# [1980] 1 S.C.R. 509 - **Citation:** [1980] 1 S.C.R. 509 - **Court:** Supreme Court of India - **Decided:** 1979-09-04 - **Bench:** S. Murtaza Fazal Ali, P. S. Kailasam, A. P. Sen - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1980-1-s-c-r-509-7787 - **Pages:** 18 ## Headnote LAbour law-Dearnes.s allowance to workers-Its nature-If could be given at 125% of incroose in the. cost of living-Depreciation, if should be a fir!t charg~ in arriving at .the capacity of the industry to pay wages. The respondent workmen who were employees of Sugar mills in the State of Gujarat demanded grant of dearness allowance, among certain other benefits, mitigate the hardship of unemployment during the off season. [517A-B} 2. (a) Section 66(1) of the Gujarat Cooperative Societies Act lll61 requires .that taxes and depreciation should be deducted from gross profits for arriving 'at net profit. -That does not mean that wages and dearness allowance could only be determined after the net profits are arrived at. The sub-sectioa itself provides that contributions. towards provident fund and gratuity even of its employees should all'be deducted from the gross profits for arriving at the net profits. The provisibn for deducting depreciation occurs after providing • for contn"bution towards provident fund and gratuity. The determination of the net profits under the section is for different purpose, namely, for appro~ prlation of the net profit as provided for in the Act and does not in any way support too contention of the appell!tnt. [518E-F1 D (b) It is settled law that in fixing fatr wages or dearileliS allowance or for making contribution to provident fund or providing for gratuity the financial capacity of the industry to bea'r the additional burden will have to be takea into account On principle of social justice ## Text _Characters 0–39,259 of 48,237. This is a partial read: ask again with offset=39259 for what follows._ 509 MANAGEMENT OF SHRI CHALTHAN VIBHAG ~HAN A . UDYOG SAHAKA"RI MANDALI LTD. ETC. ~. B. S. BAROT MEMBER, INDUSTRIAL COURT, GUJARAT, AND ANR. ETC. September 4, 1979 [S. MURTAZA FAZAL ALI, P. S. KAILASAM AND A. P. SEN, JJ.] LAbour law-Dearnes.s allowance to workers-Its nature-If could be given at 125% of incroose in the. cost of living-Depreciation, if should be a fir!t charg~ in arriving at .the capacity of the industry to pay wages. The respondent workmen who were employees of Sugar mills in the State of Gujarat demanded grant of dearness allowance, among certain other benefits, mitigate the hardship of unemployment during the off season. [517A-B} 2. (a) Section 66(1) of the Gujarat Cooperative Societies Act lll61 requires .that taxes and depreciation should be deducted from gross profits for arriving 'at net profit. -That does not mean that wages and dearness allowance could only be determined after the net profits are arrived at. The sub-sectioa itself provides that contributions. towards provident fund and gratuity even of its employees should all'be deducted from the gross profits for arriving at the net profits. The provisibn for deducting depreciation occurs after providing • for contn"bution towards provident fund and gratuity. The determination of the net profits under the section is for different purpose, namely, for appro~ prlation of the net profit as provided for in the Act and does not in any way support too contention of the appell!tnt. [518E-F1 D (b) It is settled law that in fixing fatr wages or dearileliS allowance or for making contribution to provident fund or providing for gratuity the financial capacity of the industry to bea'r the additional burden will have to be takea into account On principle of social justice with the development of industrial law it bas now been accepted that when the industry can bear the burden, provision should be made for provident fund and gratuity schemes. In determining the financial capacity of an industry all relevant facts will have to be taken into account. The principles followed in arriving at . the profit and loss account for income-tax and other purposes may. not be conclusive. The claim of the employer to a reasonable profit, that of the shareholders for a fair diviE dend the interest of consumer and other re~vant factors and circumstances will have to be taken into account. It is necessary to take into account all the facts and circumstances relating to the industry for determining the financiPl capacity of the industry to pay. [519D-Gl F .A.hmedizbad Mill! Owneri Auociation etc. v, The Textile Labour .A.ssocill~ lion, [1966] 1 S.C.R 382, Gramophone Company Ltd. v. lt! Workmen, [1964] z LL.J. 131, Indian Link Chain Manufacturers Ud. v. Their Workmen, [1972] 1 S.C.R. 790 and Bharatkhand Textile Mfg. Co. Ltd. and Ors. v. The Textile Lab011r Association, Ahmedabad, [1960] 3 