# DELHI CLOm & GENERAL MILLS CO. LTD v. WORKMEN

- **Citation:** [1972] 1 S.C.R. 594
- **Court:** Supreme Court of India
- **Decided:** 1971-09-03
- **Case number:** ; Civil Appeal No. 622 of 1967
- **Bench:** G. K. Mitter, C. A. Vaidialingam, P. Jaganmohan B Reddy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/delhi-clom-general-mills-co-ltd-v-workmen-5401
- **Pages:** 14

## Headnote

Payment of Bonus Act, 1965, s. &-Whether on the facts and circumstances-of the case, the workers are entitled to higher bonus.
The appellant is a public limited company owning various industrial
units including the .Delhi Cloth Mills (0.C.M.)
and
the
Swatantra
Bharat Mills (S.B.M.).
Although separate balance-sheet and profit and
loss accounts were prepared for each of these two mills, their workmen
have always been paid bonus calculated on the basis of pooled profits of
the two units treating them as one unit.
Disputes and differences having
arisen as regards payment of bonus between the workers of these
two
units, the following questions were referred to the Tribunal for adjudication.
(i) Whether in calculating the bonus table for the accounting year
in question, the allocation separately made by the
company
towards
capital and reserves of the two units (0.C.M. and S.B.M. units) is fair
and reasonable.
(ii) Whether workmen of these two mills are entitled to bonus at a
higher rate for the said accounting year.
On the basis of documents filed
both by the management and the
workers, it appeared that according to the company, direct taxes which
have to be deducted for computation of allocable surplus for payment of
bonus was much higher, while according to the workers,
direct taxes
should be much less. If the computation of the management were to be
accepted, the rate of bonus to each employee would remain at 7.30 per
cent, while according to workers, the rate of bonus would be I 6.64%.
The Tribunal however, gave its awa-rd in favour of the workers. Allowing
the appeal,
· HEW : The direct taxes under s. 6( c) of the Bonus Act were properly quantified by the Appellant company in their calculation and the rate
of Bonus to each employee is 7.3 I per cent of their annual wage bill and
not 16.64 per cent as claimed by the workers.
The bonus Act, being a
complete Code, the provisions thereof must have effect of their own force.
So far as the two mills are concerned, the gross profits must be computed
in terms of the second schedule to the Act and the available surplus mentioned in s. 5, in terms of ss. 6 and 7 of the Act.
Where a branch or
undertaking has to be taken as an Establishment under the proviso to s. 2
for the purpose of the Act, the gross profits, prior cbar~es, the available
c
D
E
F
G
H
A
B
c
D
E
F
G
H
DELHI CLOTH v. WORKMEN (Mater, !.)
595
surplus and the allocable surplus have all to be found
out
notionally
applying the fiction to t!le bran~h or. establishment. When the fiction is
to have effect with regard to all other matters, it is not possible to hold
that for the purpose of computation of direct tax, it has to be given ~
go-by and the actu3:1 realities of the situation taken note of only in respect
of Jhe amount of tax payable under the Income-tax Act for all the establishments_ which have to s_uffer taxation together and thereby to displace
the fictional or"-notional_ \iability. [604 C, 605 E. 607 A]
Metal Box Co. v. Workmen. [1969] 1 S.C.R. '750, Shree Meenaksfri
Mills'!'· Their Workmen.
[1958} S.p.R. 878, M/s. Tulsidas K]lemji
v.
Their Workmen.
[19631 1 S.C.R.
675 and M /s. Al/(Jy ·Sffri 1'rojecr v.
The Workmen, [1971] 1 S.C. Cases 536, referred to.

## Text

594
DELHI CLOm & GENERAL MILLS CO. LTD.
v.
WORKMEN
September 3, 1971
A
[G. K. MITTER, C. A. VAIDIALINGAM AND P. JAGANMOHAN
B
REDDY, JJ.J
Payment of Bonus Act, 1965, s. &-Whether on the facts and circumstances-of the case, the workers are entitled to higher bonus.
The appellant is a public limited company owning various industrial
units including the .Delhi Cloth Mills (0.C.M.)
and
the
Swatantra
Bharat Mills (S.B.M.).
Although separate balance-sheet and profit and
loss accounts were prepared for each of these two mills, their workmen
have always been paid bonus calculated on the basis of pooled profits of
the two units treating them as one unit.
