein workers agreed
to accept the bonus offered as voluntary payment of bonus as a compromise of
their claim of 25 % of the Company's profits for the period ending 31st March,
1951." The claim for the years 1951 to 1956 was covered by an award
conveniently described as Mujumdar Award. The E opening paragraphs of the award
show that the employees had claimed that payment of IO%. of their total
earnings by way of bonus had come to be included in their wages and had been
paid for about 12 years in the past, that there had been agreement between the
employees of the company to refer the dispute regarding bonus to Government and
thereafter for subsequent years 10 per cent of their total earnings of the year
was accepted by the employees and finally on the failure of negotiations and
conciliations, following service of notice under S. 32 of the Industrial
Disputes Act, the matter had been referred by the Government, the employees
having pressed for at least 33-1/8 per cent of their total earnings for the
year by way of bonus.
The concluding paragraph of that award, a
copy of which has been placed before us, shows that in the view of the Majumdar
"In addition to the 100% bonus already
paid the Party No. 1 (the company) can easily pay 6 5 additional 20 %, of the
earnings of the year of each employee as bonus to him. Similarly for the year
1951-52 Party No. 1 can pay easily additional 10 per cent of the earnings of
the year as bonus to each of the employees.
For the year 1952-53 no surplus amount is
left with Party No. 1. According to the Full Bench formula and the bonus
already paid i.e. 10 per cent of the annual earnings of each of the employees
was sufficient payment for that year. For the year 1953-54 5 per cent of the
earnings of the year can easily be paid in addition to the 10 per cent already
paid. For the year 1954-55 20 per cent of the annual earnings can easily be
paid to each of the employee by way of bonus and for the year 1955-56 though I
only have been able to get the account for the first six months I have
absolutely no doubt that taking the average, of all these years, the Party No.
1 could be able to pay at least 10 per cent as additional bonus." The said
Tribunal further recorded that as the employees had not received even the 10
per cent usual bonus for 1955-56 the same should be paid in full before 31st
For the year 1956-57 payment was made under
an interim award of Mr. Kher, Judge, Industrial Court. For the years 195758,
1958-59 and 1959-60 payment was first made under an interim award of Justice
Bhat who finally passed an award accepting the claim of the Union for payment
of Diwali bonus. This award was the subject matter of an appeal before this
Court and on 11th March 1956 the parties to that appeal arrived at a compromise
and it was agreed without prejudice to their respective contentions that the
company should pay to the employees one per cent in addition to the bonus
already paid by it for the years 1956-57, 1957-58 and 1958-59 but the company
should not pay any additional bonus for the year 1959-60. It was expressly
recorded before this Court that as the point of dispute between the parties
which had been decided by the said Tribunal had not been argued before this
Court it would be open to them to raise their respective contentions in future
should the occasion arise 66 The above statement of facts makes it amply clear
that although the employees received at least 10% of their total earnings by
way of bonus for the years 1940-41 to 1959-60 there was no consistency in the claim
to bonus throughout this period, nor was there any uniformity either in the
amounts paid or the grounds under which the several awards of bonus came to be
made. The only award which indicated that the bonus was to be regarded ,as a
Diwali bonus was that of Justice Bhat for the period 1957-58 to 1959-60. For
the period 1940-41 to 1956-57 the Company never paid bonus as a festival bonus
on the occasion of the Diwali. The amount was mostly paid under awards but in
between the awards there was a period when it was paid by express agreement
between the parties.
Strong reliance was placed on the fact of
payment of at least 10 per cent by way of bonus from the year 1940-41 to
1959-60 by learned counsel for the appellant in support of his argument that as
payment had been made for this long period, it had become an implied term of
the contract of employment and it was to be regarded as a festival bonus.
In our view, this contention cannot be
accepted on the face of a long series of decisions of this Court to some of
which alone we propose to refer.
In Isphani Ltd. Calcutta v. Isphani
Employees' Union(1) this Court had to deal with the claim of the workmen to
puja bonus for the year 1953. Referring to The Mill-owners' Association, Bombay
v. The Rashtriya Mill Mazdoor Sangh, Bombay(2) it was said that the claim for
puja bonus in Bengal could be based on either of two grounds. It may either be
a matter of implied agreement between the employers and employees creating a
term of employment for payment of puja bonus, or, (secondly) even though no
implied agreement can be inferred it may be payable as a customary bonus. On
the facts it was found that "the workmen when they were in the employ of
Messrs M. M. Isphani Ltd. (the predecessor-in-interest of the appellants) always
used to get puja bonus at the rate of one month's wages. This was asserted by
the workmen in their written statement and the company did not deny it in its
(1)  1 S C.R. 24.
