Full Judgment Text
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PETITIONER:
JACKSON CO-OPERATIVE CREDIT SOCIETY LIMITED
Vs.
RESPONDENT:
CO-OPERATIVE BANKS & SOCIETIES EMPLOYEESFEDERATION & ORS.
DATE OF JUDGMENT31/03/1989
BENCH:
THOMMEN, T.K. (J)
BENCH:
THOMMEN, T.K. (J)
DUTT, M.M. (J)
CITATION:
1989 AIR 1398 1989 SCR (2) 266
1989 SCC (3) 89 JT 1989 (2) 31
1989 SCALE (1)965
ACT:
Payment of Bonus Act, 1965--Section 6(d) and Third
Schedule Item No. 4---For rate of Bonus--Sums deductible
from gross profits-What are--In respect of a Co-operative
Society.
HEADNOTE:
The appellant--Co-operative Society has filed this
appeal by special leave against the High Court’s order
passed in a writ petition filed by it whereby the High Court
set aside the award of the Industrial Tribunal. The High
Court in the impugned order held that the appellant is
liable to pay to its employees bonus at the rate of 20 per
cent of its total annual earnings for the years 1975-76,
1976-77 and 1977-78.
The appellant contends that the High Court went wrong in
directing the appellant to pay bonus with regard to various
amounts invested by it as permitted by the relevant provi-
sions of the Maharashtra Cooperative Societies Act 1960, and
the amounts carried forward to its reserve fund. According
to the appellant, the High Court neither read the provisions
of Sec. 6(d) of the Bonus Act 1965 correctly nor was it
justified in relying on the Explanation to the 3rd Schedule
to the Bonus Act.
Dismissing the appeal subject to the modification indi-
cated in the judgment hereinbelow, this Court,
HELD: The expression "capital" is not defined under the
Bonus Act. It must therefore be understood in the sense in
which that expression is generally understood. That means
all amounts which are classified as capital in contrast to
revenue must qualify for deduction subject to the limit of
8.5 per cent, provided such capital is invested by the
Society in its establishment as evidenced by its books of
accounts at the commencement of the accounting year. Any
such capital upto 8.S per cent is thus deductible. Further-
more, all sums which have been carried forward in respect of
the relevant accounting year to a reserve fund as required
under any law applicable to Co-operative Societies for the
time being in force are also deductible from gross profits.
[269B-D]
267
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Accordingly all such amounts held by the Society as
reserve fund in terms of Sec. 66 of the Co-operative Socie-
ties Act must qualify for deduction. [269H]
If larger amounts are carried forward to the reserve
fund in terms of Sec. 66, all such amounts will come within
the ambit of item (4) of the 3rd Schedule to the Bonus Act
and qualify for deduction. [270A-B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4042 of
1988.
From the Judgment and Order dated 17.12. 1987 of the
Bombay High Court in W.P. No. 1048 of 1982.
S.C. Gupta and M.N. Shroff for the Appellant.
Anil Dev Singh, Ms. Nayana Buch, M.J. Paul, Kailash
Vasdev, Ms. Subhashini and Mrs. Kitty Kumarmangalam for the
Respondents.
The Judgment of the Court was delivered by
THOMMEN, J. This civil appeal by special leave is di-
rected against judgment dated 17.12.1987 of the High Court
of Bombay in Writ Petition No. 1048 of 1982 instituted by
the appellant, which is a Co-operative Credit Society. The
1st respondent is a Federation representing the employees of
the appellant amongst others.
Setting aside the award of the Industrial Tribunal, the
High Court held that the appellant was liable to pay its
employees bonus at the rate of 20 per cent of its total
annual earnings for the years 1975-76, 1976-77 and 1977-78.
The principal contention urged at the Bar against the
impugned judgment is that the High Court went wrong in
directing the appellant to pay bonus without regard to
various amounts invested by it as permitted under the rele-
vant provisions of the Maharashtra Cooperative Societies
Act, 1960 (the "Co-operative Societies Act") and other
amounts carried forward to its reserve fund. The appellant’s
counsel contends that the High Court did not correctly read
the provisions of Section 6(d) of the Payment of Bonus Act,
1965 (The "Bonus Act") and item (4) of the Third Schedule to
the said Act. Counsel further contends that the High Court
was not justified in. placing reliance on the Explanation to
the Third Schedule to the Bonus Act as
268
it has no relevance to co-operative societies. The Explana-
tion, he says, is relevant only to items (1), (2) and (3) of
the Third Schedule to the Bonus Act.