Disputes and differences having
arisen as regards payment of bonus between the workers of these
two
units, the following questions were referred to the Tribunal for adjudication.
(i) Whether in calculating the bonus table for the accounting year
in question, the allocation separately made by the
company
towards
capital and reserves of the two units (0.C.M. and S.B.M. units) is fair
and reasonable.
(ii) Whether workmen of these two mills are entitled to bonus at a
higher rate for the said accounting year.
On the basis of documents filed
both by the management and the
workers, it appeared that according to the company, direct taxes which
have to be deducted for computation of allocable surplus for payment of
bonus was much higher, while according to the workers,
direct taxes
should be much less. If the computation of the management were to be
accepted, the rate of bonus to each employee would remain at 7.30 per
cent, while according to workers, the rate of bonus would be I 6.64%.
The Tribunal however, gave its awa-rd in favour of the workers. Allowing
the appeal,
· HEW : The direct taxes under s. 6( c) of the Bonus Act were properly quantified by the Appellant company in their calculation and the rate
of Bonus to each employee is 7.3 I per cent of their annual wage bill and
not 16.64 per cent as claimed by the workers.
The bonus Act, being a
complete Code, the provisions thereof must have effect of their own force.
So far as the two mills are concerned, the gross profits must be computed
in terms of the second schedule to the Act and the available surplus mentioned in s. 5, in terms of ss. 6 and 7 of the Act.
Where a branch or
undertaking has to be taken as an Establishment under the proviso to s. 2
for the purpose of the Act, the gross profits, prior cbar~es, the available
c
D
E
F
G
H
A
B
c
D
E
F
G
H
DELHI CLOTH v. WORKMEN (Mater, !.)
595
surplus and the allocable surplus have all to be found
out
notionally
applying the fiction to t!le bran~h or. establishment. When the fiction is
to have effect with regard to all other matters, it is not possible to hold
that for the purpose of computation of direct tax, it has to be given ~
go-by and the actu3:1 realities of the situation taken note of only in respect
of Jhe amount of tax payable under the Income-tax Act for all the establishments_ which have to s_uffer taxation together and thereby to displace
the fictional or"-notional_ \iability. [604 C, 605 E. 607 A]
Metal Box Co. v. Workmen. [1969] 1 S.C.R. '750, Shree Meenaksfri
Mills'!'· Their Workmen.
[1958} S.p.R. 878, M/s. Tulsidas K]lemji
v.
Their Workmen.
[19631 1 S.C.R.
675 and M /s. Al/(Jy ·Sffri 1'rojecr v.
The Workmen, [1971] 1 S.C. Cases 536, referred to.
CIVIL APPELLATE JURISDICTION ; Civil Appeal No. 622 of
1967.
Appeal by special leave· irol)l the award dat~ February 28,
1:967 of the Delhi Administration Special Industrial Tribunal,
Delhi :i,h Reference No. 53 of 1966 ..
G. B. Pai, D.R. Thadani and S.S. Sharma, for the appelli!Ills.
M. N. Phadke, S. S. Khanduja, V. P. Ko,hli and Lalita Kolili,
for respondents Nos. l(c) and 3(c)(i).
M. K. Ramamurthi and
Vinee~ Kuniar, for the respondent
No. l(a).
0. P. ~harma and K. S. Suri, for respondent No. 1 (b).
The Judgment of the Court was delivered by
Mitter, J.
The only point of dispute between the parties
to this appeal by special· leave, from an ord~r of an Industrial
Tribunal relates to ·the quantum of direct taxes- deductible under
s. 6 of the Payment of Bonus Act> .,1965.
The appellant is a public μnlited company owning and running various· industrial units situate at different places in India.
These are engaged in the manufacture of different
kinds
of
articles such as ·cotton textiles, artificial silk fabrics, sugar, industrial alcohol, vanaspati, chemicals, fertiliser, polyvinyl chloride
and rayon tyrecord e,tc. Two of these units i.e., The Delhi Cloth
Mills and the Swatantra Bharat Mills are cotton textile :niills ~ach
registered as a ·factory under the Factories. Act. The award under
appeal relates to these two mills ~one. · The appellant prepares
596
SUPREMH COURT REPORTS
[ 1972] I S.C.R.
and publishes one consolidated balance sheet and profit and loss
account of the company showing the final results of the working
of all the units for its shareholders.
