# Assam Bengal Cement Co., Ltd v. Commissioner of Income-tax, West Bengal. Bhagwati], 1 954 November 19

- **Citation:** [1955] 1 S.C.R. 991
- **Court:** Supreme Court of India
- **Decided:** 1955
- **Case number:** Civil Appeal No. 135 of 1951
- **Bench:** Mehr Chand Mahajan C.J, S. R. DAs, Bhagwati, Venkatarama Ayyar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/assam-bengal-cement-co-ltd-v-commissioner-of-income-tax-west-bengal-bhagwati-1-1224
- **Pages:** 14

## Headnote

Bonus -Meaning of-Necessary conditions for
the demand
. thereof-Industrial claim-Principles for the
grant of
it-Social
Justice-Meaning
of-Industrial
Tribunals-Whether
Tribunal.<
within the meaning of Art. 136 of the Constitution.
The term bonus is applied to a cash payment made in addition
to wages.
It generally represents the cash incentive given conditionally on certain standards of
attendance and efficiency being
attained.
1954
Assam Bengal
Cement Co., Ltd.
v.
Commissioner of
Income-tax,
West Bengal.
Bhagwati],
1 954
November 19.
1954
Muir
Mills Co., Ltd.
v.
Suti .Mills
Mazdoor
Union, Kanpur.
992
SUPREME COURT REPORTS
[1955]
There are two conditions, which have to be satiRfied before a
demand for bonus can be justified and they are, ( 1) when wages fall
short of the living standard and (2) the industry makes huge pro·
fits part of which are due to the ·contribution which the workmen
make in increasing production,
The den1and for bonus becomes an
industrial claim when either or both these conditions are satisfied.
The formula for the grant of bonus is as follows :-
As both labour and capital contribute to the earnings of the
industrial concern, it is fair that labour should derive
some benefit~ if there is a surplus after
meeting prior or necessary charges ..
The first charges on gross profits are ( 1) provision for depreciation.
(2) reserves for rehabilitation, (3) a return J.t 6 per cent.
on the
paid up capital and ( 4) a return on the working capital at a lesser
rate than the return on paid up capital. The surplus that remained:
after meeting the aforesaid deductions would be available for distribution as bonus.
The claim for bonus can be made by the employees only if as.
a result of the joint contribution of capital and labour the indus·
trial concern has earned profits.
If in any particular
year
the
working of the industrial concern has
resulted in loss there is no
basis nor justification for a demand
for
bonus.
Bonus
is not adeferred wage.
If it were so, it would necessarily rank for precedence before
divid~nds.
The dividends can only be
paid out of
profits and unless and until profits are made no occasion or question
can arise for
distribution
of any sum as
bonus amongst the
employees.
Social justice is
a very
vague and indeterminate
expression
tand no clear-cut definition can be laid down which will cover aU
the situations.
The concept of social justice does not emanate frqm the fanci·
ful notions of any particular adjudicator
but must be founded on
a more solid foundation.
Industrial
Tribunals are
Tribunals within the
meaning of
Art. 136 and Art. 136 has vested in the Supreme Court exceptional
and overriding power to interfere
where it reaches
the conclusion
~ -~
that a person has been
dealt with arbitrarily or that a
Court or
Tribunal within the territory of India has not given a fair deal to
a litigant.
In re Eddystone Marine Insurance Co. (L.R. [1894] W.N. 30),
Sutton v. Attorney-General ([1923] 39 T.L.R. 294), National Association of Local Government Officers v. Bolton Corporation (L.R. 1943
A.C: 166), Kenicott v. Supervisor of
Wayne County ([1873]
83
U.S. 452: 21 L. Ed. 319), Great
Western Garment Co. Ltd. v.
Minister of National Revenue ([1948) 1 D.L.R. 225), Mil/owners'
Association, Bombay v.
Rashtreeya Mills Mazdoor Sangh, Bombay
({1950] 2 L.L.J. 1247), Nizam Sugar Factory Ltd., Hyderabad v.
?'
Their Workmen ([1952] 1 L.L.J. 386), Textile Mills, Madhya Pradesh
v. Their Workmen ([1952] 2 L.L.J. 625), Famous Cine Laboratory v.
Their Workmen ([1953] 1 L.L.J. 466) and Bharat Bank Ltd., Delhi
S.C.R.
SUPREME COURT REPORTS
993
v. Employees of the Bharat Bank Ltd., Delhi, ([1950] S.C.R. 459),
referred to.