S.C.R. 329; followed. G (c) The facts that have to be taken into account in determining an overall picture of the financial capacity are the financial condition of the employer his profit making capacity, the profits earned by him in the past. extent of the reserves and the chiances of his replenishing them as welt' as the claim for capital invested by him. [521F-G] Hindustan Antibiotics Ltd. v. The Workmen and Ors., [1961}1 S.C.R. 652. referred to. · (d) An employer claiming depreciation allowance is only entitled to ~e 1 • actoal or probable depreciation of the machinery etc. for the period ·due to D wear and tear. '!"he depr'eciation Cannot be computed on an acturial basis or on the ·profit and loss account i'urnisbed by the company. In the instant ca~e~, the accotintin& was for the PUI'pOie of min.i.mising· the profits to deprive the l CHALTHAN VIBHAG v. INDUSTRIAL COURT (Kailasam, J.) 511 - workers their due. Such depreciation cannot be allowed. If the inflated figures are left out of account the industy has/ the capacity to bear the additional burden. [524A-B, E]. (e) Even though the wage! were fixed on industry-cum-region basis it is open to industry to plead that it has not the financial capacity to bear the increased burden. When such a plea is specifically raised, it is the duty of the industrial court to determine whether the increased bnrd~n could be borne by the particular industry. [525 F-G] · CiyiL ApPELLATE JURISDICTION: Civil Appeal No. 146/78. Appeal by Special Leave from the Award dated 22-2-77 of the . Industrial Court, Gujarat in Ref. lC. No. 53/75. .4.ND CIVIL APPEAL NOS. 322-324 OF 1979. Appeals.by special leave from the Order dated 18-10-1978 of the Gujarat High Court in SCA No. 1036/77. AND SPECIAL LEAVE PETITION (CIVIL) NO. 2939/79. From the Judgment and Order dated 30-1-1979 of the Gujarat High Co~rt in SCA No. 311/78. B c Dr. Anand Prakash, Lwcmi Anand Prakash, A run B. Desai and E H. K. Puri for the Appellant in CA 146/78 and 323/79. F. S. Nariman, H. K. Puri, Anm B. Desai and Mrs. Laxmi Anand for the Appellants'in CA 322/79. · A. K. Sen, Arm~ B, pes(li, V. K. Behl, H. K. Puri and Mrs. Laxmi Anand for the Appellant in CA 324/79. F M. K. Ramamurthy and, Promod~ Swarup for the Respondents in C.A. 146/78 and C.A. 322/79. S. S. Khanduja and Miss Kusum Chowdhry for the Respondent in GA. 146/78 and 323-324/79 .. J. G. Shah (CA 322) M. K. Ramamurthi (SLP. 2939 and' CA ~22) and A. K. Srjvastava and Vineet Kumar for the Respondents in C.A. 322 and for the Petitioner in -5LP. 2939/79. The Judgment of the Court was delivered by G KAILASAM, J .. AJl. these appeals and special leave petition are by n t~e management of five cooperative sugar factories in Gujarat State . . The demand of the workmen of the factories in Gujarat was for pay-; .[ ' .. ·.' , . ' ~; . - 4 512 SUPREME COURT REPORTS {1980] 1 S.C.R, / · A ment of the U.P. Government 1-evised scales for sugar factories in U.P. regarding pay, dearness allowance and other benefits. The second Wage Board for the sugar industry gave its report in 1970. The Wage Board's report was due to expire on 31st October, 1974. The Government of U.P: on 31st October, 1974, issued the B U .P. Pattern Scales of Wages and Dearness Allowance for workmen employed in all sugar. factories working by vacuum Pan Manufacturing . Process. The Labour Minister gave the award and as a result of that award, an order was passed under section 3 sub-clause (b) of the U.P. Industrial Disputes Act, 1947. This order relating to U.P. Pattern of Pay, Graduated Dearness Allowance, Variable Dearness ~ Allowance came into force from 31st October, 1974 and effect was to be given to these pay-scales and dearness allowance from 1st October, 1974. As the sugar factories were seasonal factories a retention . anowance for unskilled seasonal workmen for off-season at the rate of 10% of the basic wage and dearness allowance payable during the crushing year 1974-75 was also provided for. The demand put forD ward by the workmen in all these appeals is for p~yment according to · the U .P. Pattern. G 8 The Industrial Court, Gujarat, -increased the graduated dearness allowance of the unskilled employees from Rs. 21 to Rs. 40. But this increase was not given at one stage but was spread ' over in three stages, the first stage being from 1st July, 1976 to 30th June, 1977~ the second stage being from 1st July, 1977 tp 30th June, 1978 and the third stage being from 1st July, 1978 to 30thJune, 1979 and onwards. The increased graduated dearness allowance for the first period would be Rs .. 