Management of Central Coal Washery Vs.
Workmen & ANR [1978] INSC 112 (21 July 1978)
BHAGWATI, P.N.
BHAGWATI, P.N.
TULZAPURKAR, V.D.
CITATION: 1978 AIR 1424 1978 SCR (3)1023 1978
SCC (3) 332
ACT:
Payment of Bonus Act, 1965, S. 16(1) (a) and
Explanation II thereto, interpretation of-Meaning and connotation of the word
'Profit' from the establishment within the meaning of clause (a) of Sub-section
(1) of S. 16.
HEADNOTE:
The appellant Organisation, set up as an
independent Organisation separate from the Hindustan Steel Ltd. to manage the
three Coal Washeries at Dugda, Bhojudih and Patherdih, maintained separate
accounts in respect of its establishment and also prepared a separate balance
sheet and profit and loss account showing the aggregate financial result of the
operation of these three coal washeries. The appellant adopted the straight
line method of calculation of depreciationwith the result that the
Balance-sheets and Profits and Loss accounts for the years 1964-65, 1965-66 to
1968-69 showed profits. On this basis the Workmen of the Bhojudih Coal washery
pressed their claim for bonus from the year 1964-65. The appellant disputed the
claim of the workmen and contended that by reason of sub-section (1) of s. 16,
the workmen were not entitled to be paid bonus under the Act. The industrial
dispute arising out of the claim of the workmen was referred for adjudication
and the Tribunal took the view that since the appellant denied from its three
coal washeries in the year 196465, the workmen were entitled to be paid bonus
under the Act from that year, but it was held that since the profits were
inadequate to warrant payment of a larger bonus, the workmen were entitled to
receive the minimum bonus of 4% of the wages as provided in section 10. The
Tribunal thus awarded the minimum bonus at 4% of the wages to the workmen of
the Bhojudh Coal Washery for the years 1964-65 to 1968-69.
The appellant being aggrieved by the award
preferred an appeal to this Court after obtaining special leave. During the
pendency of the appeal a settlement was arrived at for ex-gratia payment of 4%
of the wages for the years 1965-66 to 1967-68. In accordance with the terms of
this settlement every workman whether a member or not of the Hindustan Coal
Washeries Workers' Union received payment. The appellant did not, therefore,
Press the appeal, and it was dismissed.
Though the appeal was, dismissed and the
award of the Industrial Tribunal which was in favour of the workmen stood in
tact. another union called the Hindustan Steel Coal Washeries Employees Union
which is a minority Union filed C.M.P. No. 3382/78 claiming that the workmen
represented by it were not party to the settlement and therefore, it was not
binding and prayed for setting aside the order of dismissal of the appeal and
rehearing of the appeal.
Allowing the appeal and answering against the
respondents, the Court
HELD (1) Where an establishment is newly
set-up, the workmen employed in such establishment are entitled to be paid
bonus under the Act only from the accounting year in which the employer derives
profit from such establishment or from the sixth accounting year following the
accounting year in which the employer sells goods produced or manufactured by
him from such establishment, whichever, is earlier. So long as the employer
does not start deriving profit from the establishment, he is exempt from
liability to pay bonus to the workmen under the Act. But, even if he is not
able to derive profit from the establishment the does not enjoy perpetual
immunity, because in any event from the sixth accounting year following the
accounting year in which he starts selling goods produced or manufactured by
him, he becomes liable to pay bonus to the workmen. [1027 D-E] 1024 (2)The word
"profit" within the meaning of clause (a) of sub-section (1) of S. 16
must be construed according to its ordinary sense-a sense in which it is
understood in trade and industry because the rationale behind clause (a) of
