# M/s. TULSIDAS KHIMJI v. THEIR WORKMEN

- **Citation:** [1963] 1 S.C.R. 675
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Bench:** B. P. SINHA. c. J, K. Subba Rao, N. Rajagopala Ayyangar, J. R. MuDHOLKAR, T. L. Venkataram.A Aiyar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-tulsidas-khimji-v-their-workmen-2626
- **Pages:** 32

## Headnote

Industrial Dispute-Bonus -Profit·sharing bonus- Customary festival bonus-Quantum oj- Deductions from profits
for income-tax purposes in partnership .firm-Nature of control
of Supreme Court ovrr Tribunal-Importance of Rules of
Supreme Court-Industrial Disputes Act, 1947 (14 of 1947).
The appellants are a registered partnership firm.
The
firm carries on business in the name of Messrs. Tulsidas
Khimji. It has six partners. It carries on four different
kinds of business. The respondents are workmen employed
under the firm.
Disputes arose between the appellants and the respon·
dents and the question referred to the Tribunal was the quantum of bonus payable to the respondents for the year ending
October 30, 1958.
The relevant issue were whether the claim
under reference should be restricted to a claim for profit-sharing bonus or customary bonus on the basis of implied terms
of contract, and whether it was open to the respondents to
claim bonus on the basis of the surplus profits and at the
same time claim bonus on the ground of custom or practice
or implied terms and conditions of service, or whether the
workmen should elect the basis on which they claimed
bonus.
The Tribunal held that the workmen were entitled to
claim bonus on each of the three alternative bases, namel},
profit-sharing bonus, bonus as an implied term of service and
customary or traditional bonus on the occassion of Divali.
The Tribunal fixed the amount of bonus at one-fourth of the
tofal basic wages earned by the workmen during the year
under reference, less the amount of bonus equivalent to one
month's wages already paid for the year under reference.
The Tribunal also held that the workmen had succeeded in
proving their claim for traditional or customary bonus at the
uniform rate of one month's basic wages plus dearness allowance. The Tribunal also held 1hat the amount deductable
on aHcnmt of inuuc 0 ta ~as a little O\Cr 5 ftr ctnt of the
1962
April 11.
....
...
1968
Tutsidat Khimji
v.
Their Workmen
676
SUPREME COURT REPORTS [1963]
total amount of gross profits. The Tribunal also fixed the
remuneration of the partners at Rs. 20,000 in all.
Against the award of the Tribunal, the appellants came
to this Court by special leave.
Held, (per Sinha, C. J., Subba Rao, Mudholkar and
Venkatarama Aiyar, JJ., Rajagopala Ayyangar, J., dissenting)
that a sum of Rs. 53,000 should b., allowed under the head of
income-tax. It was not right to give the employers the double
benefit of granting deduction on the basis of income-tax
payable by each partner in tespect of his share in the profits
of the firm, and at the same time adding the registered firm
tax which was paid by the firm in order to obtain certain
reliefs under the Income· tax Act which they would not otherwise have obtained.
As regards the remuneration to be paid to the partners
of the firm, the amount fixed by the Tribunal was found to be
inadequate, but as this Court does not function as a regular
court of appeal from the Tribunal and its function is merely
to see that the law is being properly administered in accordance with the well· settled rules of natural justice, this Court
refused to determine the amount of remuneration to be allowed
to the partners.
The Tribunal was fully justified in coming to the conclusion that the traditional or customary bonus had been
established in this Case.
What is important to negative a
plea for customary bonus is the proof that it was made
ex gratia and accepted as such or that it was unconnected
with any such occasion as a festival.
This Court refused to allow the respondents to prove that
a bonus could be granted as an implied term of contract of
service.
Such a case had not been made out in the statement
of the case. This Court is very strict in enforcing the rules of
pleading as laid down in the Supreme Court Rules. Those
rules have been laid down with a view to help the court in
narrowing down the controversies between the parlies and also
for the purpose of giving notice to

## Text

_Characters 0–39,818 of 63,357. This is a partial read: ask again with offset=39818 for what follows._

i s.c.R.
SUPREME COURT REPORTS
675
M/s. TULSIDAS KHIMJI
v.
THEIR WORKMEN
(B. P. SINHA. c. J., K. SUBBA RAO, N. RAJAGOPALA
AYYANGAR, J. R. MuDHOLKAR and T. L.
VENKATARAM.A AIYAR, JJ.)