32 per month; for the second period Rs. 36 per month and for the third period Rs. 40 per month. The existing basic wage for the unskilled employee is Rs. 110. The variable dearness allowance of Rs. 151 per month is being paid and the Court found that there was no dispute as raised in demand No. 2(c). Regarding variable dearness allowance demand Nos. 3, 4 and .5 the Court revised the rates from 83 paise per point on the rise over 301 points of All India Average Consumer Price Index Number for Industrial Workers (Base 1960=100) at Re. 1.00 per point for skilled B operatives and for . clerks drawing upto Rs. 150 per month as aske'd for in demand 5 (i) (b) and from Re. 0.95 toRe~ 1.12 for All India Aver.age Consumer Price Index for other employees as per demand No. 5(i)(d). This increase was also spread over for a 'period of three years i.e. 7 paise for the first period from 1st July, 1976 to 30th June, 1977; 5 paise for the second period from 1st July, 1977 to 30th June, 1978; and 5 paise 1for the third period f,rom ; 1st July, 1978 to 30th June, 1979 and j_ CHALTHAN VffiHAG V. INDUSTRIAL COURT (Kailasam, J.) 513 onwards. Regarding demand No. 7 relating to retaining allowance to be paid to the unskilled seasonal employees at the rate of· 10 per cent of the basic wage and dearness allowance payable during the crushing season 1974-75 and for subsequent years, the Court found that the demand was justified. The Court gave a retention allowance of 10%, as demanded, of the basic wage and dearness allowance payable during the crushing season 1974-75 and also for the three subsequent years. On appeal the High Court passed an order on 18th October, 1978 as follows stating that reasons will be given later. A: B "(1) The impugned award is hereby quashe~ and set aside. C (2) There is no justification for the phasing awarded by (3) (4) the Industrial Court and hence, the phasing is quashed . and set aside. X X X X X X X ( 5) The respective cooperative sugar societies will pay the costs of the other side. Costs quantified at Rs. 300/- in each matter. .RuJe is made absolute accordingly/in Special Civil Applications Nos. 1136 of 1977, 1148 of 1977, 602 of 1978 and 311 of E 1978, Special Civil Applications Nos. 1036 of 1977 . and 1505 of 1977 are dismissed." By this order the Court quashed the award and set it aside. It also found that there was no justification for phasing as awarded by the Industrbl Court and therefore quashed it and set it aside. It confirmed with retrospective effect the award as given by the Industrial Court. The High Court also directed that U.P. Pattern will be given full effect with retrospective effect from the da~e mentioned in the award. The reasons were given by the High Court by its judgment dated 30th January, 1979. The judgment of the High Court is ·assaile<;l on the following grounds:- 1. The grant of neutralisation of variable dearness allowance at 125% is far in excess of what is permissible under the industrial law. 2. The High Court erred in not taking' into account depreciation of the sugar factories in arriving at the G H- A • c D I' G 514 SUPREME COURT I.EPORTS [1980] l S.C.R. financial capacity of the industry for the purpose of·. fixing the wage structure. In any event, it was submitted that as the administration of the sughr factories is governed by thel Gujarat Cooperative SOcieties Act. 1961, those provisions will have to be followed in . arriving at the net profits ·and for determining the financial capacity of the facto~es to pay. 3. It was submitted that the Industrial Court and the Hisk Court erred in following the U.P. Pattern on the ground that it has been accepted by ·the· other States in the South zone without taking into account the relevant circumstances relating to individual factories. · · 4. Lastly it was contended that the High Court after quashing the impugned award and setting it aside erred in passing a new award. We ignore the last &Iound as we feel it is purely technical. Though the Higll Court may not be right in stating that it quashed and set a8ide the a~ard, the intention is clear from the subsequent clauses of the award. We will now proceed to deal with the other three objections. 11 is strongly urged on behalf of the appellants tb~t the High Cowt and the. Tribunal were in error in allowing neutralisation of variable dea~ess allowance of 125% which is beyond the permissible limits of the industrial law. - It is common ground that 100% neutralisation would be achieved by granting an increase of 83 paise for rise in one point in the cost of living index. By granting an increase of o~ rupee for increase of one point the neutralisation is by 125%. Dearness Allowance .was · primarily intended as a protection of persons whose salaries are at the subsistence level to protect them against the adverse effects of the rise in prices. ~e Commission on Dearness Allowance in May, 1967 stated that historically dearness allowance was regarded as applicable to lhose employees whose salaries are at the subsistence level or at a little: above in order to enable them to face the increase in dearness of essential commodities. The National CQmtnission on Labour, 1969, observed that unless money wages rise as fast as consumer prices it B will result in an erosion of .real wages. But the extent of its impact " will depend on the :maigin of erosion available at different levels of income. The Commission . recommended that 95% neutralisation _....._, ;.. :_ . . : ':; :- : CHALTHAN VIBHAG V, INDUSTRIAL COURT (Kailasam, ],) 5'15 shoulEl be ~anted agai'nst rise in cost of living to those drawing minimum wage in non-scheduled employments. In a series of decisions, this Court has expressed the same view. It has been held that cent per cent neutralisation cannot be allowed as it would lead to a vicious tircle and add to the Urllationary spiral. It was observed that there was no reason why the industrial worker should not make sacrifices like all other citizens. In Clerks oj Calcutta Tramways v. Calcutta Tramways Co. LtdC) this Court said "We can now take it as settled that in matters of the .grant of dearness allowance except to the very lowest cla.ss of manual labourers whose income is just sufficien,t to keep boqy and soul together, it is impolitic and unwise to. . neutralise the entire rise i'n the. cost of living by dearness allowance. More so in the ca.se of the middle classas". The .same view was ex- ._ pressed in the Hindustan Motors'(2) case and was reaffirmed in Hindustan Times Ltd. New Delhi v. Their Workmen,(3) wh~re it was observed that the whole purpose of dearness allowance being to neutralise a portion of the increase in the cost of living it should ordinarily be o'n a sliding scale and provide for an increase on rise in the cost of living and a decrease on a fall in the cost of living. In Kamani Metals and Alloys Ltd. v. The,ir Workmen,(4-) it was held that 100% neutralisation is not advisable as it will lead to inflation and therefore dearness allowance is often a little less than one-hundred per cent neutralisation. In Silk & Art Silk Mills Association Ltd. v. Mill Mazdoor Sabha(') it was laid down that i'n considering a claim for dearness allowance or revision of dearness allowance amongst other factors it should be borne in mind (1) Full neutralisation is not normally given, except to the very lowest class of employees; (2) The purpose of dearness allowance being to neutralise a portion of the increase in the cost of living,* should ordinarily . be on a sliding scale and provide for an increase on the rise in the cost of livin'g and a decrease on a fall in the cost of living. In Silk·& Art Silk Mills Association Ltd. v. Mill Mazdoor Sabha(~) a grant by the Industrial Tribunal of 99% neutralisation of increase In the cost of living was confirmed as the workmen cannot be denied their subsistence wage at its real level because some other comparable con~ cern is paying at a lower rate. In Killick Nixon Ltd. v. Killick. & (1) [1956) S.C.R. 772. (2) 1962-II L.L.J, 352 (SC>: (3) [1964]1 s.c:R. 234. (4) [1967] 2 S.C.R. 463. (5) A.J.R. 1969 S.C. 36(), *Emphasis Supplied (6) [1973] l S.C.R. 277. A B c D E F G A •• c 516 SUPREME COURT REPORTS [1980] 1 S.C.R. AUied Companies Employees Union( 1) this Court after approvii!g the propositions laid down in Bengal Chemical case (supra) proceeded to state at p. 467 : "There is, however, one thing which we must point out lest there should be some misqonception about it and that is that s.o far as the lowest paid emplo~s at or just above the subsistence level are concerned, they .are_ entitled to 100% or at any rate not less than 95% neutralisation of the rise in the cost of living and hence there should be no ceiling on dearness allowance payable to employees within the slab of first Rs. 100, unless it can be shown by the. management that the rate of neutralisation in their case is more than .100 per cent. Th~ decision is authority for the proposition that the rate of neutralisa· tion cannot be more th~n 100% even in the case of lowest paid empla. y~s. The proposition laid down in the decision cited above were reiterated and followed in Shivraj Fine Art Litho Works v. State Industrial Court, Nagpur & Ors.