sub- section (1) of section 16 is that it is only when the employer starts
making profit in the commercial sense that he should become liable to pay bonus
to the workmen under the Act. Now profit in the commercial sense can be ascertained
only after deducting depreciation and since there are several methods' of
computing depreciation the one adopted by the employer would, in the absence of
any statutory provision to the contrary govern the calculation of depreciation
for the purpose of arriving at the profit earned by the employer. But
Explanation 11 to sub-sec.(1) of S. 16 provides that for the purpose of clause
(a), an employer shall not be deemed to have derived profit in any accounting
year unless he has made provision for that year's depreciation to which he is
entitled under the Income-tax Act. This explanation embodies a clear
legislative mandate that in determining, for the purpose of clause (a) of sub-
sec.(1) of Section 16, whether the employer has made profit from the
establishment in any accounting year, depreciation should be provided in
accordance with the provisions of the Income-tax Act. Whatever be the method of
computation of depreciation followed by the employer, depreciation should be
deducted in accordance with the provisions of the Income- tax Act and it is
only if any profit remains after adjusting such depreciation that the employer
can be said to have derived profit for the purpose of clause (a) of sub-section
(1) of S. 16. [1028 G-H, 1029 A-C] In the instant case :- (a) The appellant
followed the straight line method of calculating depreciation and on that basis
the Balance Sheets and Profits and Loss Accounts of the appellant showed profit
for the year 1964-65 to 1968-69. [1029A] (b)Clearly, the depreciation that was
required to be deducted for the purpose of determining whether the appellant
derived profit from the three coal washeries during the years 1964-65 to
1968-69 was not depreciation according to the straight line method followed by
the appellant, but depreciation admissible under sub-section (1) of S. 32 of
the Income-tax Act. [1029D] (c)The appellant did not derive profit from the
three coal washeries in any of the years 1964-65 to 1968-69 and the workmen
were not entitled to be paid bonus under the Act for any of these accounting years
since the quantum of depreciation admissible under Sub-section (1) of S. 32 of
the Income-tax Act was clearly proved by the appellant through the evidence of
its Accounts Officer and the Tribunal also conceded that if depreciation
calculated on this basis were deducted there would be loss incurred by the
appellant in each of the years 1964-65 to 1968-69. [1028D, 1029 E]
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 1848 of 1970.
Appeal by Special Leave from the Award dated
the 20th July, 1970 of the Central Government Industrial Tribunal Calcutta in
Reference No. 105 of 1969 published in the Gazette of India dated the 8th
August, 1970.
L.N. Sinha, Santosh Chatterjee and G. S.
Chatterjee for the Appellant.
D. L. Sen Gupta and S. K. Nandy for the Respondent.
The Judgment of the Court was delivered by
BHAGWATI, J.-The short question that arises for determination in this appeal is
whether the workmen of the Bhojudih Coal Washery of the appellant were entitled
to be paid bonus for the years 1964-65 to 1968-69 under the Payment of Bonus
Act, 1965 (,for short the Act).
1025 The Hindustan Steel Limited owns three
steel plants at Rourkela, Durgapur and Bhilai. Since large quantities of the
metallurgical coal are needed in the manufacture of steel, the Hindustan Steel
Limited set up three coal washeries at Dugda, Bhojudih and Patherdih. These
three coal washeries were started one after the other, the first to start being
the Dugda Coal Washery which commenced functioning from June 1962. The
management of these three coal washeries was vested in the hands of the Central
Coal Washeries Organisation which was set up as an independent Organisation
separate from the Hindustan Steel Limited.