Industrial Dispute-Bonus -Profit·sharing bonus- Customary festival bonus-Quantum oj- Deductions from profits
for income-tax purposes in partnership .firm-Nature of control
of Supreme Court ovrr Tribunal-Importance of Rules of
Supreme Court-Industrial Disputes Act, 1947 (14 of 1947).
The appellants are a registered partnership firm.
The
firm carries on business in the name of Messrs. Tulsidas
Khimji. It has six partners. It carries on four different
kinds of business. The respondents are workmen employed
under the firm.
Disputes arose between the appellants and the respon·
dents and the question referred to the Tribunal was the quantum of bonus payable to the respondents for the year ending
October 30, 1958.
The relevant issue were whether the claim
under reference should be restricted to a claim for profit-sharing bonus or customary bonus on the basis of implied terms
of contract, and whether it was open to the respondents to
claim bonus on the basis of the surplus profits and at the
same time claim bonus on the ground of custom or practice
or implied terms and conditions of service, or whether the
workmen should elect the basis on which they claimed
bonus.
The Tribunal held that the workmen were entitled to
claim bonus on each of the three alternative bases, namel},
profit-sharing bonus, bonus as an implied term of service and
customary or traditional bonus on the occassion of Divali.
The Tribunal fixed the amount of bonus at one-fourth of the
tofal basic wages earned by the workmen during the year
under reference, less the amount of bonus equivalent to one
month's wages already paid for the year under reference.
The Tribunal also held that the workmen had succeeded in
proving their claim for traditional or customary bonus at the
uniform rate of one month's basic wages plus dearness allowance. The Tribunal also held 1hat the amount deductable
on aHcnmt of inuuc 0 ta ~as a little O\Cr 5 ftr ctnt of the
1962
April 11.
....
...
1968
Tutsidat Khimji
v.
Their Workmen
676
SUPREME COURT REPORTS [1963]
total amount of gross profits. The Tribunal also fixed the
remuneration of the partners at Rs. 20,000 in all.
Against the award of the Tribunal, the appellants came
to this Court by special leave.
Held, (per Sinha, C. J., Subba Rao, Mudholkar and
Venkatarama Aiyar, JJ., Rajagopala Ayyangar, J., dissenting)
that a sum of Rs. 53,000 should b., allowed under the head of
income-tax. It was not right to give the employers the double
benefit of granting deduction on the basis of income-tax
payable by each partner in tespect of his share in the profits
of the firm, and at the same time adding the registered firm
tax which was paid by the firm in order to obtain certain
reliefs under the Income· tax Act which they would not otherwise have obtained.
As regards the remuneration to be paid to the partners
of the firm, the amount fixed by the Tribunal was found to be
inadequate, but as this Court does not function as a regular
court of appeal from the Tribunal and its function is merely
to see that the law is being properly administered in accordance with the well· settled rules of natural justice, this Court
refused to determine the amount of remuneration to be allowed
to the partners.
The Tribunal was fully justified in coming to the conclusion that the traditional or customary bonus had been
established in this Case.
What is important to negative a
plea for customary bonus is the proof that it was made
ex gratia and accepted as such or that it was unconnected
with any such occasion as a festival.
This Court refused to allow the respondents to prove that
a bonus could be granted as an implied term of contract of
service.
Such a case had not been made out in the statement
of the case. This Court is very strict in enforcing the rules of
pleading as laid down in the Supreme Court Rules. Those
rules have been laid down with a view to help the court in
narrowing down the controversies between the parlies and also
for the purpose of giving notice to the other side that a particular question will be raised and that party should be ready to
meet that particular point. This Court would not ordinarily
permit any laxity in the matter of pleadings in this Court.
The Graham Trading Go. (India) Ltd. v. Its Workmen,
[1960] 1 S C.R. 107, and B. N. Elias & Go. Ltd. Employees'
Union v. B. N. Elias & Go, Ltd. [1960] 3 S.C.R. 382, re fcrred
to.
•
IS. C.R.
SUPREME COURT REPORTS
677
The Asaociated Cement Companies Ltd. Dwarka v. Its
Workmen, [1959] S.CR. 925, approved.
Per Ayyangar, ].-Though a firm is regarded as an entity
for the purpose of income-tax, a partnership is not an entity
at law and it is the partners who constitute the employers for
all purposes other than income-tax.
It is the tax payable by
the individual partners on their share income from the firm
without taking into account any income derived by them from
other sources and without allowing for any losses suffered by
them in their other ventures that would constitute the item of
income-tax payable by the employer which would be the
deductable head for the purposes of computing the available
surplm.