It had however for many
years past, prepared .and maintained separate balance sheets and
profit and loss accounts for some of its unjts individually and
some grouped together.
Although separate balance sheets and
profit and loss accounts were prepared for each of these two
mills (hereinafter referred to as D.C.M. and S.B.M. for abbreviation) their workmen have always been paid bonus calculated on
the basis of pooled profits of the two units treating them as· one
unit.
This is borne out by the award of the Tribunal in paragraph 29.
The reference herein was made by notification dated March
4, 1966 under ss. lO(l)(d) and 12(5) of the Industrial Disputes
Act for adjudication of several specified matters of which the first
two read as follows :
1. Whether in calculating the bonus table for the
accounting year ending 30-6-1965 the allocation separately made by the Delhi Cloth and General Mills Co.
Ltd. towards the Capital and Reserves of the Delhi
Cloth Mills and Swatantra Bharat Mills, the two units
of the Company, is fair and reasonable? If not, what
directions are necessary in this regard ?
2. Whether the workmen of these Mills are entitled
to bonus at a rate higher than 6 per cent of the wages
for the accounting year ending 30-6-1965 ? If so, what
directions are necessary in this regard ? .
After prolonged proceedings before the Tribunal a settlement was
arrived at between the Management and the Labour Unions which
were parties to the reference and agreed
directions
given in
accordance therewith in regard to issue No. 1 were as follows :
1. Balanc~sheets of D.C.M. and S.B.M. will be
taken together for calculation of available surplus in
accordance with the formula laid down in the Payment
of Bonus Act, 1965.
2. Interest has been charged in the profit and loss
account of D.C.M. and S.B.M. units of the head-office
A
B
c
D
E
F
G
H
-
A
B
c
D
E
F
G
DELHI CLOTH v. WORKMEN (Mitter, J.)
5 97
current account.
Hence, no return will
be claimed
thereon.
3. Interest has not been charged
on
the
fixed
capital expenditure accounts and the gratuity reserves
appearing in the balance sheets of the D.C.M. and
S.B.M. therefore, return on such
amounts
will
be
claimed.
4. The following method
will
be
followed
in
making a claim for return on the following amounts :
(a) The fixed capital expenditure account in the
D.C.M. and S.B.M. as
represented
by
the
written down value of the Fixed assets appearing in the balance sheet of these two units will
be treated as paid up share capital of the company allocated to and invested in these two units
and return at the rate of 81% or as provided
in the Payment of Bonus Act, 1965 from time
to time will be charged thereon as provided
under t.he Payment of Sonus Act, 1965.
(b) The gratuity reserves of these two units will be
treated as reserves and return at the rate of 6%
will be charged thereon as provided under the
Payment of Bonus Act, 1965.
5. The method and basis of casting balance sheets
will not be unilaterally altereci or changed.
6. The above method of charging return on paid
up share capital and reserve of the above two units will
be followed in future also.
Thereafter the parties filed a large number of documents
waiving formal proof thereof.
Those filed on behalf of the
Management were Exs. M to M-352 while three other opposite
parties filed some documents each.
On the basis of the docu·
H ments before the Tribunal the Management and the workers made
their respective calcufations which were summed up in a chart,
a copy whereof was handed over to us by learned counsel for the
3ppellants. The same reads as follows :-
CHART
"' "'
. .
Management
Workers
"'
M-330 (Paper Book p. 200)
W-84 (Paper_ Book p. 213)
Ref. of
Bonus
Details
Ext.
DCM
SBM
Total
Lakhs
Act
"'
Gross
Sc heAs per Ext. deductions
107·14
48·93
156 ·09 uross Profits
156.09
c:: ...
Profit
dule 2
~
DEDUCTIONS
"'
Prior
S. 6 (a)
Statutory depreciation
35·83 Depreciation u/s 6 (a)
35 ·83
;;:;
charges
Development rebate u/s 6 (b)
2·72
"'
(b)
Developffient rebate
2
2·72 Direct taxes u/s 6 (c) as in Ex. M.-15.
10 ·09
8
(c)
Direct taxes
Return on capital under s. 6 (d)
22·47
~
(a) Income-tax
3
52·24
..,
(b) Surtax
3
5 ·48
~
"'
(d)
RETURN
...