This Organisation which is the appellant
before us maintained separate accounts in respect of its establishment which
consisted of these three coal washeries and also prepared a separate Balance
Sheet and Profit and Loss Account showing the aggregate financial result of the
operation of these three coal washeries. Though the establishment of the
appellant was set up in June 1962, the provisions of the Act did not become
applicable to it until the year 1964-65 in view of sub-section (4) of section 1
of the Act. There could, therefore be no question of payment of bonus to the
workmen of the Bhojudih Coal Washery under the Act until the year 1964-65. The
workmen of the Bhojudih Coal Washery, accordingly, pressed their claim for
payment of bonus only from the year 1964-65. The appellant disputed the claim
of the workmen and contended that by reason of subsection (1) of section 16,
the workmen were not entitled to be paid bonus under the Act for the years
1964-65 to 1968-69. The industrial dispute arising out of the claim of the
workmen was referred for adjudication by the Government of India and by an
award dated 29 July, 1970, the Industrial Tribunal took the view that the
appellant derived profit from its three coal washeries in the year 1964-65 and
the workmen were, therefore, entitled to be paid bonus under the Act from that
year under clause (a) of subsection (1) of section 16, but since the profits
were inadequate to warrant payment of a larger bonus, the workmen were entitled
to re- ceive the minimum bonus of 4 per cent of the wages as provided in
section 10. The Industrial Tribunal accordingly awarded minimum bonus at 4 per
cent of the wages to the workmen of the Bhojudih Coal Washery for the years
1964-65 to 1968-69, The appellant being aggrieved by the award of the
Industrial Tribunal, preferred an appeal to this Court after obtaining special
leave. Whilst the appeal was pending, a settlement was arrived between the
appellant and the Hindustan Steel Coal Washeries Workers' Union on 28th August
1973 in regard to various demands which had been made by the Union on behalf of
the workmen employed in the Bhojudih Coal Washery.
One of the demands related to payment of
bonus and this demand was adjusted by the following provision in the
settlement.
"Without prejudice to the respective
contentions of the parties and especially with regard to the law point on which
the management has filed an appeal to the Supreme Court, the management and the
workmen agree that an ex-gratia amount equivalent to 4% of, the wages earned by
the eligible employees during the respective years of 1965-66, 1966- 67 and
1967-68 (less amounts to those employees 1026 already paid for the year
1965-66) shall be paid. This settles satisfactorily the outstanding demand on
this point".
Pursuant to this settlement, the appellant
paid to the workmen in the Bhojudih Coal Washery ex-gratia amount equivalent to
4 per cent of the wages earned by them for the years 1965-66, 1966-67 and
1967-68. Not only did the workmen who were members of the Hindustan Steel Coal
Washeries Worker's Union received payment under the settlement but workmen who
were not members of that Union also accepted payment of bonus in terms of the
settlement.
The appeal thereafter came up for hearing
before this Court on 2nd January, 1978, and since the dispute in regard to
payment of bonus was settled, theappellant did not press the appeal and it was
dismissed by this Court Subsequently, however, another Union called the
Hindustan Steel Coal Washeries Employees Union, which is a minority Union,
filed Civil Mise. Petition No. 3382/78, claiming that the workmen represented
by it were not party to the settlement, since the settlement was arrived at
only between the appellant and the Hindustan Steel Coal Washeries Workers'
Union and the settlement was accordingly not binding on them. Strangely enough,
though the appeal was dismissed and the award of the Industrial Tribunal which
was in favour of the workmen, stood intact, the Union for some inexplicable
reason submitted that since the appeal was dismissed in view of the, settlement
and the settlement was not binding on the workmen represented by it, the order
dismissing the appeal should be set aside and the appeal should be re-heard.
This Court by an order dated 9-3-1978 acceded to this application and directed
the appeal to be re-heard. That is how the appeal has now come up for hearing
before us.
The principal question the arises for
determination in the appeal is whether the workmen of the Bhojudih Colliery
were not entitled to claim bonus for the year 1964-65 to 1968-69 on the ground
that until the close of the year 1968-69 the appellant did no,, derive any
profit from its establishment of three coal washeries. The determination of
this question depends on the true interpretation of section 16, sub- section
(1) and its applicability to the case of the appellant. Section 1 6,
sub-section (1) in so far as material, reads as follows "Where an
establishment is newly set up, whether before or after the commencement of this
Act, the employees of such establishment shall be entitled to be paid bonus
under this Act only- (a) from the accounting year in which the employer derives
profit from such establishment; or (b) from the sixth accounting year following
the accounting year in which the employer sells the goods produced or
manufactured by him or renders services, as the case may be, from such
establishment, whichever is earlier:
10 27 Provided that in the case of any such
establishment the employees thereof shall not, save as otherwise provided in
section 33 be entitled to be paid bonus under this Act in respect of any
accounting year prior to the accounting year commencing on any day in the year
1964.