CIVIL
APPELLATE
JURISDICTION:
Civil
Appeal
No. 135 of 1951.
Appeal by
Special
Leave granted by the Supreme
Court of India by its Order dated the 21st of May, 1951,
from the Judgment and Order dated the 19th February, 1951, of the Labour Appellate
Tribunal of
India,
Allahabad in Appeal No. 136 of 1950.
C. K. Daphta

## Text

..
S.C.R.
SUPREME COURT REPORTS
991
_part of the working or operational expenses of the company. It was an expenditure made for the purpose of
:acquiring an appreciated capital asset which would no
doubt by reason of the undertaking given by the lessor
make the
capital asset
more
profit
yielding.
The
period of 5 years over which the payments were spread
did not make any difference to the nature of the acquisition.
It was none the less an acquisition of an advantage of an enduring nature which enured for the benefit
of the whole of the business for the full period
of the
lease
unless terminated
by the lessor
by notice as
prescribed in the last part of the clause.
This again
was the acquisition of an asset or
advantage
of an
enduring nature for the whole of the business and was
of the na~ure of capital expenditure and thus was
not
an allowable deduction under section 10(2) (xv) of the
Act.
We are therefore of the opinion that the conclusion
reached by the
Income-tax authorities as well as the
High Co_urt in regard to the nature of the
payments
was correct and the sums of Rs. 40,000 paid by the
company to the lessors during
the accounting
years
1944-45 and
1945-46 were not
allowable
deductions
under section 10(2) (xv) of the Act.
The appeal therefore fails
and
must be dismissed
with costs.
Appeal dismissed .
MUIR MILLS CO., LTD.
"·
SUTI MILLS MAZDOOR UNION, KANPUR.
[MEHR CHAND MAHAJAN C.J., S. R. DAs,
BHAGWATI and VENKATARAMA AYYAR JJ.]
Bonus -Meaning of-Necessary conditions for
the demand
. thereof-Industrial claim-Principles for the
grant of
it-Social
Justice-Meaning
of-Industrial
Tribunals-Whether
Tribunal.<
within the meaning of Art. 136 of the Constitution.
The term bonus is applied to a cash payment made in addition
to wages.
It generally represents the cash incentive given conditionally on certain standards of
attendance and efficiency being
attained.
1954
Assam Bengal
Cement Co., Ltd.
v.
Commissioner of
Income-tax,
West Bengal.
Bhagwati],
1 954
November 19.
1954
Muir
Mills Co., Ltd.
v.
Suti .Mills
Mazdoor
Union, Kanpur.
992
SUPREME COURT REPORTS
[1955]
There are two conditions, which have to be satiRfied before a
demand for bonus can be justified and they are, ( 1) when wages fall
short of the living standard and (2) the industry makes huge pro·
fits part of which are due to the ·contribution which the workmen
make in increasing production,
The den1and for bonus becomes an
industrial claim when either or both these conditions are satisfied.
The formula for the grant of bonus is as follows :-
As both labour and capital contribute to the earnings of the
industrial concern, it is fair that labour should derive
some benefit~ if there is a surplus after
meeting prior or necessary charges ..
The first charges on gross profits are ( 1) provision for depreciation.
(2) reserves for rehabilitation, (3) a return J.t 6 per cent.
on the
paid up capital and ( 4) a return on the working capital at a lesser
rate than the return on paid up capital. The surplus that remained:
after meeting the aforesaid deductions would be available for distribution as bonus.
The claim for bonus can be made by the employees only if as.
a result of the joint contribution of capital and labour the indus·
trial concern has earned profits.
If in any particular
year
the
working of the industrial concern has
resulted in loss there is no
basis nor justification for a demand
for
bonus.
Bonus
is not adeferred wage.
If it were so, it would necessarily rank for precedence before
divid~nds.
The dividends can only be
paid out of
profits and unless and until profits are made no occasion or question
can arise for
distribution
of any sum as
bonus amongst the
employees.
Social justice is
a very
vague and indeterminate
expression
tand no clear-cut definition can be laid down which will cover aU
the situations.
The concept of social justice does not emanate frqm the fanci·
ful notions of any particular adjudicator
but must be founded on
a more solid foundation.
Industrial
Tribunals are
Tribunals within the
meaning of
Art. 136 and Art. 136 has vested in the Supreme Court exceptional
and overriding power to interfere
where it reaches
the conclusion
~ -~
that a person has been
dealt with arbitrarily or that a
Court or
Tribunal within the territory of India has not given a fair deal to
a litigant.