Sch.3
(a) Dividend
on
Pref.
4
27·17
~
capital
..,
"'
(b) on equity capital
4
(c) on reserve
4
1 ·30
118 ·74 Available surplus is
.
84 ·98
Available
Allocable surplus is 60 % of Rs. 84 ·98
50·99
surplus
s. 5
37 35
Allocable
~
surplus
s. 2
(a) Payable as bonus
22 -40
-
(b) 60%
\0
_,
Annual wage bill of
N
au the eligible of
~ -
employees
5. 201 ·78 plus 101 ·54
306·32 Annual wage
306 ·32
~
R.ate of bonus to each employees
7·31 %
Rate of bonus .
16·64~,
I-'
:i:
c:')
""
0
(")
l:tj
>
'
A
B
c
0
E
F
G
··~'
H
DELHI CLOTH v. WORKMEN (Mitter, J.)
599
The above brings out the wide divergence between the parties as
to the figure of direct taxes.
According to the appella.nt direct
taxes which have to be deducted for computation of allocable
surplus for payment of bonus are : Rs. 52-24 Jakhs by way of
income-tax and Rs. 5-48 lakhs by way of surtax making a total
of Rs. 57-72 lakhs, while according to the calculation of the
workers direct taxes should be no more than Rs. 10-09 lakhs on
the basis of Ex. M-15, one of the documents produced by the
Management itself.
If the computation of the Management is
accepted, then the allocable surplus in terms of s. 2 ( 4) of the
Bonus Act is Rs. 22-40 lakhs and the rate of bonus to each
employee is 7.31 per cent while according to the computation of
the workers the allocable surplus is Rs. 50-99 Jakhs and the rate
of bonus should be 16.64%.
In order to appreciate the viewpoints of the two parties, it is
necessary to refer to some provisions of the Act. It is unnecessary to state that before the enactment of the Bonus Act of 1965
bonus used to be awarded by Iiidustrial Jribunals whenever there
was a dispute between the Management and the workers, by
applying the Labour Appellate Tribunal Full Bench formula
formulate<;! as far back as 1950 and approved of and explained in
several decisions of this Court. The Act of 1965 was passed for
creating a statutory liability "for payment of bonus to persons
employed in certain establishments and for matters connected
therewith". Subject to certain exceptions it was made applicable
to every factory or other e>tablishment in which twenty or more
persons were employed on any day during an accounting year.
The accounting year in the present case is 1st July 1964 to 30th
June, 1965. Under s. 8 every employee is entitled to be paid
by the employer in an accounting year, bonus in accordance with
. the provisions of the Act. The amount of bonus is to be specified
percentages of the allocable surplus of the establishment which
is defined in s. 2 sub-s. ( 4) of the Act. Establishments may be
of two kinds.
They are either establishments in private sector
or establishments in private sector.
Although 'establishment' by
itself has not been defined in the Act separately, s. 3 gives a clue
to the meaning thereof. The said section runs as follows :
"Where an establishment consists of different departments or undertakings or has
branches, whether
situated in the same place or in different places, all such
departments or undertakings or branches shall be treated
as parts of the same establishment for the purpose of
computation of bonus under this Act :
Provided that where for any accounting year a
separate balance-sheet and profit and loss account are
600
SUPREME COURT REPORTS
[1972] I S.C.R.
prepared and maintained in respect of any such department or undertaking or branch, then, such department
or undertaking or branch shall be treated as a separate
establishment for the purpose of computation of bonus
under this Act for that year, unless such department
or undertaking or branch was, immediately before the
commencement of tha·t accounting year treated as part
of the establishment for the purpose of computation o[
bonus."
Gross profits ot each establishment have to be computed in terms
of s. 4 which in its turn refer to two Schedules the first to be
applicable to a banking company and the other to any other case.
After the ascertainment of gross profits s. 5 lays down the method
of computation of available surplus.
Before the
amendment
introduced by Act 8 of 1969 the available surplus in respect of
any accounting year was to be the gross profits for the year after
deducting therefrom the sums referred to in s. 6.
S. 6 provided
for the deduction of certain amounts from the gross profits as prior
c]1arges.
