# [1978] 3 S.C.R. 1023

- **Citation:** [1978] 3 S.C.R. 1023
- **Court:** Supreme Court of India
- **Decided:** 1978-07-21
- **Case number:** Civil Appeal No. 1848 of 1970
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1978-3-s-c-r-1023-7449
- **Pages:** 7

## Headnote

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1023
MANAGEMENT OF CENTRAL COAL WASHERY
v .
. WORKMEN & ANR.
July 21, 1978
IP. N. BHAGWATI AND V. D. TULzAPURK.\R, JJ.]
Paynient of Bonus Act, 1965, S. 16(1) (a) and Explanation II thereto, interpretation of-Meaning and connotation of the word 'Profit' frorn the establishment within the meaning of clause (a) of Sub-section (1) of S. 16.
The appellant organisation, set up as an independent organisation separate
from the Hindustan Steel Ltd. to manage the three Coal V/asheries 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
depreciation with the result that the Balance-sheets and Profits nnd Loss accounts
. for the years 1964-65, 1965-66 to 1968-69 sho\ved 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 \vas referred fo·r adjudication and the 'fribunal took the viev/
that since the appella•nt denied from its three coal v.-·asheri:!s in the year 1964·
65, the \VOrkmen were entitled t_o be paid bonus under the Act from that year,
but it was held that since the profits were inadequate lo warrant payment ot
a larger bonus, the workmen were entitled to receive the n1inimum bonus of
4% of the wages as provided in section 10.
The Tribunc.1 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 \vorkrnan whether a member or not of the Hindustan Coal Washeries
Workers' Union received payment.
The appellant did not, therefore, press the
appeal, and it \\'as dismissed. Though the appeal was dis1nissed and the award
of the Industrial Tribunal which was in favour of the work1nen 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 ::ind prayed for setting a.side the order of dismissal of the appeal and
rehearing of the appeal.
Allowing the appeal and answering against the respondenls, the Court
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HELD : ( 1) Where an establishment is newly set-up, the "'·orkmen employed
in such establishment are entitled to be paid bonus under the Act only from the
accounting y·ear in which the employer derives profit from such establishment
or from the sixth accounting year folJowing 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 profii
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, he does not enjoy perpetual immunity,
because in any event from the
H
sixth . accounting year following the accountinj?" year in which he starts selling
goods produced or manufactured by him, he becomes liable to pay bonus to
tile workmen. [1027 D-EJ
A
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1024
SUPREME COURf REPORTS
[1978] 3 S.C.R.
i
(2) The word "profit" within the ikeaning 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 beca