In re Eddystone Marine Insurance Co. (L.R. [1894] W.N. 30),
Sutton v. Attorney-General ([1923] 39 T.L.R. 294), National Association of Local Government Officers v. Bolton Corporation (L.R. 1943
A.C: 166), Kenicott v. Supervisor of
Wayne County ([1873]
83
U.S. 452: 21 L. Ed. 319), Great
Western Garment Co. Ltd. v.
Minister of National Revenue ([1948) 1 D.L.R. 225), Mil/owners'
Association, Bombay v.
Rashtreeya Mills Mazdoor Sangh, Bombay
({1950] 2 L.L.J. 1247), Nizam Sugar Factory Ltd., Hyderabad v.
?'
Their Workmen ([1952] 1 L.L.J. 386), Textile Mills, Madhya Pradesh
v. Their Workmen ([1952] 2 L.L.J. 625), Famous Cine Laboratory v.
Their Workmen ([1953] 1 L.L.J. 466) and Bharat Bank Ltd., Delhi
S.C.R.
SUPREME COURT REPORTS
993
v. Employees of the Bharat Bank Ltd., Delhi, ([1950] S.C.R. 459),
referred to.
CIVIL
APPELLATE
JURISDICTION:
Civil
Appeal
No. 135 of 1951.
Appeal by
Special
Leave granted by the Supreme
Court of India by its Order dated the 21st of May, 1951,
from the Judgment and Order dated the 19th February, 1951, of the Labour Appellate
Tribunal of
India,
Allahabad in Appeal No. 136 of 1950.
C. K. Daphtary, Solicitor-General of India (!. B.
Dadachanji,
Rajinder
Narain and
Devinder
Swarup,
with him) for the appellant.
S. C. Isaacs ( C. P. Lal, with. him)
for
the respondent.
M. C. Setalvad, Attorney-General for India, (Rajin-,
der Narain and
Devinder Swarup, with him) for the
Intervener (All India Organisation of
Industrial Employers).
S. C. .Isaacs (Mohan Lal Saxena and C. P.
Lal,
with him) for the Intervener (State of U.P.).
1954. November 19.
The
Judgment of the Court
was delivered hy
BHAGWATI J.-This appeal with
special
leave
is
directed against the judgment and order of the Labour
Appellate Tribunal of India in a dispute regarding the
workers' claim for bonus.
During the year 1948 the appellant made a profit of
Rs. 11,97,648-11-9.
It paid 24! per cent. dividend on
ordinary shares, being the
maximum
that
could be
paid under
the
Public
Companies
(Limitation
of
Dividend)
Ordinance of 1948 and also paid
to the
workers their full share of bonus at annas 4 in a rupee
of their basic
ean~ings.
During the
Year 1949 the
selling rates for cloth and yarn were controlled by the
Government ·and were ::tpproximately 4 per cent. below
those obtained in 1948. The basic wages were increased
from the 1st December, 1948, by order of the
Government of Uttar Pradesh and the total wages paid were
therefore higher· than those in the previous year. There
Muir
Mills Co., Ua.
v.
Suti Mills
Mazaoor
Union, Kanpur.
1954
Muir
Mills Co., Lid.
v.
Suti Mills
Mazdocr
· .Union, Kanpur.
Bhagwali :J.
994
SUPREME COURT REPORTS
[1955]
was moreover indiscipline amongst the
workers and
· production suffered.
There was a strike in the month
of October and the mills were closed for nearly a month.
Further the management were unable to secure cotton
which resulted in the curtailment of the working hours.
As a result of all these
circumstances the
appellant
suffered a trading loss of Rs. 5,02, 563-1-10.
A sum of
Rs. 2,50,000 being the excess reserve for taxation
was
written back and a sum of Rs. 10,01,871-13-5 being the
amount
of
reserve
transferred from the
investment
account was also brought in.
An aggregate
sum
of
Rs. 12,51,871-13-5 was thus brought into
the
balancesheet by these
two transfers.
The trading
loss
was
deducted from this amount leaving a credit balance of
Rs. 7,49,308-11-7 and that amount was shown as the
profit for the year 1949 in the balance-sheet
for that
year.
