Full Judgment Text
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PETITIONER:
MYSORE KIRLOSKAR LIMITED
Vs.
RESPONDENT:
WORKERS OF THE MYSORE KIRLOSKAR LIMITED
DATE OF JUDGMENT:
15/11/1961
BENCH:
ACT:
Industrial Dispute-Bonus-Income Tax
deductions-Method of calculation-Working Capital-
Return, if could include borrowed or deposit
amount on which company was paying interest-
Rehabilitation-Evidence as to the prior charges
not led, if could be led for subsequent dispute.
HEADNOTE:
^
Held, that in consonance with the decision in
the Associated Companies Ltd’s case the income-tax
deduction must be calculated on the amount which
represents the balance after deducting the full
statutory depreciation allowed from the gross
profit.
Held, further that the rate allowed for
return on working capital is to 2 to 4% which is
at the discretion of the Tribunal and the Supreme
Court usually will not interfere with the
discretion exercised by the Tribunal in a
particular case.
Held, further that for the purpose of returns
on working capital, the working capital cannot
include a sum which was either borrowed or was in
deposit with the company on which the company was
paying interest. The company cannot claim further
interest on the borrowed amount which has been
used as working capital, for it has already paid
interest on it to those from whom it was borrowed
and this has been taken into account as expense in
arriving at the gross profit. Where borrowed money
is used as working capital there is no question of
giving any further return on this borrowed money.
The return on reserves used as working capital can
only be given on moneys belonging to the company
which are used as working capital.
Held, also, that where there is a dispute
with regard to the claim for bonus by the workmen
for a particular year and the fact that no
evidence as to rehabilitation was led in that
particular year will not preclude the company from
leading evidence as to the amount which should be
allowed to it as prior charges on account of
rehabilitation, in any subsequent dispute as to
bonus relating to subsequent years.
The Associated Cement Companies Ltd. v. Its
Workmen,
376
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JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 233 of 1960.
Appeal by special leave from the award dated
September 29, 1958, of the Industrial Tribunal,
Mysore, in Reference (I.T.) No. 21 of 1957.
M. C. Setalvad, Attorney-General for India,
S. L. Narasimha Murthy and I. N. Shroff, for the
appellant.
Janardan Sharma, for respondent No. 1.
1961. November 15. The Judgment of the Court
was delivered by
WANCHOO, J.-This is an appeal by special
leave in an industrial matter. There was a dispute
between the appellant and its workmen as to bonus
for the year 1954-55. This dispute was referred by
the Government of Mysore under the Industrial
Disputes Act No. XIV of 1947) to a tribunal for
adjudication. A number of objections were raised
by the appellant before the tribunal; but we are
not concerned with them, as the law with respect
to profit bonus has been settled by this Court in
the Associated Cement Companies Ltd. v. Its
workmen(1). The only points urged on behalf of the
appellant by the learned Attorney-General are with
respect to the amount of income-tax, return on
working capital and provision for rehabilitation
in connection with the calculations made by the
tribunal. We shall therefore confine ourselves to
the three points which have been raised before us
on behalf of the appellant.
The tribunal allowed Rs. 1.67 lacs for
income-tax. The contention of the appellant is
that this is incorrect in view of the decision of
this Court in the Associated Cement Companies Ltd.
It appears that the gross profits of the appellant
were Rs. 9.46 lacs, while the full statutory
depreciation allowed to the appellant for the year
in dispute was Rs. 4.30 lacs. Thus income-tax
should have been deducted
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on the sum of Rs. 5.16 lacs at seven annas in the
rupee, which was the rate prevalent in the
relevant year. This amount comes to Rs. 2.25
lacks. The contention of the appellant in this
behalf is in our opinion correct and the
calculation made by the tribunal will have to be
modified accordingly.
The next question is about return on working
capital. The dispute is both as to the rate of
return and the amount on which it should be
allowed. The tribunal has allowed three per cent
on working capital. The appellant contends that
the tribunal should have allowed four per cent. As
was pointed out in the Associated Cement
Companies’ case the rate allowed by tribunals on
working capital is between two to four per cent.
In the present case the tribunal has allowed three
per cent. We do not think that there is any reason
for us to interfere with the discretion of the
tribunal in this matter though it is true that the
recent trend of tribunals is to allow four per
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cent return on working capital.
Turning now to the amount of working capital
on which return should have been allowed, the
appellant originally claimed that the amount used
as working capital was Rs. 43.85 lacs. Latter
however, a revised statement was put in and the
amount was reduced to Rs. 36.70 lacs. The tribunal
has however calculated the working capital used in
the business as Rs. 7.85 lacs. The main reason why
the tribunal arrived at this figure was that it
held that the amount in the depreciation reserve
could not be treated as reserve used as working
capital on which a return was admissible. It
therefore excluded out of consideration the entire
amount in the depreciation reserve which was Rs.