These are, namely, (a) any amount by way of depreciation admissible in accordance with the provisions of sub-s. ( 1)
of s. 32 of the Income-tax Act or in accordance with the provisions of the agricultural income-tax law, as the case may be
(\he provision is irrelevant for our purpose); (b) any amount
by way of development rebate or development allowance which
the employer is entitled to deduct from his income under the
Income-tax Act; (c) subject to the provisions of s. 7 any direct
tax which the employer is liable to pay for the accounting year
in respect of his income, profits and gains during that year; and
( d) such further sums as are specified in respect of the employer
in the Third Schedule.
Before the amendment of the Act in
1969 s. 7 read as follows :-
"For the purpose of clause ( c) of section 6, any
direct tax payable by the employer for any accounting
year shail, subject to the following provisions, be calculated at the rates applicable to the income of the
employer for that year, namely :-
(a) in calculating such tax no account shall
be
taken of--·
(i) any loss incurred by the employ.;or in respect
of any previous accounting year and carried forward
under any law fo1' the time being in force relating to
direct taxes;
(ii} any ·arrears of depreciation which the -employer
is entitled to add to the amount of ·the allowances for
A
B
c
D
E
F
G
A
B
c
D
E
F
G
H
DELHI CLOTH v, WORKMEN .(Mitter,/;)
6°'1
depreciation for any following accounting year or years
under sub-section ( 2) of section 32 of the Income-tax
Act;
(iii) any exemption conferred on the employer
under section 84 of the Income-tax Act or of any
deduction to which he is entitled unde'r sub-section (1)
of section I 01 of the Act, as in force
in;mediately
before the commencement of the Finance Act, 1965;
(b) where the employer is a religious or a charitable institution to which the provisions of section 32
do n~t apply and the whole or any part of its income is
exempt from tax under the Income-tax Act, then, with
respect to the income so exempted, such institution
shall be treated as if it were a company in which the
public are substantially interested within the meaning
of that Act;
( c) where the employer is an individual
or a
Hindu undivided family, the tax payable by such employer under the Income-tax Act shall be calculated on
the basis that the Income derived by him from
the
estal:ilishmiint is his only · income;
( d) where the income from any employer inc!μdes
any profits and gains derived from the export of any
goods or merchandise out of India and any rebate on
such income is allowed under any law for the time
being in force relating to direct taxes, then, no account
shall be taken of such rebate;
( e) no account shall be taken of any rebate (other
than development rebate or development allowance)
or credit or relief or deduction (not hereinbe!ore mentioned in this section) in the payment of any direct tax
ailowed under any law for the time being in force
relating to direct taxes or under the relevant annual
Finance Act, for the development of arty industry."
Section 3 is the key to the Act in that it fixes the res or the
property which Is to provide the allocable surplus for the distribution of bonus in ternis of the Act. This must be an establishment artd a question directly arises when there are a number qf
establishments in common ownership as to how the allocable
surplus is to be found out.
If s. 3 had no proviso to it, all
departJiients, · underta~ings or branc~es, be they complete factories or .not, for turnmg out commerc1al products under common
ownership could be treated as one establishn_ient. for the purp?.se
of computation of bonus.
A company which 1s a legal emrty
602
SUPREME COURT REPORTS
[ 1972] l S.C.R.
~wning and . running factories of
diverse
characters
whether
situate at the same place or located at different places would in
such eventuality, form one establishment for the purpose of the
Act. . The proviso to the section however shows that the legislature mtended that each of these factories is to be treated as a
~eparate esta_blishment for the purpose of computation of bonus
1f a sel?arate balance sheet and profit and loss account were pre-·
pared m respect thereof unless such a factory was, immediately
before the commencement of the acc9unting year, treated as a
part and parcel of the company i.e., the establishment. In other
words, if different units or branches or departments had been
treated separately for the purpose of computation of bonus and
separate balance sheet and profit and Joss accounts had been
prepared in respect thereof, they were not to Jose their separate
identity as establishments because of the main provision of s. 3.
Once it is ascertained that a branch, department or a factory is
an establishment by itself under the Act, sections 4 to 7 are to
have effect in respect of that establishment by themselves without
the impact or connection with other branches, departments or
factories even if they subserve a common cause.