(') The law is thus clear that dearness allowance is intended to neutD ralise a, portion of the increase in the cOst of living. Though 100% neutralisation is not advisable as it will lead to inflation, full neutralisa· tion may be permissible only in the case of theJ lowest class of employees. The management is entitled to complain if the n~utralisation is more · than 100%-. E The purpose of grant of dearness allowance is to neutralise the increase in the cost of living due to rise in prices. Neutralisation may be such as to neutralise fully the increase in cost of living or may be restricted to neutralise only a portion of the increase. Full or cent per cent neutralisation ca'n be achieved if the increase in the cost of living is fully compensated so that the pay of the worker is not adversely F affected. But ail award of more than 100% of an increase in the cost of living would be more than neutralisation and would in effect · gives the· worker an increased wage. The result would be the worker would be getting an increased wage packet whenever there is a prire rise a result which would not have been envisaged in making provision · for grant of dearness allowance. Mr. M. K. Ramamurthi learned counsel for the respondents submit· ted that the permissible limit of 100% neutralisation is not applicable to cases where persons are seasonally employed. The learned counSel pointed out that the sugar industry does not function for the whole year and for months it is closed and the workers are left without employ- ( B ment during the off..,season. In order to give some relief to such sea~ (l) [1975] Supp. S.C.R. 453. (2) . [19781 3 S.C.R. 411. .~ ., • ~ : :J ..._ •• f ~ ~' ,, ., '~- ~- :~: . • CHALTHAN VIBHAG V. INDUSTRIAL COURT (Kaifasam, J.) 517 sonal workers he submitted, that the award of ~qualisation of more than 100% is ·justified. TI).is plea ca1,1not be accepted for the award of equalisation of more than 100% in these cases is not based on seasonal employment. To mitigate the hardship of u'nemployment during the off-season a retention allowance bas been provid·~d for the seasonal workers. The plea that the neutralisation of more than 100% is based on seasonal employment was not taken_ in the pleadings or raised before the courts below. Demand No. 7 relates to claim for payment of retaining allowance for the uf!sk.illed seasonal employees in the off-season at 'the rate of 10% of their basic wage and dearness allowance payable during the crushing season 1974-75. The Industrial Court as regards demand No. 7 directed that the unskin~d seasonal employees be paid retaining allowance for the season 1975 at the rate of 10% of the basic wag~ atid dearness allowance payable during the crushing season 1974-75. The claim regarding the variabl·~ dearness allowance is demand No. 2( c) and 5 ( 1) (a) (b) . There is no reference: in the proceedings before the Industrial Court or the High Court that the variable <;earness allowance of more thap 100% equalisation was awarded due to' the seasonal employment of the workers. In the result we accept the contention of the appellants tha.t variable dearness allowance cannot be more than 100% neutralisation. A. B c D. The second ~ontention raised on ~half of the appellant~ is that i'n E. fixing fair wages and dearness allowance financial capacity of the co- ../' operative societies should be arrived after taking into account the depreciation. Mr. Nariman th~ learned counsel submitted tliat i'n order to .keep an industry running it is necessary to make provision for depreciation as otherwise when the machinery gets worn out the industry would F grind to a halt. The learned counsel submitted that though there are certain observations by this Court in Unichemi,Laboratories Ltd. v. The WorkmenC), and Indian Link Chain Manufacturers Ltd. v. Workmen, C) that depreciation could not be taken into account in fixing the gross profits, they do not ruk out ta1cing into account the depreciation in all cases in determining the financial capacity of the Industry to bear , G the increased burden. Before considering the decisions which bear on the question w~ will refer to the plea of the appellants that financial capacity of sugar · industry functioning under the Cooperative Societi·~s Act should only be deci,dcd according to the provisions of s. 66 of the Gujarat Com [1972] 3 S.C.R. 567. (2) [1972] 1 S.C.R. 790. I • s1s . . . SUPREME COURT REPORTS [1980] 1 S.C.R. A operativ<> Societies Act, 1961, Act X of 1962. Seetion 66(1) runs as .. ~· B c D E F G H follows :- "A society earning profit, shall calculate its annual net profits by deducting from the gross profits for the year, all accrued interest· which is overdue for more than six months, establishment charges, contributions, if any, towards the provident-fund and gratuity fund of its emplo~s, interest payable on loan and deposits, audit fees, working expe'nses including repairs, rents, taxes and depreciation, and after providing for or writing off bad debts and loss.;:s not adjusted against any fund created out of profits. A society may, however, add to the net profits for the year, interest accrued in lhe pre~ cedi'ng years, but actually recoveree during the yeat The net profits thus arrived at, together with the amount of profits ~rought forward from the previous year shall be available for appropriation." Relying .on the provisions of the section which requires that taxes and depreciation should