36.24 lacs in considering what sum had been used
as working capital. This view of the tribunal is
clearly incorrect in view of this Court’s decision
in The Tata Oil Mills Co. Ltd. v. Its Workmen. (2)
In that case it was pointed out that-
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"a return is allowed on the reserves
used as working capital on the ground that if
these reserves are not used for this purpose,
the concern would have to borrow money and
pay interest on that. This being the basis on
which a return on reserves used as working
capital is allowed, there is no reason why,
if there is in fact money available in the
depreciation reserve and if that money is
actually used during the year as working
capital a return should not be allowed on
such money also."
The same view was taken by this Court in Petlad
Turkey Red Dye Works Ltd. v. Dyes and Chemical
Workers’ Union, where it was emphasised that the
balance-sheet did not by itself prove the fact of
utilisation of reserve as working capital and the
law required that such an important fact as the
utilisation of a portion of the reserve as working
capital had to be proved by the employer by
evidence given on affidavit or otherwise and after
giving an opportunity to the workmen to contest
the correctness of such evidence by cross-
examination. Therefore the tribunal in this case
was not right in excluding the amount in the
depreciation reserve altogether from consideration
on the ground that it was a reserve for
depreciation.
This brings us to the question as to what
amount was actually used as working capital out of
the reserve in the relevant year. On that point
there was the evidence of Shri M. S. Vartak who
was the Secretary of the Appellant company. That
evidence as to utilisation of the reserve as
working capital was accepted by the tribunal. The
statement of Shri Vartak shows that the amount
shown in the revised calculations as to the
working capital was actually used as working
capital during the year. Thus, according to this
statement, Rs. 36.70 lacs were used as working
capital and the appellant
379
claims return on that amount. It may be accepted
that the sum of Rs. 36.70 lacs was used as working
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capital by the appellant during the year; but we
are of opinion that the appellant is not entitled
to a return on this entire amount, for the reason
that this amount includes a sum of Rs. 14.56 lacs
which was either borrowed by the appellant or was
in deposit with it, on which the appellant was
paying interest. The appellant therefore cannot
claim further interest on this borrowed amount
which has been used as working capital, for it has
already paid interest on it to those from whom it
was borrowed and this has been taken into account
as expense in arriving at the gross profits. As
was pointed out in The Tata Oil Mills Co.s’ case,
the basis for giving a return on reserves used as
working capital is that otherwise money would have
to be borrowed for that purpose. Where borrowed
money is used as working capital there is no
question of giving any further return on this
borrowed money. The return on reserves used at
working capital can only be given on moneys
belonging to the company which are used as working
capital. Therefore, though Rs. 36.70 lacs might
have actually been used as working capital in the
relevant year, Rs. 14.56 lacs were borrowed money
on which interest was paid. There is no question
therefore of any further return on this amount as
prior charge. Thus the amount on which the
appellant is entitled to the return on working
capital as a prior charge is Rs. 36.70 lacs minus
Rs. 14.56 lacs, i.e. Rs. 22.14 lacs. The return on
this amount at three per cent comes to .66 lacs
and the calculations made by the tribunal would
have to be corrected accordingly.
Turning now to the claim for rehabilitation
it is enough to say that no evidence as to
rehabilitation was led in this case. It may be
that this was because the appellant expected that
the claim it was making on other items of prior
charges would be sufficient to resist the claim
for further bonus besides one
380
month’s bonus already paid. The learned Attorney-
General therefore submitted that the case might be
remanded to enable the appellant to lead evidence
on the question of rehabilitation. The dispute
relates to the year 1954-55 and we think it is too
late now to make a remand in order to determine
this question. We should however like to make it
clear that the fact that no evidence as to
rehabilitation was led in this year will not
preclude the appellant from leading evidence as to
the amount which should be allowed to it as prior
charge on account of rehabilitation, in any
subsequent dispute as to bonus relating to
subsequent years. In the present case, however, it
is not possible to allow any amount for
rehabilitation as a prior charge.
The final calculations therefore after the
corrections made by us are as below:
In Lacs
--------
Gross Profits
Rs. 9.46
Deduct-National normal depreciation... 3.32
--------
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Balance 6.14
Deduct-income-tax 2.25
--------
Balance 3.89
Deduct-return on paid up capital 1.33
--------
Balance 2.56
Deduct-return on working capital at 3% .66
--------
Available surplus 1.90
--------
The available surplus therefore for this year must
be held to be Rs. 1.90 lacs roughly. One month’s
wages come to roughly Rs. .64 lacs. It seems to us
therefore that it will be fair to allow 1 1/2
months’ wages as bonus for this year, which would
come to about Rs. .96 lacs. The appellant will get
some rebate on that from the income-tax
381
department. We are therefore of opinion that the
workmen are entitled to an additional bonus for
half a month for this year.
We therefore partly allow the appeal and
reduce the additional bonus from one month to half
a month. In the circumstance we order the parties
to bear their own costs.
Appeal allowed.