Explanation I :-For the purpose of this
section, an establishment shall not be deemed to be newly set up merely by
reason of a change in its location, management, name or ownership.
Explanation II :-For purpose of clause (a),
an employer shall not be deemed to have derived profit in any accounting year
unless:- (a) he has made provision for that year's depreciation to which he is
entitled under the Income-tax Act or, as the case may be, under the
agricultural income-tax law ; and (b) the arrears of such depreciation and
losses incurred by him in respect of the establishment for the previous
accounting years have been fully set off against his profits.
It is clear on a plain reading of this
section that where an establishment is newly set up, the workmen employed in
such establishment are entitled to be paid bonus under the Act only from the
accounting year in which the employer derives profit from such establishment or
from the sixth accounting year following the accounting year in which the
employer sells goods produced or manufactured by him from such establishment,
whichever is earlier. So long as the employer does not start deriving profit
from the establishment, he is exempt from liability to pay bonus to the workmen
under the Act. But, even if lie is not able to derive profit from the
establishment, he does not enjoy per- petual immunity, because in any event
from the sixth accounting year following the accounting year in which he starts
selling goods produced or manufactured by him, be becomes liable to pay bonus
to the workmen. Now the contention of the workmen was, and this contention
found favour with Industrial Tribunal, that the appellant started deriving profit
from the three coal washeries in the year 1964-65 and the workmen, therefore,
became entitled to be paid bonus from the year 1964-65 onwards under clause (a)
of sub-section (1 ) of section 16. The workmen relied on the Balance Sheet and
Profit and Loss Account of the appellant which showed that the appellant had
made a profit of Rupees 23,60,000/- during the year 1964-65. The Balance Sheets
and Profit Loss Accounts of the appellant for the subsequent years 1965-66 to
1968-69 also showed profit during each of those years. If, therefore, the claim
of the workmen were to be decided on the basis of the Balance Sheets and Profit
and Loss Accounts of the appellant there can be no doubt that the appellant
would have to be held to be liable to pay bonus to the workmen of Bhojudih Coal
Washery from the year 1964-65 onwards. But it was pointed out on behalf of the
appellant that in arriving at the net profit shown in the Balance Sheets and
Profit and Loss Accounts, depreciation had been calculated according to the straight
line method, whereas under Explanation It to subsection (1) of section 16
depreciation which was 1028 liable to be taken into account in arriving at the
net profit for determining liability for payment of bonus was that admissible
in Accordance with the provisions of sub- section (1) of section 32 of the
Income-tax Act. If depreciation calculated in accordance with the provisions of
sub-section (1) of section 32 of the Income-tax Act were taken into account,
not only there would no profit but there would be actually loss in each of the
years 1964-65 to 1968-
69. The appellant in fact produced, through
its Accounts Officer Raja Ram, income-tax returns showing the depreciation
claimed in respect of the assets of the three coal washeries in accordance with
the provisions of sub- section (1) of section 32 of the Income-tax Act as also
statements Exhibit 9, working out the figures showing that if depreciation were
adjusted as provided in sub-section (1) of section 32 of the Income-tax Act,
there would be losses to the appellant in the years 1964-65 to 1968-69. The
learned counsel appearing on behalf of the workmen represented by the Hindustan
Steel Coal Washeries Employees Union Faintly contended before us that the
appellant had not proved what would be the depreciation admissible under sub-
section (1) of 'section 32 of the Income tax Act and whether it would be larger
than the depreciation calculated according to the straight line method, but
this contention was futile, because, as pointed out earlier, the quantum of
depreciation admissible under sub-section (1) of section 32 of the Income-tax
Act was clearly proved by the appellant through the evidence of its Accounts
Officer Raja Ram and in fact the Industrial Tribunal accepted the figures of
depreciation given by the appellant in the statements Exhibit 9 and conceded
that if depreciation calculated on this basis were deducted, there would be
loss incurred by the appellant in each of the years 1964-65 to 1968-69. The
facts being against them, the workmen were driven to contend that in
determining whether the appellant derived any profit in the years 1964-65 to
1968-69 the figures given in the Balance Sheets and Profit and Loss Account; of
the appellants were determinative and since according to the Balance Sheets and
Profit and Loss Accounts, the appellant started deriving profit from the year
1964-65, the workmen were entitled to be paid bonus from that year onwards
under clause (a) of sub-section (1) of section 16. This contention of the
workmen is in our opinion not well-founded.