be deducted from gross profits for arriving at net profits, it was submitted that in determining the financial capacity of the industry the 'net profits as prescribed in the section would have to be determined. We do not read the section as meaning that wages and dearness allowance could only be determined after the net profits are arrived at The sub-section itself provides that eontributions towards provident fund and gratuity fund of its employees should all be deducted from the gross profits for arriving at the net profits. The provision for de<.lucting depreciation occurs after providing for contribution towards provident fund and gratuity. The determination of the net profits under the section is for a different purpose, namely for appropriation of the net profits as provided for in the· Act a'nd does not irr any way support'the contention of the appellants. In deciding the financial capacity of an industry this Court has laid down in Ahmedabad Mills Owners' Association etc. v. The Textile Labour Association,C) that "It1Pustrial adjudication must take into account the problem of additional burden which such wage structure would impose upon the employer and consider whether the employer can reasonably be called upon to bear sqcb burden. . ... It is a long-range plan and i'n dealing with the problem, which is difficult and delicate the financial position of the employer and! the future prospects of the industry and the additional burden which may be imposed on the consumer must be carefully examined." This Court after referring to the Reserve Bank Bulletin about the fina'ncial position of the industry (1) [1966] 1 S.C.R. 382 , ff .. 'It • .. -~ · ,•': ,. -::- ., CHALTHAN VIBHAG V. INDUSTRIAL COURT (Kailasam, J.) 519 and about cotton textile industry and other. authorities on determining the financial capacity of an industry observed that "industrial adjudication cannot lean too heavily o'n such single-purpose statements or adopt any one of the tests evolved from such statements, whilst it is attempting the task of deciding the financial capacity of the empLoyer in context A of the wage problem." The financial capacity of the industry will have . B to be decided in the context of th~ wage problems and the methods adopted i'n determining financl.ai capacity of the industry for other purposes need not be followed. While examining the financial capacity in detail we must ultimately base our decision on a broad view which emerges from a consideration of all relevant factors, such as financial position of the employer, the interests of the consumer etc. The wages due to a worlo~r are in the nature of expenses just like payment for raw materials. In this sense the wages are expenses which have to be met whether the company works, malres a profit or not. So far as the rni'nimurn wages due to a worker. are concerned, the law requires that they should be paid first and if the industry cannot pay them it mly as well clooe. The payfl!ent of dearness allowance as prescribed under the Minimum Wagef the company's claim for depreciation and development rebate and the same be allowed as p:;r income-tax assessment The Court allowc ed depreciation allowance and development rebate. In determining the financial position of the company the court obsefVt:;d that it would not be appropriate to approach its capacity to bear the burden from . -;3D investors point of view. The over-all picture of the soundness of the undertaking and its future prospects must be taken into account.* : ~ : The Court adopted the principles laid down in the Bharatkha.nd Textile Mfg. Co. Ltd. & Ors. v. The Textile Labour Association, AhmedafJad(") which are as follows:- "It is not disputed that the benefit of gratuity is in the nature of retiral benefit ahd there can be no doubt that before framing a scheme for gratuity industrial adjudication has to take into a~ount several relevant facts; the fina.'1Cial condition oj the employer, his profit making capacity, the p;o{it3 earned by him in the past, the extent of his reserves and the chances of his replenishing them as well as the claim for capital invested by him, these aYul other malfrial considerations may have to be borne in mind in determining the terms of the gratuity scheme." (Emphasis supplied). Thus the facts that have to be taken into account in determining an overall picture of. the financial capacity are the financial condition of tbe employer his profit making capaCity the profits earned by him in ·the past, the extent of his reserves and the chances of his replenishing 'them as well as the claim for capital invested by him. After referring to the dec1sion in the Hindustan Antibiotics Ltd. v. The Workmen &: Ors., (8) at p. 809 the Court made the following observations :- "It is pertinent to notice that gratuity and