(2)  L.L.J. 1247.
6 7 It was found as a fact that the appellant
had been paying bonus ever since it came into existence in 1948 up to 1952 v
without any break at the rate of one month's wages and it was paid even in the
years when the company suffered loss.
It was observed by this Court :
"In the circumstances, it was
established in this case that (1) the payment was unbroken and (2) it was not
paid out of bounty due to profits having arisen, for it was paid in some years
of loss also." As to what would be a sufficiently long period to justify
the inference that it was an implied term of employment for payment of bonus,
this Court held that the appellant had paid it continuously since its birth and
therefore the facts warranted the finding of an implied term of employment to
A similar claim arose in the case of The
Graham Trading Co. (India) Ltd. v. Its Workmen(1). According to this Court the
practice of payment of bonus of the appellant "began in 1940 and was
unbroken up to 1950. In between there was an adjudication in 1948 in which the
company was a party". In regard to the year 1948 the, company had admitted
before the relevant tribunal of' having paid bonus in the past and had no
intention of discontinuing the practice and thereupon the Tribunal did not
adjudicate on it. The payment was continued from 1949 to 1951. In 1952 after
some dispute bonus was paid to all the workers. It was in this case that the
Court laid down certain criteria which the Industrial Tribunals would have to
consider when a question of customary or traditional bonus arose, namely, (i)
whether the payment has been over an unbroken series of years;
(ii) whether it has been for a sufficiently
long period, through the length of the period might depend on the circumstances
of each case; even so the period may normally have to be longer to justify an
inference of traditional and customary puja bonus than may be the case with
puja. bonus based on an implied term of employment.
(1)  1 S.CR. 107.
6 8 (iii) The circumstance that the payment
depended upon the earning of profits would have to be excluded an(] therefore
it must be shown that payment was made in the year of loss.
After laying down the tests, the Court
observed that "In dealing with the question of custom, the fact that the
payment was called ex gratia by the employer when it was made, would, however,
make no difference in this regard because of proof of custom depends upon the
effect of the relevant factors enumerated by us; ... the payment must have been
at a uniform rate throughout to justify an inference that the payment at such
and such rate had become customary and traditional in the particular
concern." In M/s. Tulsidas Khimji v. Their Workmen() the Union ,of workmen
claimed profit-sharing bonus at the rate of six months' wages and traditional
or customary bonus at a rate which was not clear but which might be said to be
either three months' wages or one month's wages plus dearness allowance on the
occasion of the Diwali festival. The claim was rather nebulous as observed by
this Court. According to the Tribunal the workmen had proved that bonus had
been paid at a uniform rate of one month's basic wages plus dearness allowance
on the occasion of the Diwali festival throughout the period i.e. 15 years
commencing from 1940-41 to 1956-57.
Referring to the argument advanced on behalf
of the appellant company that the four circumstances mentioned above in Graham
Trading Co.'s case had not established it was remarked:
". . . what is more important to
negative a plea for customary bonus would be proof that it was made ex gratia,
and accepted as such, or that it was unconnected with any such occasion like a
festival as laid down by this Court in the case of B. N. Elias & Co. Ltd.
Employees Union v. B. N. Elias & Co. Ltd.
(2)." (1)  1 S.C.R. 675.
(2)  3 S.C.R. 382.
69 In Vegetable Products Ltd. v. Their
Workmen (1) "the case of the workmen for payment of puja bonus was that it
had become either an implied term of employment between them and their employer
or customary". The Tribunal came to the conclusion that payment of one
month's wages before puja as customary bonus had been established through it
apparently did not accept the claim that payment of puja bonus as an implied
condition of service had been proved. The Tribunal further found that the
circumstances mentioned in Graham Trading Co.'s case (2) had been satisfied.
Examining the evidence this Court found on the facts (see p. 1501) that:
".....the Puja bonus was paid for the
first time on the eve of the Puja festival in 1964 at the rate of 10 days'
wages. In 1955 it was paid at the rate of 20 days' wages. From 1956 to 1961 the
payment has been made before Puja at 30 days' wages. ... from 1956 to 1958
payment was made without any dispute and without conditions. But in 1959 a
dispute arose as to payment of Puja bonus for that year and was settled before
the conciliation officer by a settlement between the appellant and its workmen.