The balance which had been
brought forward
from the
previous year
was added
thereto and
a
dividend of 24~ per cent. was paid
to the
ordinary
shareholders. The appellant also
paid ex gratia to the
workmen bonus at the rate of
annas 2 per rupee of
their basic earnings making it clear by their notification dated the 7th April, 1950, that the directors had
sanctioned the payment at that rate
in spite
of the
appellant having suffered
a trading loss
for the year,
that it was being paid entirely at the discretion of the
appellant and was not related to or connected with any
contract of employment of any worker.
On the 4th May, 1950, the Secretary of the respondent Union
petitioned to the
Provincial Conciliation
Officer (Textile) that there
was
more
production in
1949 than in 1948, that there was no
reason · to hold
that the profit in 1949 was less than
in the
previous
year and that the rate of bonus was wrongly reduced
and asked that
bonus for 1949 should also be paid at
the rate of annas 4 per rupee.
The industrial dispute
which thus arose was referred for enquiry and recording of an award to the Regional
Conciliation
Board
(Textile), Kanpur. The Conciliation Board by a majority decision repelled the contention of the appellant
and awarded the payment of bonus at
annas 4 per
rupee.
On an appeal taken by the appellant to the
;
• -
-
S.C.R.
SUPREME COURT REPORTS
995
Industrial Court (Textiles and
Hosiery),
Kanpur, the
Industrial Court accepted the contention of the appellant, allowed the appeal and set aside the award. The
respondent thereupon appealed to the Labour Appellate
Tribunal which substantially agreed with the
Industrial Court on questions of fact as well as the
general
position in law but imported considerations of social
justice and treating this as a special case "where social
justice would demand that labour
should have bonus
for the year where for that
very
year capital had
had not only a reasonable return but much in excess
of that", allowed the appeal and directed
the appellant to pay to the workmen bonus at the rate of annas 4
per rupee within six weeks of
their
decision.
The
appellant filed this appeal against that
decision
after
obtaining special leave from this Court.
Both the Industrial Court as well as the Labour
Appellate Tribunal found as a fact that there was
a
trading loss of Rs. 5,02,563-1-10 during the year
1949
and also that the dividend
of
24! per cent. to the
ordinary shareholders
was
distributed
after
transferring the aggregate sum of Rs. 12,51,871-13-5 from the
reserves.
The question which therefore
arises
for our
consideration is
mainly
whether
the
workers
are
entitled to the payment of a bonus in spite
of
the
employer having worked at a loss during the year and
incidentally whether the workers have any right, title
or interest in the reserves and the undistributed
profits
of the previous years.
The primary meaning of the word "bonus" according to the definition given in the New English Dictionary
is :-"A boon or gift over and above what is nominally
due as remuneration to the
receiver and
which
is
therefore something wholly to the good". This
definition was
adopted by
Stirling J. in In
re Eddystone
Marine
Insurance
Co.(i)
Webster's
International
Dictionary defines bonus as "something given in addition to what is ordinarily received by or strictly due to
the recipient".. The Oxford Concise Dictionary defines
it as "something to the good, into the bargain (and as
an example) gratuity to workmen beyond their wages".
(1) L.R. (1894) W. N. 30.
1954
Muir
Mills Co., Ltd.
v.
Suti Mills
Mazdoor
Union, Kanpur.
Bhagwati].
1954
MUir
Mills Co., Ltd.
v.
Suti,Mills
Mazdoor
.Union, KarJpur.
Bhagwati].
996
SUPREME COURT REPORTS
[1955]
Corpus Juris Secundum, Volume XI, at page 515
ascribes the following meanings to the word bonus :-
"An allowance in addition to what is
usual
current or stipulated ; a sum given or paid· beyond what is
legally required to be paid to the recipient; something
given in addition to what is ordinarily received
by or
strictly due to the recipient"
and adds:
"It has been said to carry
the idea
of something
uncertain and indefinite, something which may or may
not be paid depending on varying circumstances
and
under particular conditions has been
said
to imply a
benefit accruing to him who offers
it and an inducement to the offeree."
This imports the
conception of a boon, gift or a
gratuity otherwise described as an ex gratia payment.
The word 'bonus' has however acquired a secondary
meaning in the sphere of
industrial relations.
It is
classified amongst the
methods of wage payment.
It
has been used especially in the
United
States
of
America to designate an award in addition to the contractual wage.
It is usually intended as a stimulus to
extra effort but sometimes represents the desire of the
employer to share with his workers the fruits of their
common enterprise.