The registered fom tax paid by the appellant firm
has to be added to the tax payable by the individual: partners on their share of the profits arriving at the total of the
income-tax payable by the business. The amount of registered
firm tax payable by the firm should he added to Rs. 53,000/-
and odd payable by the partners individually in respect of
their shares of profits and thus the sum deductable under the
head 'Income-tax Payable, comes to Rs. 60,000.
The amount reasonably allowable for remuneration to
the partners should be Rs. 40,000. This amount was arrived
at hy considering the fact that the partners were working for
the firm, and if they had not done so somebody else would
have been employed, and h(" would have been paid for hi
work.
The borms to be awarded to the respondents should be
reduced from three months' basic wages to the basic wages for
a period of two months.
The declaration granted by the Tribunal with regard to
customary bonus is not justified and the same is set aside.
Millowners' Associu:ion, Bombay v. Rashtriya Mill Mazdoor
Sangh, 1950 L.L.J. 1247, Associated Cement Companies Ltd. v.
Its Workmen, (1959] S.C.R. 925, Mfs. lspahani Ltd. Calcutta
v. lsP,ahani Employees' Union, [1960] I S.C.R. 24, Graham
Trading Co. (India) v. Its Workmen, [1960] I S.C.R. 107 B. N.
Elias & Go. Employees Union v. B. N. 1t'lias & Oo., '[1960]
3 S.C.R. 382 and The Management of Tooklai Experimentat
Station v. Worlcm1m [1962] Supp. l S.C.R. 557, referred to.
CIVIL APPEJ,J,ATF. .TumsnicTION : Civil Appeal
No. 503 of 1961.
l9GI
T ulsida Khirrgi
v.
Their w,rkmen
1962
Tu/siclas Ehimji
v.
Th1fr Workmen
SinAa c. J.
678
SUPREME COURT REPORTS (1963)
Appeal by special leave from the Award dated
May 10, 1961, of the Central Government's Additional Industrial Tribunal, Bombay, in Heference
(CGIT) No. 4 of 1960.
111. G. Setalvad, Atwrney-General of India, S. D.
Vimadlal, J. B. Dadachanji, 0. G.
Matlmr
and
Ravinder Narain, for the appellants.
G. H Ago.i·wala and K. R. Ghoudhry, for the
respondent,.
196'..'. April 11.
The Judgment of 1:)inha, C.J.,
Subb1t R1w, i\Iudholkar and Aiyar, JJ, was delivered
by Sinha, C. .J., Ayy.~ngar, .r:, delivered a separate
Judgement.
SINHA., C. ,T.-This appeal, by special leave, is
directed against the award dated May LO, 1961,
made bv the Central
GovPrnmPnt's
Additional
Industri~l Tribunal (Shri l'alim M.
Merchant)
Bombay, in Reference No. 4 of 1960, on a reference
mAde by the Central Government under cl. ( d) of
sub-s. (l) nf s. l 0 of the Industrial
Disput~s Act
(XIV of 19-17).
The main point in controversy
between the parties relates to the question of bonus,
both traditional or customary bonus and profitsharing bonus.
The apella.nts a.re a partnership firm, registered under the Indian Partnership Act, 1932, and
have their office at 46, Veer Nariman Road, Fort,
Bombay 1.
The firm carries on business in the
name of MeEBrs.
Tulsidas Khimji and for
the
relevant year endfd
October 31,
1958,
the
partners were (1) Shri Karsondas Tulsidas ( 2) Shri
Ranchhodas Goeuldas (3) Shri Na.randas Tulsidas
(4) Shri Moolsing KBrsondas (5) Shri Shantu Karsondas and (6) Shri 11'arendia F anchhodas. They
are <'losely related to one another. The first
two 11a1tnus aforHaid have bctn aHudatcd 11ith
tlit flim fm
al:~ut 40 y<aIF, the third for al:cut
1 S.C.R.
SUPREME COURT REPORTS
679
35 years, the fourth for about 15 years, the 5th for
about 8 years and the 6th for about 5-6 years. At
all material times, the six partners had been working for and in the interest of the firm, which carried
on different kinds of business, nf1mely, (l) Clea.ring
and Forwarding Agents, (2) Godown Keepers, (3)
Insurance Agents and (4) Cotton Supervisors and
Controllers. For carrying on these different kinds
of business, they maintained four different and distinct departments. The respondents are workmen
employed under the firm.