The first term of that settlement ... runs thus -30 days' wages will be paid as
bonus (ex gratia) for the accounting year 1957-58 to all the workmen who will
have completed 240 days' work by the day of payment and will be on the rolls of
the company on that date." It was observed that the payment for the 1959
was ex gratia and accepted as such b, the workmen. According to this Court:
"This is not a case where the employer
made a unilateral declaration that the payment was ex gratia. This was a case
where the appellant said that the payment was ex gratia and the workmen
accepted the payment as ex gratia.
Besides there was a further condition that
the payment would be made to those workmen only who had completed 240 days work
by the day of payment." (1) A.I.R. 1965 S.C. 1499.
(2)  1 S.C.R, 107.
70 The evidence further showed that although
for the year 1960 and 1961 payment had been made at the rate of 30 days' wages
the workmen had given a receipt in terms which stated that the payment was made
as advance to be adjusted against profit bonus for the previous year. In these
circumstances, this Court found itself unable to hold that there had been
payment for an unbroken series of years before the dispute was referred to the
tribunal and the finding of the tribunal that payment of customary traditional
bonus on the occasion of the Puja festival was established was set aside.
Lastly, we may refer to Management of
Churkulam, Tea Estate (P) Ltd. v. The Workmen & another (1). In this case
there was at first an agreement in the year 1946 relating to bonus for the
years 1947, 1948 and 1949. The agreement was extended also for the years 1950
and 1961. A fresh agreement was entered into in 1955 for payment of bonus for
the years 1952, 1953 and 1954 and there were subsequent agreement also. There
was no controversy that the appellant had paid bonus for nine years and it was
not at a uniform rate. So 'far as the year 1952 was concerned the appellant's
case was that it had not paid any bonus as such, but on the other hand it had
made an ex gratia payment of Rs. 3 to each worker; but the tribunal did not
accept this plea and held that the said payment must be treated as one having
been made towards bonus. This Court came to the conclusion that the Tribunal
was wrong in holding that an inference could be drawn for payment of bonus as
an implied condition of service, in the circumstances of the case, when the payment
admittedly was not uniform and was not connected with any festival. The Court
also negatived the plea of the workmen to treat the bonus as a customary or
traditional bonus because apart from the fact that it was not connected with
any festival, one of the essential ingredients viz., that the payment should
have been at a uniform rate through was admittedly lacking in the case.
The above decisions all go to negative the
claim of the appellant before us. The only fact about which there can be no
doubt is that payment was made at the rate of 10 per cent for a large number of
years with an (1)  1 S.C.R. 930.
71 intervening period when it was made at the
rate of 11 per cent. The facts do not warrant any conclusion as to the payment
being related either to any festival or under an implied terms of employment
between the parties. It will be noted that for the very first period i.e. the
years from 1940-41 to 1945-46 there was no claim for the payment of either
customary bonus or a festival bonus. 'On the other hand, the express, claim was
made for War bonus. The major part of the entire period was covered by awards
and excepting in one of these awards, there was no reference to any festival
bonus. There was an intervening period Which, as already noted was covered by
an express agreement between the parties. The rate too, as already shown, was
not uniform. Consequently the claim made by the appellants that they should be
paid 10 per cent either as festival bonus or under an implied term of
employment cannot be accepted.
With regard to the second claim there is no
dispute that bonus must be computed in terms of the Full Bench formula as
accepted by this Court in the case of Associated Cement Companies Ltd. v. Its
Workmen (1). Learned counsel for the appellant was prepared to accept the gross
profits for the adoption of the Full Bench formula as shown in the balance of
the revenue account for the year ending 31st March 1961 subject to certain
exceptions. This figure as shown in Schedule F to the profit and loss account
8,88,598.29. This was however subject to the
qualification as to several figures of expenses incurred during the year.
The first related to the figure in the
revenue account where the cost of coal and fuel was shown by the company as Rs.21,12,875.97.