(Vide
Encyclopaedia
Britannica,
Volume III, page 856).
The Pocket Part
of
the Corpus · Juris. Secundum,
Volume XI, under the heading "As Compensation
for
Services" quotes the following passage from
AttorneyGeneral v. City of Woburn (') :-
"The word 'bonus' is commonly used to denote an
increase in salary or wages in contracts of employment.
The offer of a bonus is the means frequently adopted
to secure continuous
service from
an
employee
to
enhance his efficiency and to augment his loyalty to
his employer and the employee's acceptance of the offer
by performing the things called for by the offer binds
employer to pay the bonus so called."
It also gives another meaning of the word 'bonus',
viz.,
"increased
compensation
for
services
already
(1) 317 Mass. 465.
' .
>
' •
•
\
-~ .. i\
1.l'
..I
, ___ ...., ....
'r
S.C.R.
SUPREME COURT REPORTS
997.
rendered gratuitously or for a prescribed compensation
where there is neither express or implied understanding
that additional compensation may be granted."
This imports the conception
that
even though the
payment be not strictly due to the recipient nor legally
enforceable by him, a claim to the same may be laid by
the employee under certain conditions and if such claim
is entertained either by an agreement
with
the
employer or by adjudication before a properly
constituted
Tribunal as on an industrial dispute arising,
the same
would ripen into a legally enforceable claim.
This position was recognised in Sutton v. Attorney-
·General( 1 ), where the Earl of Birkenhead observed:-
"The term 'bonus' may of course be properly used
to describe
payments made
of grace
and not as of
right.
But it nevertheless may also include,
as here,
payments made because legally due but which the parties contemplate will not continue indefinitely",
and in
National
Association
of Local
Government
·Officers v. Bolton Corporation (2) :~
"This payment, if made, cannot properly in my
·opinion be regarded as a mere gratuity.
Though there
is an element of bounty in it the bounty, if granted, is
.given for good reasons of national policy .......... I do
not see why this does not fall within the definition
of
trade dispute just as much as a dispute as to the rate
·of wages or salary."
To a similar effect are the observations in Kenicott v.
Supervis'ors of Wayne County (3) :-
"But second, the meaning of the word 'bonus' is
not given to it by the objection.
It is thus defined
by
Webster. 'A premium given for a loan or a charter or
other privilege granted to a company ; as, the
bank
paid a bonus for its charter; a sum paid in
addition
to a stated compens.i:ion'.
It is not a gift or gratuity,
but a sum paid for services, or upon a consideration in
addition to or in excess of that which would ordinarily
be given",
(1) (1923) 39 T.L.R. 294, 297.
(3) (1873) 83 U.S. 452; 21 L. Ed. 319.
(2) [1943] A.O. 166, 187.
1954
Muir
Mills Co., Ltd.
v.
Suti Mills
Mazdoor
Union, Kanpur,
Bhagwati].
1954
Muir
Mills Co., Ltd.
v.
Suti Mills
Mazdoor
Union, Kanpur.
BhagwatiJ.
998
SUPREME COURT REPORTS
[1955}
and also in Great Western Garment Co. Ltd. v. Minister
of National Revenue (') :-
"A bonus may be a mere gift
or gratuity as a
gesture of goodwill and not enforceable,
or it may be
something which an
employee is entitled to on the
happening of a condition precedent and is enforceable
when the condition is fulfilled.
But in both cases it is
something in addition to or in excess. of that which is
ordinarily received."
·
..
The Textile
Labour
Inquiry
Committee defined
'bonus' as follows :-
"The term
bonus is applied to a casli
payment
made in addition to wages.
It generally represents the
cash incentive given conditionally on certain standards
of attendance and efficiency being attained."
,
There are however two conditions which have to be
satisfied before a demand for bonus can be justified and
they are, ( 1) when wages fall short of the living standard
· and (2) the industry makes huge profits part of which
are due to the contribution which the workmen
make
in increasing
production.
The
demand
for
bonus
becomes an industrial claim when either or both the..e
conditions are satisfied.
The principles for the grant of bonus were discussed
and a foi:mula was evolved by the Full Bench of the
Labour Appellate Tribunal in Millowners'
Association,
Bombay v. Rashtreeya Mill Mazdoor Sangh, Bombay (2 )
:
"As both labour and capital contribute to the earnings
of the industrial concern, it is fair that
labour
should
derive some benefit, if there is a surplus after meeting
prior or necessary charges" and
the
following
were
prescribed as the first charges on gross profits, viz.,
(1) Provision for depreciation,
(2) Reserves for rehabilitation,
(3) A return at 6 per cent. on the paid up capital.