Gross profits
of such an establishment like the two mills before us would have
'to be calculated in terms of the Second Schedule to the Act by
taking the net profit as per profit and loss account and adding
thereto the various amounts therein mentioned and deducting
the amounts like capital receipts, profits of and receipts relating
to business outside India etc. The gross profits to be computed
for the purpose of bonus would not be the same as to be computed
under the Indian Companies Act or the Income-tax Act. Under
s. 5 of the Act the available surplus in respect of the two units
would be the gross profits computed under s. 4 as reduced by the
prior charges mentioned in sub-els. (a) to (b) of section 6. All
these amounts le., gross profits, available surplus
and
sums
deductible from gross profits would be notional amounts in that
they would not be the amounts which would be computed under
the Companies Act for submission to the shareholders or for
assessment under the Income-tax Act to the taxing authorities.
S. 7 cl. (a) of the Act further illustrates the point that the direct
taxes which are to be deducted as prior charges are not to be
the same as would be assessed bv the income-tax
authorities
under the Income-tax Act. That the calculation of direct taxes
would be on a notional basis is also emphasised by els. (b), ( c),
(d) and (e) of s. 7.
The net result seems to be that the le.l!islature intended that
subject to the exoress provisions mentioned, the employees of a
particular establishment should be entitled to bonus under the
Act without any consideration to facts or matters not mentiQned
A
B
c
D
E
F
G
J
H
··l
DELHI CLOTH v. WORKMEN (Mitter, J.)
603,
A
in the Act. The employer is to be treated as a separate juristic
person liable· to pay bonus to -the employees as if the establishment was his only venture, no matter how he fares in his other
ventures.
Even if the sum total of his activities in respect of
his ventures resulted in a loss for the accounting year, he would
have to pay bonus subject to the maximum specified in section
B
10 of the Act to each employee of the establishment which was
making profits.
Th<: profits or losses of the other establishments,
although they may form part of the composite whole in the
accounting to be done under the Companies Act or the assessments to be made under the Income-tax Act, would be wholly
alien to co,nsideration and comoutation of bonus of the profitc
making establishments in terms of the Act.
D
F
The balance sheet and the profit and loss account of the
Delhi Cloth and General Mills as on 30th June 1965 and for
the year ended 30 June i965 were Exs. M-5 to M-7 before the
Tribunal while Exs. M-8 to M-10 are the corresponding documents for the Swatantra Bharat Mills.
There is
no
dispute
between the .Parties with regard tci the figure of gross profits in
terms of the Second Schedule to the Bonus Act as shown in the
main chart Ex. M-330 of the Management. The gross profits for
tlii\'"Delhi Cloth Mills was Rs. 107 .14 lakhs and that for Swatantra Bharat Mills Rs. 48.95 lakhs totalling Rs. 156-09 lakhs.
There is also no dispute that the statutory depreciation in terms
of s. 6(a) of the Act was Rs. 17,52,048 for the Delhi Cioth Mills
and Rs. 18,30,969 for Swatantra Bharat Mills the tot3l whereof
comes to Rs. 35.83 lakhs.
The corresponding figures for the
development rebate of the two mills add up to 2-72 lakhs but
whereas according to Ex. M-330 the direct tax i.e., the sum of
income-tax and surtax in respect of these two units should be
Rs. 52.24 lakhs and Rs. 5.48 lakhs totalling Rs. 57.72 lakhs,
the employees claim that the figure should be no higher than
Rs. 10.09 lakhs in terms of Ex. M-15.
It is well known that under the Indian Income-tax Act the
total profits' and gains of a business are to be worked out in terms
of s. 28 of the Income-tax Act, 1951. Under s. 29 the income
G
referred to in s. 28 is 'to be computed in accordance with the
provisions contained in ss. 30 to 43-A. S. 30 shows what reductions are to'be allowed in respect of rent, rates, taxes etc. for premises used for the purpose of a business or profession.
S. 31
specifies the amounts deductible in respect of repairs and insurance of machinerv, olant and furniture used for the purpose of
the business.
S. 32 ·deals with depreciation allowable under the
H
Income-tax Act.
It contains elaborate provisions as to how the
depreciation is to be worked out. S. 33 provides for compu~ation
of development rebate in respect of the plant or machinery.
604
SUPREME COURT REPORTS
( 1972 J 1 s.c.R.
S. 33-A provides for development allowance. S. 33-B provides for
~0111putation of rehabilitation allowance.
S. 34 Jays down the
conditions for the allowance of depreciation and development
rebate.