According to the appellant, the document Ex. P-13 prepared by the Managing
Agents of the company and certified as correct by their chartered accountants
on September 28, 1961 showed that the fuel consumed was 54,962 tons at 'an
average cost of Rs. 35 -68. This according to the appellant was a solemn
document inasmuch as it had to be prepared and submitted under sub-rule (3) of
Rule 26 of the Indian Electricity Rules, 1937. The statement is headed
"Summary of Technical and Financial Particulars for the year ended 3 1 St
March, 1961." If the figures with regard to the quantity of coal (1)
 S.C.R. 925 6-M 1245 Sup CI/71 72 and the average cost in Ex-P-13 be
taken into account, instead of the figures Rs. 21,12,875-97 in the revenue account
the correct figure would be Rs. 19,55,447/which would swell up by the gross
profits by the difference between he two amount's, viz., Rs. 1,57,4281-.
It was seriously contended before us by
learned counsel for the respondent that we should accept the figure given in
the balance sheet as the same is supported by certificates of the same firm of
chartered accountants, and their letters addressed to the Managing Agents of
the Company. According to the letter Ex. D-28 dated 20th September 1961 the
books and records of the Jabalpur Electric Supply Company Ltd., for the period
1st April, 1960 to 3 1 St September, 1960 showed the average cost of coal
delivered to bunkers during the period to be Rs. 37.81 per ton or Rs. 37-21 per
tonne (metric). The letter Ex. D-29 which is similarly worded shows that for
the period 1st October 1960 to 31st March, 1961 the average cost of coal
delivered to bunkers during this period was Rs. 39 -09 per ton or Rs. 38.47per
These two figures were sought to be supported
by the certificates of the chartered accountants dated 18th April, 1963. The
above will show that there was considerable discrepancy as to the value of the
coal consumed as reported to the Government and as reported to the Managing
Agents of the Company by the accountants. This was sought to be explained in
the oral evidence of one L. S. Mcleod who stated that the statement prepared
under the Electricity Act was on the basis of the record maintained by the Head
Office but the total consumption of the coal during the year was 54,962 tons
and the average cost of coal per ton was Rs. 35 -58 per ton. Oral evidence was
also adduced of one B. Chatterjee, an Assistant in the Electricity Department
of Martin Burn Ltd. Calcutta who stated that the rate shown in Ex. P-13 i.e. Rs.
35 -58 per ton was the estimated value of coal received per ton and that this
figure has been arrived at the Power House Jabalpur purely on estimates and
that the estimate did not take into account certain liabilities i.e.certain
suppliers' bills which were accounted for and audited at the Head Office at
Calcutta. In our view, the attempted explanation cannot be accepted as Ex. P-13
was made under the provisions of an Act. It was prepared in Calcutta long after
the period to which it related. It was submitted some time 73 after the
Directors' reports to the shareholders dated 4th September 1961 accompanying
the balance sheet and the profit and loss account. It was for the company to
explain exactly how the discrepancy arose and their failure to explain, in our
opinion, should lead to the grossing up of the amount of difference already
mentioned with the gross profits as per the revenue account.
The next disputed item relates to the amount
of Rs. 85,887 .63 as shown in the revenue account towards " miscellaneous
expenses." The item reads "miscellaneous expenses including Rs. 3,025
-16 for wages and Rs. 4,128 -74 paid to Martin Burn Ltd. as guarantors'
commission." The Company was asked to furnish particulars of the items
which added up-to Rs. 85,887 -63. According to Ex. P-18 the said figure was
made up of the following: Rs. 34,584.11 as cost of printing, stationery and
advertisement, Rs. 12,648 -18 as travelling expenses, Rs. 7,207 -80 as general
6,206 -57 bank charges, Rs. 4,128.74 as
guarantors' commission and Rs. 21,112 -23 as repairs to furniture etc.
It was this last figure which was challenged
by the appellant. Schedule E to the balance sheet for the relevant year (fixed
capital expenditure) shows that the original cost of furniture and equipment up
to 31st March 1960 was Rs. 38,377 -78 and that additions, sales and adjustments
during the year was Rs. 5,498 -76 and thetotal depreciation written off to 31st
March 1961 was Rs.