( 4) A return on the working
capital at a ·lesser
rate than the return on paid up capital. · '
.
The surplus that remained after meeting the afore-.
said deductions would be available
for
distribution as
bonus.
.1 ,~,
"t
(1) (1948) D.L.R. 225, 233.
(2) (1950) 2 L. L.J. 247.
• -
..
'
., '
~-
..
-
-
..
S.C.R.
SUPREME COURT REPORTS
999
It is therefore clear that the claim for bonus can be
made by the employees only if as a result of the joint
contribution of capital and labour ·the industrial
concern has earned profits.
If in any particular year
the
working of the industrial concern has
resulted in loss
there is no basis
nor justification for a demand
for
bonus.
Bonus is not a deferred wage.
Because
if
it
were so it would necessarily rank for precedence before
dividends.
The' dividends can
only
be paid out · of
profits and unless and until profits
are made no occasion or question can also arise
for distribution
of any
sum as bonus amongst · the employees. If the industrial
concern has resulted in a trading loss, there would be
no profits of the particular year available for . distribution of dividends, much less could the employees claim
the distribution of bonus during that year.
This has
been clearly recognised even in the various decisions of
the Labour Appellate Tribunal, e.g., Nizam Sugar Factory Ltd., Hyderabad v. Their Workmen(1), Textile Mills,
Madhya Pradesh v. Their Workmen(2) and Famous
Cine Laboratory v. Their Workmen(3). This was also
the basis of the demand of the respondent in the case
before us; its case being that the appellant
had reaped
· substantial profits during the year 1949.
This case was
·negatived by the Industrial Court as well as the Labour
Appellate Tribunal, both of :whom held that the working of the appellant during the year 1949 had resulted
. in a loss.
Whereas the
Industrial
Court declined to
grant the respondent any relief
because the working of
the appellant during the year had resulted
in a loss,.
_. • the· Labour. Appellate
Tribunal made a special case for
the respondent in spite of its concurrence
with
that
finqing of the
Industrial
Court.
It is significant to
observe that this principle was
accepted by the Labour
Appellate
Tribunal itself.
"As at present advised a claim for bonus
which
had been rested on profits earned should ordinarily be
determined on the basis of the profits earned in the year
under' claim and that the scale
of bonus
should be
determined on the
quantum of profits
earned in the .
(1) (1952) I L.L.J. 386.
!3) (1953) I L.L.J. 466.
'(<1) (1952) 2 L.L.J. 625 .
8-89 S. C.India/59
1954
Muir
Mil/J Co. Lta.
v.
SutiMiJ/s
Mazaoo
Union, Kanpur.
Bhagwati].
1954
Muir
Mill• Go. Lid.
v.
Suti Mi'lJJ
Mazdoor
Unio'f, Kanpur.
Bhagwati].
1000
SUPREME COURT REPORTS
[1955] -'!
year.
So, it would follow that if there is trading loss
in the year under claim, bonus should not
ordinarily
be awarded."
It however observed :
j
"But, in our opinion,
that
should
not
be the
universal rule.
Considerations of
social
justice cannot
.
be disregarded altogether, in relations between capital
and labour.
There }Ilay be special cases, and we consider the case before us to be one, where social justice
would demand that labour should have bonus for the
year where for that very year capital had had not only
a reasonable return but much in excess of that."
The Labour Appellate Tribunal did not accept the r
contention of the respondent
that
bonus should
be
linked to dividends nor did it rest its decision on the
respondent having a right, title and interest
in
tl1e
reserves and the undistributed profits
of the appellant.
Linking of bonus to dividend would obviously create
difficulties.
Because if that theory
was accepted
a
company would not declare any dividends but accumulate the profits, build up reserves and distribute those
"
profits in the shape of bonus
shares
or reduce
the
Y
capital in which event the workers would
not
be
entitled to claim anything as and by
way of bonus.
The workers not being members of the company would
also not have any right, title and interest in the reserves
or the undistributed profits which would form.
part of
the assets of the company.
Even on a winding up of a
company the property of the company would be applied
,.
in satisfaction of its liabilities pari passu and, unless the '
articles of association of the
company otherwise
provided, in distribution amongst the members according
to their rights and interest in the company.