Ss. 35, 35-A, 35-B, 35-C and 36 provide for special
allowances.
When the total income is ascertained after providmg for the many allowances ,specified in the Act, income-tax is
charged in respect of the total income of the previous year or
previous year as the case may be, at
rates laid down in the
Finance Act for the relevant year. The Companie, Act however
is· not concerned with any other allowance except the one for
depreciation under s. 32 of the Income-tax Act and the amounts
deductible by way of development rebate or deve!opment allowance under the said Act.
·It mi1st follow from the above that· the liability for direct tax
under s. 6(c) must be the one which would have to be computed
by principles followed in the Income-tax Act.
In other words,
the liability under s. 6( c) must be the notional liability of a
venture of which the gross profits are known and
the - prior
charges by way of depreciation and development
rebate
and
development allowance have been computed. The calculation of
income-tax in Ex. M-330 proceeds on the basis that the gross
profits are Rs. 156.09 fakhs and the depreciation and deveiopment rebate allowable under s. 6(a) .and (b) are Rs. 38.55 lakhs
leaving a margin of Rs. 117 .54 lakhs for computation of incometax. If this tax is quantified at 45 % of the said balance it comes
to Rs. 52 .24 lakhs as shown in the -calculation
~hart of the
Management and surtax thereon would be Rs. 5 .48 lakhs. The
respondents do not dispute that the figures for income-tax and
surtax would be as shown by the Management if their basic calculation is correct: but according to them the Manar.cment m11st
accept the figure give;n 1n Ex. M-15.
Ex. M-15 proceeds on
the basis that the total liability of the company being Rs. 16.00
lafhs as shown at page 4 of the Directors' report to the shareholders under the Indian Companies Act for the year er.tied 30th
June 1965, the same would be allocable to the two units of Delhi
Cloth Mills and Swatantra Bharat Mills in the proportion of
fu. 7.37 lakhs and Rs. 2.24 lakhs. These figures however have
no bearing on the computation of the liability to tax under s. 6
( c) of the Bonus Act for the two particular units involved in this
case.
It was argued at one stage by the
respondent~ that. cl.
(c) of s. 6 is not related to els. (a) and (b) of the s~.;d section.
If that were so, there is no reason why the tax liability at 45%
should not be calcufoted on the whole of the gross profits i.e.,
Rs. 1 '.'ili.09 lakhs.
Rx M-15 was anparently prepar~d on the
basis that the total ta11; liabiliiv for income-tax nu~11oscs of all
the various units .under the ownership of the Delhi Cloth and
A
c
F
I
i "
G
H
A
B
c
0
E
F
G
H
DELHI CLOTH v. WORKMEN (Mitter, J.)
605
General Mills Company Ltd. being Rs. 16 Jakhs, Rs. 7.85 !akhs
and Rs. 2.24 lakhs would be attributable to the working results
of Delhi Cloth Mills and Swatantra Bharat Mills. If the difect
tax liability be as quantified by the Management in Ex. M-330 the
available surplus in terms ot s. 5 of the Act is Rs. 37.35 fakhs
and allocable surplus under the Act being 60% thereof is to
be quantified at Rs. 23.40 Jakhs which works out to 7 .31 per cent
on che annual wage bills of all the eligible employees totalling
Rs. 306.32 lakhs.
The Act being a self-contained and self-sufficient Act except
in so far as it refers to the other enactments therein mentioned,
and in particular the Indian Income-tax Act, it becomes irr~le
vant to consider the application of the Full Bench formula of
the Labour Appellate Tribunal for the computation of bonus
before the Act of 1965 was enacted. Equally in our view it is
unnecessary to refer to the observations of this Court in The Sree
Meenakshi Mills Ltd. v. Their Workmen.,(') or to Ml s. Tulsidas
Khimji v. Their Workmen(') relied on by learned counsel Mr.
Phadke for some of the respondents. The Act is a complete Cude
and the provisions thereof must have effect of their own force.
So far as the mills before us are concerned, the gross profits must
be computed in terms of Second Schedule to the Act and the
available surplus mentioned in s. 5 in terms of ss. 6 and 7 of [!JC
Act.
Where a branch or undertaking has to be taken as an
establishment under the proviso to s. 3 for the purpose of the
Act, the gross profits, prior charges, the available surplus and
the allocable surplus have all to be found out by applying that
fiction to the branch or establishment.