Our reasons for saying 'so are as follows.
It is true that under clause (a) of
sub-section (1) of section 16, the workmen employed in a new establishment are
entitled to be paid bonus under the Act from the accounting year in which the
employer derives profits from the establishment. 'But the question is as to
what is the meaning and connotation of the word 'profit' and when can an
employer be said to derive 'profit' from the establishment within the meaning
of clause (a) of sub-section (1) of section 16. The word 'profit' must
obviously be construed according to its ordinary sensea sense in which it is
understood in trade and industry because the rationale behind clause (a) of
sub-section (1) of section 16 is that it is only when the employer starts
making profit in the commercial sense that he should become liable to pay bonus
to the workmen under the Act. Now profit in the commercial sense can be
ascertained only after deducting depreciation and since there are several
methods of computing depreciation, the one adopted by the employer would, in 10
29 the absence of any statutory provision to the contrary, govern the
calculation of depreciation for the purpose of arriving at the profit earned by
the employer. Here in the present case the appellant followed the straight line
method of calculating depreciation and on that basis the Balance Sheets and
Profit and Loss Accounts of the Appellant showed profit for the years 1964-65
to 1968-69. But Explanation 11 to sub-section (1) of section 16 provides that
for the purpose of clause (a), an employer shall not be deemed to have derived
profit in any accounting year unless he has made provision for that year's
depreciation to which he is entitled under the Income-tax Act. This Explanation
embodies a clear legislative mandate that in determining.
for the purpose of clause (a) of sub-section
(1) of section 16, whether the employer has made profit from the establishment
in any accounting year, depreciation should be provided in accordance with the
provisions of the Income-tax Act. Whatever be the method of computation of
depreciation followed by the employer, depreciation should be deducted in
accordance with the provisions of the Income-tax Act and it is only if any
profit remains after adjusting such depreciation that the employer can be said
to have derived profit for the purpose of clause (a) of sub-section (1) of
section 16. Clearly, therefore the depreciation that was required to be
deducted for the purpose of determining whether the appellant derived profit
from the three coal washeries during the years 1964-65 to 1968-69, was not
depreciation according to the straight line method followed by the appellant,
but depreciation admissible under sub- section (1) of section 32 of the
Income-tax Act. If this be the correct interpretation of clause (a) of
sub-section (1) of section 16, as we hold it is, it is obvious from what is
stated above, and indeed it can hardly be disputed, that the appellant did not
derive profit from the three coal washeries in any of the years 1964-65 to
1968-69 and the workmen were not entitled to be paid bonus under the Act for
any of these accounting years.
We accordingly allow the appeal and set aside
the award of the Industrial Tribunal in so far as it awards bonus to the
workmen for the years 1964-65 to 1968-69 and declare that the workmen are not
entitled to be paid bonus under the Act in respect of any of those accounting
),ears. There will be no order as to costs.
S.R.
Appeal allowed.
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