Full Judgment Text
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PETITIONER:
EMPLOYERS IN RELATION TO THE MANAGEMENT OFINDIAN CABLE CO.
Vs.
RESPONDENT:
THEIR WORKMEN
DATE OF JUDGMENT11/04/1972
BENCH:
VAIDYIALINGAM, C.A.
BENCH:
VAIDYIALINGAM, C.A.
PALEKAR, D.G.
MATHEW, KUTTYIL KURIEN
CITATION:
1972 AIR 2195 1973 SCR (1) 105
1974 SCC (3) 11
CITATOR INFO :
RF 1976 SC 611 (15)
ACT:
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.
HEADNOTE:
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 Tribunal.
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 ex-
gratia 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
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Court that the notional 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. 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 effected any change in the earlier
decision that the tax liability under the Act is to be
workedout firstby working out the gross-profits and
deducting therefrom bonuspayableto the employees. It
followed that the Tribunal committed anerror inlaw in
computing direct tax after deducting bonus. [109H-110D]
Metal Box Co. of India Ltd. v. Their Workmen, [1969]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.
1971 S.C.
08SupCI/72
106
1821, Delhi Cloth and General Mills Co. Ltd. v. Workmen
[1971] 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. [1967] 2 S.C.R. 476;
J. K. Synthetics Limited v. J.K. Synthetics Mazdoor Union,
[1971] 2 L.L.J. 552 and Ramanbhai Ashabhai Patel v. Dabhi
Ajitkumar Fulsinji and others, [1965] 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 profits.
[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
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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 Companyin 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%].
107
JUDGMENT:
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 In-
dustrial 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. 1,46,252.
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 employes 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 available surplus.
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
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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 1965-
66"
The Unions contended before the Tribunal that the computa-
tion 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 Com-
pany 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 re’turn on provision for doubtful debts.
The first contention relates to the principle to be adopted
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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 grossprofits 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) [1969] 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 effected 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 therefrom 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 gross-
profits whereas the Unions contended that the same has to be
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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) [1971] 2
S.C.C. 695
(3) A.I.R. 1972 S.C. 471.
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
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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 1964-
65 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
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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) [1967] 2 S.C.R. 476.
(2) [1971] 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 said 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
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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 Re-
tirement Gratuity Scheme, which is in force, a workman
retires at the age of 60 and normally during the year 1965-
66, 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) [1965]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 gross-profits.
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
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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 ex-
penditure 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 Unions.
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 bon-
us 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
recomputation 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
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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 recomputation 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 Di-
vidend 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 tak-
ing into account 6 %
of Rs. 250,000/- be-
ing 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
---------------------------------------
14.02% 14,76,706
--------------------------------------
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 from today.
The Award of the Industrial Tribunal is accordingly modified
and the appeal allowed in part. Parties will bear their own
costs.
G.C
Appeal allowed in part.
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