The question referred to
the Tribunal was "quantum of bonus payable to
workmen for the year ended October 31, 1958". A
number of issues were raised before the Tribunal, of
which it is only necessary to notice the 4th and the
5th issues, which are as under:
"4. Whether the claim under reference
should be restricted to a claim for profit-sharing bonus or customary bonus or on basis of
implied terms of contract?
5. Whether it is open to the workmen to
claim bonus on the basis of surplus profits,
and at the same time claim bonus on the
ground of custom and practice or implied
terms and conditions of service? Or whether
the workmen should elect the basis on which
they claim bonus?
The union of the workmen had claimed profitsharing bonus at the rate of6 months' wages (inclu-
' .
sive of Dearness Allowance) and traditional or customary bonus at a rate, which is not clear but which
may be said to be either three months' or one
month's wages, plus dearness allowance, on the
occasion of the Dewali festival. The difficulty in
clearly stating the case for the workmen is that they
were not clear in their own minds as to whether
they were claiming the customary or traditional
,
bonus as one of the implied terms of their employment or for the special festival occasion of DewaU.
1962
TU/sidas ·'Xhimj{ ·
v.
Their W Orkm.n ·
Sinha C. J~
Tulsitlu Khimji
v.
Tlrl ir W ,rkmen
Sioh• C. J;
680
SUPREME COURT REPORTS (1963)
It was not even clear whether the claim for 6
month's wageR, inclusive of dearness aJIQwance, was
the total claim for bonus or was in addition to the
traditional or customary bonus, either implied or as
fe~tival bonus on the occasion of Dewali.
'J hat
a.ccounts for the form of tho issues set forth above.
The appellants conceded only one month's basic
wages as bonus which had already been paid, and
contested the claim for traditional or customary
bonus either as an implied term of contract of service or as a feetival bonus. As there was some confuRion about the claim of the respondents, the Tribunal, after referring to a number of documents and
oral statements, came to the conclusion that the
respondents had claimed by way ofma.ximum bonus,
6 month's wages on a profit-sharing basiR, and that
the minimum was the claim for customary or tr.1di.
tional bonus of three months' basic wages and one
month's dearness allowance. On Issue No. 4, the
Tribunal decided that those were alternative claims,
and that it was not necessary for the workmen to
elect any one of the alternatives. The Tribunal
pointed out that till the decision of this Court in the
case of The Graham Trading Oo. (India) Ltd. v. Its
Workmen(') a clear distinction was not made in
respect of claim for bonus as an implied term or
condition of service and at a customary or traditional bonus, and the respective tests to determine
them. The Tribunal, therefore, held that the
workmen were entitled to claim bonus on each of
the three alternative basis, namely,
{I) Profit.
sharing bonus, (2) bonus as an implied term of ser·
vice and (3) customary or traditional bonus on the
occasion of Dewali. The Tribunal pointed out that
the appellants had already paid to its workmen
bonus equivalent to one month's basic wages, which
amounted to Rs. 20,780/-. In order to determine
the question of the first kind of bonus, namely,
profit-sharing bonus, the Tribunal had to determine
(I) (1960) I S·C.R. 107,
1 S.C.R.
SUPREME COURT REPORTS
681
the available surplus. In order to do. that, it had
to grant certain deductions from the gross profits.
The appeJlante claimed deductions under a numb<'r
of heads, but ·we are concerned only with two out
of them, namely, (l} whether the appellants' claim
for deduction of 51 % out of the grnss pro.fits on
accounts of Income-Tax was justified, and (2) what
should be the amount of remuneration for the six
partners, in respect of which also deduction may be
granted. The Tribunal decided that the amount of
tax payable by the firm, as such, should be deducted
and nQt as claimed by the appellant. On that basis,
the Tribunal found that the amount deductable on
account of Incorue-Tax would come to a little over
5% of the total amount of the gross profits.
As
regards the remunerations of the partners, the Tribunal fi:xed a lumpsum of twenty thousand rupees,
on a. basic which is not easily discarnible from the
award, and may be
said
to be
more or
Iese
conjectural.
After
making
provision
for
the
prior
charges
ou
the
amount
of the residuary surplus, the Tribunal came to the
conclusion that a bonus equivalent to l /4th of the
total basic wages earned by the workmen during
the year under reference, i.e., tho year ended October 31, 1958, would be justifi1,d.
tr, then turned to
the question of the alternative claim of the workmen to three months' basic wages, plus one month's
dearness allowance, eithn as an implied term of
conditions of service or as customary or traditional
bonus.