The
employees would in no event be entitled to any share
or interest in the assets and the capital of the company.
A transfer of moneys from
these reserves
or
the
undistributed profits would therefore not enure for the
benefit of the workers.
The shareholders
only would ;./.
be entitled to such
benefit and the mere
fact
that
dividends were declared and paid to
the shareholders
out
of such reserves and undistributed
profits
would
"'·
•
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-
S.C.R.
SUPREME COURT REPORTS
1001
not entitle the workers to demand bonus when in fact
the working of the industrial concern during the particular year had showed a loss.
It has also got to be remembered that
the
labour
force employed in an industrial concern is a fluctuating
body and it cannot be predicated of the labour force in
a particular year that it represents the past and the
present workers, so that it can claim to demand bonus
out of the
reserves
or undistributed
profits
of the
previous years.
On the accounts of each
year being
made up and the profits of the industrial concern being
ascertained the workers during the particular year have
their demand for bonus
fully
satisfied out
of the
surplus profits and the balance of profits is allocated
and carried over in the accounts.
No further claim for
payment of bonus out of those reserves or undistributed
profits can therefore survive.
To admit the claim
for
bonus out of the reserves transferred to the profit and
loss account would tantamount to allowing a second
bonus on the same
profits in respect of
which the
workers had already received their full bonus in
the
previous year. The labour force which earns the profits
of a particular year by collaborating with the employers is distinct from the one which contributed to
the profits of the previous years and there is no
continuity between the labour forces
which are employed
in the industrial concern during the several years.
The
ratio which applies in the case of the shareholders who
acquire the right, title and interest of their predecessorsin-interest does not apply to the labour
force
and the
fact that the shareholders get a dividend
by
transfer
of funds from the reserves and undistributed
profits
of
the previous years would not entitle
the
workers · to
demand bonus out of those funds if the
working
of
the industrial
concern during the particular
year has
resulted in a trading loss.
The considerations of social justice imported by the
Labour Appellate Tribunal in arriving at the decision
in favour of the respondent
were not only
irrelevant
but untenable.
Social justice is a
very
vague
and
indeterminate expression
and
no clear-cut definition
can be laid down which will cover all the
situations.
1954
Muir
Mills Co. Ltd.
v.
Suti Mills
Mazdoor
Union, Kanpur.
Bhagwati].
1954
Muir
Mills Co. Ltd.
v.
Suti Mills
Mazdoor
Union, Kanpur.
BhagwaJi].
1002
SUPREME COURT REPORTS
[1955]
Mr. Isaacs,
the learned
counsel for
the respondent,
attempted to give a definition in the following terms :-
"social justice connotes the balance
of adjustments of
the various
interests
concerned
in the
social
and
economic structure of tlie
State, in order to promote
harmony upon an ethical and economic
basis" and he
stated that there were
three
parties
concerned
here,
viz., the employers, the labour and the State itself, and
the conception of social justice had to be worked out
in this context. Without embarking upon a discussion
as to the exact
connotation of the
expression "social
justice" we
may only
observe
that the concept
of
social
justice
does not
emanate
from
the fanciful
notions of any
particular adjudicator but must be
founded on a more solid foundation.
Indeed the
Full
Bench of the Labour Appellate
Tribunal evolved the
abovequoted
formula with a view to dispensing social
justice between
the
various
parties
concerned.
It
adopted the following method of approach
at
page
1258 of that judgment :-
"Our approach to this problem is motivated
by
the requirement that we should
ensure and achieve
industrial peace · which is essential for the. development
and expansion of industry.
This can be achieved
by
having a contented labour
force on the one hand, and
on the other hand an investing public who would be
attracted to the industry by a steady and progressive
return on c;apital which the industry
may
be able to
offer."
This formula was reiterated in Textile Mills, M. P.
v. Their Workmen('), and Famous Cine Laboratory v.
-• -i.
Their Workmen('), and in the latter case it deprecated
the idea of adjudicators
importing
considerations
of
social
justice
which
were not
comprised
in that
·formula :-
"And what is social justice ? ·Social justice is not
the fancy of any individual adjudicator; if it
were so
then ideas of social justice might vary from adjudicator
to adjudicator over all parts of
India.
In
our Full
Bench decision (See 1950, 2 L.L. J ., p. 1247), we carefully considered the question of social justice in relation
(1) (1952) 2 L.L.J. 625.
(2) {1953) 1 L.L.J. 466.
..
-
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• -
-
S.C.R.