29,915-23. It is difficult to appreciate how
furniture the total cost of acquisition of which was Rs. 43,876 54 as shown in
schedule E would require repairs to the extent of Rs. 21,000 -00 in one year as
shown in the particulars supplied. Mr. L. S. Mcleod admitted that he could not
trace any expenditure having been shown in respect of repairs of furniture in
the summaries of receipts and monthly expenditure and that his 'estimate of the
amounts spent for repairs would be less than Rs. 500/-. Mr. B. Chatterjee said
the amount also included the hire charges of the office equipment. He did not
refer to any books of account to support the statement. In the absence of
proper explanation supported by the books of account of the company, the figure
of Rs. 21,112/ought not to be accepted and taking into account Rs. 5001as stated
by. Mr. Mcleod as having been spent for repairs to furniture, a sum of Rs.
20,612/should be added to the gross profits.
74 The third item to be added-to the gross
profits according to the appellant was the figure of interest RS. 16,645 53
shown in schedule F for computation of net profits in accordance with S. 349 of
the Companies Act, 1956 with details of calculation of Managing Agents'
remuneration for the year ended 31-3-1961. This amount according to the
appellant should have found a place in Ex. D11 being a "Statement of
surplus/deficiency of profits for the year ended 31st March 1961" i. e.
the working sheet compiled by the company. This interest accrued to the company
out of the statutory investments as shown in Schedule to the balance sheet.
Schedule C gives the statutory contingencies reserve fund investments, the book
value thereof being Rs. 2,30,880 -37 quoted on the stock exchange, besides Rs.50,031
-25 which was not so quoted, the total coming to Rs.2,80,911.62. Although the
statutory contingency reserve fund investments are not to be taken into account
in "the statement of surpluses and deficiency of profits" it was
included in the statement of net profits for the calculation of managing
agents' commission and we see no reason why the same should be left out of,
account in Ex. D-11. Mr. Chagla contended that the workers had done nothing
during the year of account i.e. 1st April 1960 to 3 t St March 1961 which
entitled them to claim the benefit of this amount of interest. While it is true
that their claim cannot be rested on any work done by them for the company
during the year of account there can be no question that the interest accrued
to the company out of the efforts of the workers in the past which had not been
taken into account in calculating bonus. The managing agents had done nothing
in the year of account to entitle them to take into account the amount of
interest which accrued to the company during the year of account. If they were
entitled to claim a share of it the workers were equally entitled to base their
claim for its inclusion in Ex. D11. The result is that the gross profits of the
company as shown in Ex.D11 would have to be augmented by the sums of Rs.
1,57,428, Rs. 20,612 and Rs. 16,645 -53.
On behalf of the appellant dispute was also
raised to the deduction of several items in' Ex. D-1 1 namely, (1) rebate to
consumers Rs. 17,046 00 (2) depreciation to the extent of Rs. 3,55,755, as also
double shift allowance of Rs. 95,256 (3) income tax at 45% as per Finance Act
i. e. Rs. 1,07,052 75 and (4) return of 6% on working capital which was
quantified at Rs. 8,25,243/-. According to the Tribunal, it was not necessary
to consider the other two items, return at 6 % on other reserves employed in
the business Rs. 55,38,296/and rehabilitation reserve of Rs. 30,15,202 as in
his view even without taking these two last figures the working sheet Ex.D-11
showed a negative balance, that is to say absence of any surplus resulting out
of which the workers could claim anything by way of profit bonus.
With regard to rebate to consumers it was
argued before the Tribunal that it was never paid to the consumers as the Sixth
Schedule to the Electricity Supply Act, under paragraph 11(1) went to show
"If the clear profit of a licensee in
any year of account is in excess of the amount of reasonable return, one-third
of such excess, not exceeding five per cent of the amount of reasonable return,
shall be at the disposal of the undertaking. Of the balance of the excess, one
half shall be appropriated to a reserve which shall be called the Tariffs and
Dividends Control Reserve and 'the remaining half shall either be distributed
in the form of proportional rebate on the amounts collected from the sale of
electricity and meter rentals or carried forward in the accounts of the
licensee for distribution to the consumers in future, in such manner asthe
State Government may direct." This goes to show that the rebate to the
consumers is not to be utilised by the company except for distribution to the
consumers as may be directed. If the company cannot have the benefit of it, it
stands to reason that the worker cannot ask for a share and the claim of the
appellant for inclusion of this sum must be rejected.
It was next argued on behalf of the appellant
that the Tribunal should not have allowed depreciation in excess of the figure
which was shown in the profit and loss account of the company, viz., Rs.
2,51,405 -80. The Tribunal accepted the depreciation to the extent of Rs.