When the fiction is to
have effect with regard to all other matters, it is not possible tl'
hold that for the purpose of computation of direct tax it has to
be given a go-by and the actual realities of the situation only in
respect of the amount of tax payable under the Income-lax Act
for all the establishments which have tO suffer taxation together
allowed to displace the fictional or notional liability.
In the present case, it so happens that the bulk of the profits
of the company (the Delhi Cloth and General Mills Comj:rllny
Ltd.) cam2 frum •hese two units : some of the other units
suffered losses while still others were not equally profit-m;;king.
If the argument raised on behalf of the workmen was to be
accepted and if it so happened that the. other units were greater
profit-making branche.s than these tw~ units, greater tax Iiabi~ty
inight fall on these umts thereby reducmg the percentage of ~nus
due to the employees of these units as a whole. That certamly
was not the object with which the enactment was passed. S. 7
(I) [1958] S.C.R. 878.
(2) [1963] I S.C.R. 675.
606
SUPREME COURT REPORTS
[1972] l S.C.R.
of the Act itself shows that the matters extraneous to the working
of the establishment in the particular year were not to be taken
into account although they could not be ignored for computing
tax 1iability under the Indian Income-tax Act.
Strong reliance was placed by learned counsel for the appellant on the decisioJt of this Court in Metal Box Co. v.
Workmen('). Counsel for the respondents made valiant efforts to
persuade us to hold that many of the observations therein were
obiter and as such the case should either be distinguished or be
not followed as a precedent for the determination of the question
before us.
While no doubt the dispute in that case was somewhat different from the one which we have to resolve and there
are some distinguishing features in that case, namely, that the
Court was not called upon to examine the computation of the
figures of gross profits etc. for an establishment which came
within the proviso to s. 3 the observations bearing on the question
of the computation of direct tax under s. 6 ( c) of the Act are
certainly in point. It was pointed out there at p. 775 :
''What s. 7 really means is that the Tribunal has to
compute the direct taxes at the rates at which the income, gains and profits of the employer are taxed under
the Income Tax Act and other such Acts during the
accounting year in question.
That is the reason why
s. 6 ( c) has the words "is liable for" and the words
"income, gains and profits''.
These words
do
not,
however, mean that the Tribunal
while
computing
direct taxes as a prior charge has to assess the actual
taxable income and the taxes thereon."
With respect, we entirely agree _with the above observation and
in our view no useful purpose will be served by referring to the
other observations bearing on a question with which we are not
directly concerned.
In M/s. Alloy Steel Project v.
The Workmen( 2 ) where the
project was owned, controlled and managed by a Government
Company, viz., Messrs Hindustan Steel Ltd., and separate balance
sheet and profit and loss accounts of the
undertaking were
maintained, it was held that the claim of the workmen that the
project was a part of the Hindustan Steel Ltd. should be upheld
and its employees placed on the same footing as the other employees of the steel company was rejected inasmuch as the project
which was started in the year 1964-65 made no profits right up
to the year 1967-68.
(1) [1969] I S.C.R. 750.
(2) [197111 S.C. Cases 536.
A
B
c
D
E
F
G
H
A
B
c
D
DELHI CLOTH v. WORKMEN (Mitter, /.)
607
In the result, we hold that the direct taxes under s. 6 ( c) of
the Act were properly _quantified by the appellants in their calculation shown in Ex. M-330 and the Tribunal went wrong in assessing that liability on the basis of Ex. M-15. The award will
therefore. be set aside and modified _t9 provide for bonus being
given to !he workers at 7 .31 per cent of their annual wage bill.
The appeal is therefore allowed as indicated above, but, in the
circumstances of the case, we make no order as to costs.
ORDER
At the suggestion of the Court, the Advocate for the appellant renewed the offer to pay ten per cent of the wages of the
employees as bonus for the relevant year.
The
offer was
accepted on behalf of tlie employees by their Advocates.
The
award will, accordingly, stand modified, and the provision of. ten
per cent of wages as bonus be inserted therein. The payment of
bonus will be made before Diwali, 1971.
There will be no liability to pay interest.
Our judgment
having regard to the agreement of the parties will accordii!lgly
stand modified.
s.c.
Appeal allowed.