Full Judgment Text
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PETITIONER:
MANAGEMENT OF CENTRAL COAL WASHERY
Vs.
RESPONDENT:
WORKMEN & ANR.
DATE OF JUDGMENT21/07/1978
BENCH:
BHAGWATI, P.N.
BENCH:
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 theaggregate 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
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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]
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(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 ascer-
tained 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
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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]
JUDGMENT:
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).
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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
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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 specially 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
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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:
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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
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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 Incometax 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 con-
tention 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
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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
ariving 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.
10 30