3,55,755 but disallowed the claim with regard to double shift allowance.
The judgment of this Court in The Associated
Cement Companies' (supra at P. 959) shows that this Court 76 accepted the
formula propounded by the Full Bench of the Labour Appellate Tribunal in U. P.
Electric Supply Co. Ltd., v. Their Workmen (1). In U. P. Electric Supply Co., s
case the Full Bench of the Labour Appellate Tribunal had stated (see p. 440)
"Upon a careful consideration of the
matter we are of the view that only normal depreciation, including multiple
shift depreciation, but not initial or additional depreciation, should rank as
a prior charge in applying our Full Bench formula," This case came up for
consideration again in T.T.E. Supply Co., Ltd. v. Its Workmen (2) and The
Ahmedabad Miscellaneous Industrial Workers Union v. The Ahmedabad Electricity
Co. Ltd. (3) and was approved of in both. That Rs. 3,55,755/was the normal
depreciation for the year is amply borne out by the assessment order of the
Income-tax Officer for the relevant year which is Ex.D-20 in this case. The
company further filed statements of depreciation in respect of each of the
assets from 1948 to 1961 and the totals of the figures add up to the exact sum
of Rs. 3,55,755/-.
With regard to the claim of double shift
allowance Mr. B. Chatterjee, the Company's witness, stated that the amount of
Rs. 95,256/represented the double shift allowance but they did not claim it in
the income-tax assessment inasmuch as if they had done so in the year of
account, this would have increased their burden of tax in the subsequent years
and it was to regulate the stability of profits that they did not claim double
shift in the income-tax returns. We see no reason to reject the evidence of Mr.
Chatterjee. The fact that in the balance sheet the company showed only Rs. 2,51,405
-80 was not conclusive on the question. What amount of depreciation the company
will claim under the Income-tax. Act in order to allow some profits to be distributed
among the shareholders is a concern entirely of the company, so long as they do
not claim anything more than what the law allows. It is significant to note
that this Court pointed out in The Ahmedabad Miscellaneous Industrial Workers'
Union case (supra) that the Income-tax Rules should be applied in (1)  2
(3)  2 S.C.R. 934.
(2)  3 S.C.R. 68.
7 7 calculating depreciation under the Fall
Beach Formula in preference to the provisions of the Seventh Schedule to the
Electricity Supply Act as this would work for uniformity in all industrial
concerns. A contention similar to the one put forward by the appellant in this
case was rejected by this Court in Hamdard Dawakhana Wakf v. Its Workmen The
notional normal depreciation there claimed by the employer and which would be
allowable under the Income-tax Act was Rs. 2,22,867 but the Tribunal allowed
only Rs. 1,06,785 as this figure had been shown by the appellant in its profit
and loss account. This Court observed that:
" In the profit and loss account, it is
the actual depreciation that would be shown and not the notional normal
depreciation and so, the fact that the former depreciation has been shown in
the profit and loss account cannot be held to be a factor against the appellant."
It was also remarked that the accountant of the appellant had produced the
figures of depreciation in various exhibits and his statement had not been
challenged in crossexamination and therefore there was no reason to disallow
the claim of depreciation of Rs. 2,22,867/-.
On reasoning similar to the above it was
argued on behalf of the appellant that there was no justification for the
Tribunal's disregarding the income-tax actually paid by the company as per the
assessment order, viz., Rs. 53,896 -80.
But this in our opinion cannot be accepted as
the available surplus has to be found out by working on the Full Bench formula
of the Labour Appellate Tribunal. There can be no question that income-tax has
to be nationally computed at 45 % after deduction from the gross profits, the
expenses shown in Ex. D11 ending with notional normal depreciation and double
shift depreciation. The Tribunal allowed Rs. 1,07,052 but the result of the
addition to the gross profit of Rs. 8,88,598 (1) the difference in the value of
the coal consumed, (2) the amount disallowed out of the furniture repairs and
(3) the interest amount of Rs. 16,645/the income tax to be allowed in the
working sheet would be Rs.
1,94,435/in place of Rs. 1,07,052/-.
(1)  2 L.L.J. 772.
78 The last item disputed by the appellant
was the return on working capital which was shown as Rs. 8,25,243/in Ex. D11.