wages in industrial adjudication are plac'ed on the same footing and have priority over Income-tax and other reserves, as such in consi- (1) [1972] I S.C.R. 790. "'(Emphasis supplied) (2) [1960] 3 S.C.R. 329. (3) [1967] 1 S.C.R. 652. / D E FJ G H 522 SUPREME COURT REPORTS {1980] 1 S.C.R. A dering the financial soudness of a'n undertaking for the purposes of. introduction of a gratuity scheme the profits that must be taken into account are those .comp1:1ted prior to the deduction_ of depreciation and other reserves." As already pointed out in Gramophone Company's case there is no B reference to deduction of depreciation. In the case under consideration i.e. Indz'an Lin~ Chain Ltd., the Court at p. 807 allowed the claim of the company for a deduction on accoun,t of depreciation and development rebate at Rs. 1,61,054 and Rs. 5,822 instead of Rs. 80,190 and Rs. 3,970. On the facts of the case it is found that c D the industry was in a position to bear the burden. In Unichem Laboratories Ltd. v. The Workmen(') it was found that the average gross profits of the company exceeded Rs. 40 lakhs and the additional financ;;ial burden by the revision of the wage structure was 1b. 5.55 lakhs. On the facts the court held that the Tribunal was justified i.il computing gross profits without deducting tax, depreciation and development rebate. The court accepted the plea oa behalf of lb-e company that the decision in Gramophone Company Ltd. had no occasion to consider who~ther: depreciation reserve ean be deducted or not. Scr_utinising the figures given at p. 581 of the Reports the Court E .found that the average net profit worked out toRs. 13,84,691.00. The depreciation that was claimed was Rs. 5,44,918 for 1965-66, Rs. 5,55,035 lor 1966-67, Rs. 7,84,824 for 1967-68, Rs. 11,11,775 for 1968-69 and Rs. 9,16,719 for 1969-70. On the facts the Court found that the company had the financial capacity. The inclusion or exclusion o~ the depreciation allowance would not have made any difference ~F to the capacity of the industry to bear the additional burden. The G H decisio'n may not be understood as laying d9wn a principle of law that iti no case the depreciation could be taken into account. It may be remembered that in Bharatkhand Textile Mfg. Co. Ltd.- (s-upra) the guidelines that were indicated were that in determining the capacity to pay by the industry the financial condition of the employer, his profit making capacity, the profits earned by him in the past, the extent of his reserves and the. chances of his replenishing them as well as the claim for capital invested by him*. these and other material consideration'S may have to be borne in mind. Thus the extent of the reserves the chances of replenishing them as well as the claim for capital . (1) [19721 3 s.c.R. 567.' •(Emphasis supplied) ·- cl!ALTHAN VIBHAG V. TNDUSTRfAL COURT (Kai/asam, f.) SZJ invested by him and as observed in Ahmedab~d i\.1illowners' Association v. Textile Workers,(') will have to be taken into account. The position of the industry shoul~ be ex~ned in detnit and the decision should be based on a ~road VIew which emerges from a consideration of all relevant factors such as whether the employcr can reasonably be called upon to bear the burden and wlwther the additional burden imposed on the consumer is justified wo~ld also have to be carefully examined. As pointed out in the Ahmedabad Millowners Association cac;e (supra) "It is a long-range plan and in dealing with the problem, which is difficult and ddicatc the financial position of the employer and ~· the future prospects of the indu~try and the additional burden which may be imposed on the consumer must be carcfuay examined." It may be that for prudent management of an industry it will be d-esirable to take into account to some extent the depreciation of the. machinery for otherwise aft~r lapse o[ years the machinery may get worn out and without provision for replacement the industry itself will come to a stop. Whether provision for such depreciation should be made and if so to what extent wi!l depend upon the facts of the case. Depreciation allowance to the extent of mak.i'ng out a loss need not be accepted btlt reasonable provision should be made. The three decisions of this Court referred to were giv~n on the particular facts of the case ·and may not be unJcrstootl as laying down that under no circull15tanccs deduction for depreciation, reserves etc. cou!J be made. It is of utmost importance that t~ industry must be kept going as long as it could pay the minimum wages.· It may sometimes be necessary for the worker! to make some sacrifice to keep the induo;try going. It is not wise to kil! the ~oo5e that lays the golden eggs. The c:~paci ty of the industry to beur the burden will have to be taken into account in determining " .