SUPREME COURT REPORTS
1003
to bonus, and there we equated the rights and liabilities
of employers and workmen with a view to achieving a
just formula for the computation of bonus.
That Full
Bench decision stands, and this tribunal
and all other
tribunals are bound by it."
Without committing ourselves to the
acceptance
of the above formula in its entirety we may point out
that the Labour Appellate Tribunal did not apply
its
own· formula to the facts of the present case.
It is also
significant to note that even while importing
considerations of social justice the Labour Appellate Tribunal
was oblivious of the fact that it was bv their own acts
of indiscipline and strike that.
the
~orkers
of the
appellant
company
themselves
contributed
to· the
trading losses incurred by the appellant and it hardly
lay in their mouth then to contend that they were
none the less entitled to payment of bonus commensurate with the dividend paid to the shareholders out of
the undistributed profits of the previous
years. . The
Labour Appellate
Tribunal also
overlooked the fact
that but for the
Public
Companies
(Limitation
of
Dividend) Ordinance of 1948 the whole
of the
profits
of 1948 c01,1ld have been distributed
after paying
the
workers bonus in that year
of four annas in the
rupee.
We may before concluding refer to an argument
which was addressed to us by Mr. Isaacs, the learned
counsel for the respondent, that this. Court under article
136 should not
interfere
with
the decisions
of the
tribunals set up by the Industrial Disputes
Act, 1947.
~ ,
This contention can be shortly answered by
referring
to
our decision in
Bharat
Bank Ltd.,
Delhi
v.
Employees of the Bharat Bank Ltd., Delhi(1), where we
held
that the
Industrial
Tribunals
were
tribunals
within the meaning' of article 136 and
further
that
article 136 has vested in this
Court exceptional
and
overriding
power to interfere
where it reaches
the
conclusion that a person has been dealt with arbitrarily
or that a Court or tribunal within the
territory
of
"'
India has not given a fair
deal to a litigant.
(Vide
(1) [1950] S.C.R. 449.
Muir
Mills Co. Ltd.
v.
&ti Mills
Mazdoor
Union, Kanpur.
Bhagwati].
1954
Muir
Mills Co, Lttl.
v.
Suti Mills
Mazdoor
Union, Kanpur.
BhagwatiJ.
1004
SUPREME COURT REPORTS
[1955J
Dhakeswari
Cotton
Mills
Ltd. v.
Commissioner
of
Income-tax, West Bengal(').
The result therefore is that
the decision
of the
Labour Appellate
Tribunal appealed against
must be
reversed and that of the Industrial Court (Textiles and
Hosiery), Kanpur, restored.
The appeal
will accordingly be allowed with costs.
Appeal allowed.
SAKHA WAT ALI
ti.
THE STATE OF ORISSA.
[MEHR CHAND MAHAJAN C.J., MuKHERJEA,
S. R. DAs, VIVIAN BosE, BHAGWATI
and VENKATARAMA AYYAR JJ.J
Constitution of India, arts. 14. 19(1) (g)-Orissa Municipal Act
1950 (Orissa Act XXlll of 1950), ss.1(3), 1(5), 16(1)(x)-Nomination
filed
and rejected, effect of-Disqualification for nomination if
violates fundamental right-Orissa General Clauses Act, 1937 ( Orissa
Act I of 1937), s. 23-Scope of.
The provisions of section 16(l)(x) of the Orissa Municipal Act,
1950, by which a paid legal practitioner on behalf of or
against
the
Municipality is disqualified for
election
to a seat in such
Municipality do not violate the fundan1ental rights guaranteed
to
such legal practitioner under article 14 or under article 19( 1) (g) of
the Constitution of India.
The Orissa Municipal Act, 1950, having received the Gover·
nor's assent on November 7, 1950, all preliminary steps
specified
in section 1(5) of the Act whic.:h were taken for the purpose of a
Municipal election after such assent are valid even
though the
Act itself had not then come into force in terms of section 1(3).
Accordingly a nomination filed on March 15, 1951, was validly
subjected to the test of disqualification contained in section
16( 1)
(x) of the Act and the rejection of such nomination on March 25,
1951, was not defective though the
Act came into force on April 15,
1951, in the
area to
which
the rejected
nomination
relates.
Section 23 of the Orissa
General Clauses
Act, 1937, does
not
authorise the making of rules or bye-laws, which are to come into
(1) [1955] l S.C.R. 94r.
•
'