We shall now read the relevant provisions. Section 6 of
the Bonus Act refers to various sums which are deductible
from gross profits. It reads:
"6. Sums deductible from gross profits. The
following sums shall be deducted from the
gross profits as prior charges, namely:
(d) such further sums as are specified
in respect of the employer in the Third Sched-
ule."
The employer in question being a co-operative society,
it is item (4) of the Third Schedule to the Bonus Act that
is applicable. That
reads:
Item Category of employer Further sums to be deducted
NO.
(2) (3)
4. Co-operative Society (i) 8.5 per cent of the capital
invested by such society
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in its establishment as
evidenced from its books
of accounts at the
commencement of the
accounting year;
(ii) such sums as has been
carried forward in res-
pect of the accounting
year to a reserve fund
under any law relating
to co-operative societies
for the time being in force.
269
In column (3) of item (4), two types of amounts are
deductible from the gross profits as prior charges. Firstly,
8.5 per cent of the capital invested by a co-operative
society in its establishment is deductible. Secondly,
amounts carried forward to a reserve fund in compliance with
any provisions of law relating to co-operative societies are
also deductible. (The expression ’capital’ is not defined
under the Bonus Act. It must, therefore, be understood in
the sense in which that expression is generally understood.
That means all amounts which are classified as capital in
contrast to revenue must qualify for deduction subject to
the limit of 8.5 per cent, provided such capital is invested
by the society in its establishment as evidenced by its
books of accounts at the commencement of the accounting
year. Any such capital upto 8.5 per cent is thus deductible.
Furthermore, all sums which have been carried forward in
respect of the relevant accounting year to a reserve fund as
required under any law applicable to co-operative societies
for the time being in force are also deductible from gross
profits.) This means that reserve fund created in terms of
Section 66of the Co-operative Societies Act is deductible
under item (4) of the Third Schedule to the Bonus Act.
Section 66 reads.
"66. (1) Every society which does, or can,
derive a profit from its transactions shall
maintain a reserve fund.
(2) Every society shall carry at least one-
fourth of the net profits each year to the
reserve fund; and such reserve fund may sub-
ject to the rules made in this behalf, if any,
be used in the business of the society or may,
subject to the provisions of section 70, be
invested, as the State Government may by
general or special order direct, or may, with
the previous sanction of the State Government,
be used in part for some public purpose likely
to promote the objects of this Act, or for
some such purpose of the State, or of local
interest:
Provided that, the Registrar may, having
regard to the financial position of any socie-
ty or class of societies, fix the contribution
to be made to the reserve fund under this
sub-section at a lower rate, but not lower
than one-tenth of the net profits of the
society or societies concerned."
Accordingly, all such amounts held by the society as
reserve fund in terms of Section 66 of the Co-operative
Societies Act must qualify for deduction. The minimum re-
serve fund that is required to be
270
maintained by Section 66 of the Co-operative Societies Act
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is one fourth of the net profits of each year. (If larger
amounts are carried forward to the reserve fund in terms of
Section 66, all such amounts will come within the ambit of
item (4) of the Third Schedule to the Bonus Act and qualify
for deduction.) Accordingly, we hold that 8.5 per cent of
the capital invested by the society in its establishment as
disclosed by its books of accounts, together with amounts
carried forward to a reserve fund in compliance with Section
66 and other provisions of the Co-operative Societies Act
read with the rules made thereunder (See Rule 54 of the
Maharashtra Co-operative Societies Act, 1954) will be de-
ductible in terms of Section 6 of the Bonus Act.
We must, however, point out that the High Court was not
justified in placing any reliance on the Explanation to the
Third Schedule to the Bonus Act for that has, as tightly
pointed out by the appellant’s counsel, no relevance to a
co-operative society.
In this connection, we place on record that counsel on
both sides agree that reference to 20 per cent in paragraph
11 of the judgment was wrong in respect of the year 1975-76.
They agree that for that year, the correct figure is 18.78
per cent. Accordingly, we hold that reference to 20 per cent
in paragraph 11 of the impugned judgment must be read as
18.78 per cent for the year 1975-76 and 20 per cent for the
succeeding two years.
Subject to what we have stated above, we hold that the
High Court was right in directing the appellant society to
pay bonus to its employees. The society is liable to pay
bonus at the rate of 20 per cent for the years 1976-77 and
1977-78 and 18.78 per cent for the year 1975-76.
In the circumstances, the appeal must fail and is ac-
cordingly dismissed. The parties shall bear their respective
costs.
Y. Lal Appeal dis-
missed
271