## Text

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1023
MANAGEMENT OF CENTRAL COAL WASHERY
v .
. WORKMEN & ANR.
July 21, 1978
IP. N. BHAGWATI AND V. D. TULzAPURK.\R, JJ.]
Paynient of Bonus Act, 1965, S. 16(1) (a) and Explanation II thereto, interpretation of-Meaning and connotation of the word 'Profit' frorn the establishment within the meaning of clause (a) of Sub-section (1) of S. 16.
The appellant organisation, set up as an independent organisation separate
from the Hindustan Steel Ltd. to manage the three Coal V/asheries 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
depreciation with the result that the Balance-sheets and Profits nnd Loss accounts
. for the years 1964-65, 1965-66 to 1968-69 sho\ved 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 \vas referred fo·r adjudication and the 'fribunal took the viev/
that since the appella•nt denied from its three coal v.-·asheri:!s in the year 1964·
65, the \VOrkmen were entitled t_o be paid bonus under the Act from that year,
but it was held that since the profits were inadequate lo warrant payment ot
a larger bonus, the workmen were entitled to receive the n1inimum bonus of
4% of the wages as provided in section 10.
The Tribunc.1 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 \vorkrnan whether a member or not of the Hindustan Coal Washeries
Workers' Union received payment.
The appellant did not, therefore, press the
appeal, and it \\'as dismissed. Though the appeal was dis1nissed and the award
of the Industrial Tribunal which was in favour of the work1nen 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 ::ind prayed for setting a.side the order of dismissal of the appeal and
rehearing of the appeal.
Allowing the appeal and answering against the respondenls, the Court
A
B
c
E
F
G
HELD : ( 1) Where an establishment is newly set-up, the "'·orkmen employed
in such establishment are entitled to be paid bonus under the Act only from the
accounting y·ear in which the employer derives profit from such establishment
or from the sixth accounting year folJowing 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 profii
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, he does not enjoy perpetual immunity,
because in any event from the
H
sixth . accounting year following the accountinj?" year in which he starts selling
goods produced or manufactured by him, he becomes liable to pay bonus to
tile workmen. [1027 D-EJ
A
B
c
D
F
1024
SUPREME COURf REPORTS
[1978] 3 S.C.R.
i
(2) The word "profit" within the ikeaning 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 3re 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 II 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 ~mbodies a
clear legislative n1andate that in determining, for the purpose of clause (a)
~
of sub-sec.(1) of Section 16, whether the employer has n1ade profit from the
i
establishment in any accounting year, depreciation should be provided in accordance with the provisions of the Income-tax Act.
Whatever be the 1nethod 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-CJ
<
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. [1029Al
(b) Clearly, the depreciation that was required to be deducted for the purpose of determining whether the appel1ant 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 (l) 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 19_64-65 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 appeilant in each of the years
1964-65 to 1968-69.
[1028D, 1029 El
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1848 of 1970.
Appeal by Special Leave from the Award dated the 20th July, 1970
()If the Central Government Industrial Tribunal Calcutta in Reference
No. 105 of 1969 published in the Gazette of India dated the 8th August,
1970.
G
L. N. Sinha, Santosh Chatterjee and G. S. Chatteriee for the AppelH
lant.
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 detennination 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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CENTRAL COAL WASHERY v. WORKMEN (Bhagwati, J.)
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 b6ng 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 separwte accounts in respect of it5 establishinent
which consisted of thesl3 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 oe sub-section ( 4) of section 1 oifl 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 sub-section (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 large~ bonus, the workmen were entitled to receive 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 fi1ed an appeal to the Supreme Court,
the management and the workmen agree that an ex-gratia
amount equivalent to 4% oe the wages
earned by the
eligible employees during the respective years of 1965-66,
1966-67 and 1967-68 (less amounts to
those employees
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102 6
SUPREME COURT REPORTS
(1978] 3 S.C.R.
A
already paid for the year 1965-66) shall be
paid.
This
settles satisfactorily the outstanding demand on this point".
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Pursnant 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 disput·e in regard to payment of bonus
was settled, the appellant 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 q minority
Union, filed Civil Misc. Petitiun No. 3382/78,
claiming th11t the
workmen represented by it were not party to the settlement, since the
settlement was arrived at only between the appellant ~nd the Hindustan
Steel Coal Washeries Workers' Union and the settkment 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 th _c arises for determination in the appeal
is whether the workmen of the Bhojudih Colliery were not entitled
to claini bonus for the year 1964-65 to 1968-69 on the ground that
until the close of the year 1968-69 the .appellant did nat derive any
profit from its _establishment of three coal washeries. The determination of t11is question depends on the true interpretation of section 16,
sub-section (1) and its applicability to the case of the appellant. Section 16, sub-section ( 1) in so far as material, reads as follows :
''Where an establishment is newly set up, whether before or
ilfter the commencement of this Act, the employees of such
establislrrnent 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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CENTRAL COAL WASHERY v. WORKMEN (Bhagwati, .T.)
1027
Provided that in the case of any such establishment the employees
A
thereof shall not, save as otherwise provided in section 33 be entitled
to be paid bonus under this Act in respect of any accountmg year pnor
to the accounting year commencing on any day fa 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.
B
....
J
Expla111J.tio11 II :-Fo.r purpose of clause (a), an employer shall
not be deemed to have derived profit in any accounting year unless :-
0
(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 re·spect 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 entiled to be paid bonus under the Act only from the accounting
ye>rr 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 docs 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 establi.shment, he 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 manufacftured by him, he 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 appell.ant 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 (!) 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
J
the basi·s 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 II to sub-section (1) of section 16 depreciation which was
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1028
SUPREME COURT REPORTS
(J 978] 3 S.C.R.
li~ble tc; be. taken into account in arriving at the net profit for determmmg hab1hty for payment of bonus was that admi'ssible 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 ad justed as provided
in sub-section (1) of section 32 of the Income-tax Act, there would b~
losses to the app~llant in the years 1964-65 to 1968-69. The learned J
counsel appearing on behalf of ·the workmen represented
by the
Hindustan Steel Coal Washeries Employees Union Faintly contended
bef~re 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
E
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 Account1 of the appellants
were determinative and since according to the Balance Sheets and Profit
and Lo'ss Accounts, the appellant started deriving profit from the year
1964-65, the workmen were entitled to be paid bonus from that year
F
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 '•;o 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
,.
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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 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 depreci;:ition and since there are several methods of
computing depreciation, the one adopted by the employer would, in
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CENTRAL COAL WASHERY v. WORKMEN (Bhagwati, J.)
1029
the absence of any statutory provision to the contrary, govern the
A
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 Account; of th\' 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
B
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 niandate that in determming,
for the purpo8e 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 compuC
talion 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 depreeiation
that the employer can be said to have derived profilt for the purpose
of clause (a) oTsub-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
I>
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 3 2 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 die\ not derive profit from the three coal washeries in any of the
I:
years 1964-65 to 1968-69 and the workmen were not entitled to be
paid bcnus 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
F
accounting years.
There will be no order as to costs.
S.R.
Appeal allowed_