The evidence given on this head was that of Mr. B. Chatterjee. He referred to
various exhibits viz., D-22 to D-27 in this connection. Ex. D-22 was a
statement compiled for showing reserves available as working capital. Exs. D24
and D-25 went to show that at the relevant period, the company was borrowing
moneys from the United Bank of India Ltd. The Tribunal accepted the company's
case that Rs. 8,25,243/should be taken to be the working capital of the company
for the relevant year and return at 6 per cent should be deducted to arrive at
the available surplus for distribution. The evidence on this head was furnished
by B. Chatterjee who said that the sum had been calculated as shown in Ex. D11
in accordance with clause xvii (e) of the Sixth Schedule to the Electricity
Act, and this sum being the lesser of the two was incorporated in Ex. D1 1.
The details of the requirement of liquid funds
to run the undertaking was given in Ex. D-16. In his crossexamination
Chatterjee said that besides the item shown in Ex. D-22 (statement of reserves)
and other funds which had been used as working capital, the company had to take
the loan in spite of these reserves which were already employed in the business
as working capital.
Mr. Chagla contended that the working capital
as computed in accordance with Schedule VII of the Electricity Supply Act being
a statutory computation could be taken into account even for the working out of
the Full Bench Formula of the Labour Appellate Tribunal. In our view, this is
not the correct position in law. In T. T. Supply Company's case (1) the
question considered by this Court was whether the Full Bench Formula should be
applied to an electric supply undertaking in preference to the provisions of
the different clauses of paragraph xvii of the Sixth Schedule to the
Electricity Supply Act and this Court concurred with the view expressed by the
Labour Appellate Tribunal that even in such a case the Full Bench Formula
should be applied. In the Ahmedabad Miscellaneous Industrial Workers' Union's
case (2) where one of the questions before this Court was whether. depreciation
should be calculated according to the provisions of the income-tax Act and the
rules framed there under or according (1)  3 S.C.R. 68.
(2)  2 S.C.R. 934.
79 to the provisions contained in the Seventh
Schedule the Electricity Supply Act, it was held that the rates prescribed
under the rules framed under the Income -tax Act lay down the proper measure of
depreciation to be allowed as in the view of this Court the field of industrial
relations in connection with which the Full Bench Formula was evolved, it was
not proper to inject therein the provisions contained in the Seventh Schedule
to the Electricity Supply Act.
There can be no dispute that a good portion
of the reserves must have been utilised in running the company inasmuch as it
was obliged to borrow moneys from the bank and pay interest thereon. it is
highly unlikely that a company which had reserves as disclosed by its balance
sheet and profit and loss account would borrow moneys from a bank unless it was
utilising the reserves for some other and more' remunerative purposes. The
balance sheet and the profit and loss account negative such a view and no
evidence which throws light on the question was recorded.
We are however not called upon in this case
to come to a finding as to how much of the reserves were utilised as working
capital in view of the fact that even without taking this item into account,
there is no available surplus left in terms of the working sheet which forms
the basis for determining the available surplus.
The working sheet according to us should be
altered as follows: To the figure Rs. 6,88,905 shown as surplus in Ex.
D-11 after the deduction of various items of
expenses should be added three figures i.e. (1) coal and fuel Rs. 1,57,428/(2)
furniture account Rs. 20,612 and (3) interest Rs. 16,545/making a total of Rs.
8,83-490/as gross profits.
From this will have to be deducted Rs.
4,51,011 being the sum of notional normal depreciation of Rs. 3,55,755 and
double shift depreciation Rs. 95,256/-. This leaves a balance of Rs. 4,32,479.
From this will have to be deducted the income-tax of 45 % which in view of the
addition of the items regarding coal, furniture and interest should be Rs.
1,94,615 in place of Rs. 1,07,052 as shown in
Ex. D-1 1.
Deducting this from Rs. 4,32,479 the balance
left is Rs. 2,37,864. From this has to be deducted the statutory contingencies
reserve and the s statutory development reserve and 6 per cent on the share
capital of Rs. 22,49,850/ there 80 being no dispute as to these figures. The
result is that from the figure of Rs. 2,37,864 there has to be deducted a sum
of Rs. 2,38,585 which leaves a negative balance of Rs. 72 1. The case, of the
appellant for showing an available surplus for distribution therefore
In the result, the appeal fails both on the
point of customary or festival bonus or implied term of the contract or profit
bonus, and will be dismissed with costs.