On a consideration of the decisions of this
Court, and other decisions of High Courts and
Tribunals, it came to the conclusion that though the
respondents may not have succeeded in establishing
their claim on the basis of implied terms .of contract, they had succeeded in proving their claim for
tra.ditional or customary bonus at a unirorm rate of
one month's basic wages plus dearness allowance.
In the result, the Tribunal awarded to the workmen
bonus equivalent to I/4th of the total ba.sio wages,
1981
TulsidtU Irltimji
v.
Thiir Workmln
Sinlt• C. J,
1962
..
Their ivorkme11
Sin/la C. J.
682
SUPREME COURT REPORTS
[1963)
l<.>ss the amount of bonus equivalent to one month's
"·ages already paid for the year under reference, on
the same terms and conditions as had been prescril)('<l in the award in rPgpert of the previous Y"•U
eud·1d October 31, Hl57.
Against this award, t:he firm has come up in
appeal. There is no cross appeal by the workmen,
even though, on the findings recorded by the
Tribunal, they were found entitled to three months'
wages by way of profit sharing bonus and one
month's wages plus dearness allowance by way of
traditional or customary bonu8 on the occasion
oi Deu·ali.
Substantially, three questions were raised
before us on behalf of the appellants, namely, (I)
that deduction for income-tax, in order to arrive at
the actual figure of available surplus, should have
been, not on the basis of what income-tax is actually
payable or has been is in respect of the registered
firm, but on a notional b11sis, which may be
analogous to the case of a registered company,
or on the basis of the Tax payable on the lumpsum
income
of
1.95
lakhs
by an unregistered
firm, or on some other basis which may have
some
resemblance
to
what
each one
of
the partners
has
to pay
in
respect of his
income : (2)
that the
partners' remuneration
should not have been fixed by the Tribunal at
Rs. 20,000/-, by a rule of thumb, but should have
been fixed on the basis of reasonable remuneration
which the firm should pay to the partners for
running its business in the four
departments,
aforesaid. In this connection, it was said that
if Rs. 96,000/-, as claimed by the appellants, was
thought to bfl too high, a figure of Rs. 48,000/-
which is half the amount claimed, would be highly
reasonable in the facts and circumstances of the
business of the firm; and ( 3) that the Tribunal
had mtsdirected itself in arriving at a finding that
1 S.C.R.
SUPREME COURT REPORTS
683
I
the workmen had succeeded in establishing their
claim to traditional or customen Lonus at a
uniform rate of one month's
ba~ic wages plus
dearnPss allowance.
We shall take up the points in the order
indicated above. It is not contested on behalf
of the respondents that some deduction has to be
made on acC'ount of income-tax, but their learned
counsel has contended that the tax should he
what the firm as s-uch has to pay by way of incometax. It was said in this connection that a registerhd
firm is a legal entity for the purposes of income-tax,
and that the Tribunal was perfectly justified in
giving credit only for the mm of about. Rs. 10,000/-,
worked out on that basis. On thA other haLd, it
was contended on behalf of the appellants that
51.5%, or whatover may be the actual rate of
income-tax payable by a comp3.ny should have
been deducted.
Alternatively, it was argued that
7 aunas in a rupee would be a fair basis.
In our
opinion, it would not be ri~ht to equate ::i registered
firm to a company for the purpose of deduction
of income-tax.
It is trun that the income-tux
dedurtion has to be made on a niJtirmal ba.,is. as
laid down by a BL'nch of 5 Judges in this Court, in
The Associated Cement Companies Ltd., Dwarka Ceme11t
Works, Dwad,·a v. Its Workmen (1).
But even so,
the notional basis must have relevance to the law
of income-tax in rnspect of firms. In this conn1•ction,
the following :tlteniatives were suggested nn behalf
of the appellants, namely, (I) income-tax at 7 armas
in a rupee, which will wipe off about rupees
85 thousand or about 45° ~ of the profit8; l2) a sum
of about H.s. 53,0UO/· odd on the basis of income-t1x
payable on an income of J .!:J5 lakbs 0f the firm on the
footing of the pa1tners 1nying the tax at the
·tppropriate rate on their shares of the income,
this would account for ab0ut 27~ ~ of the profits,
after adding the ten thousand rupees. which is a
(l) (19~9) S.C.R. 925,
1962
Tutsid•s Khimji
v.
Their Workmen
Sinha C. J.
1961
T •. lsid1s Khimji
v.
T11eir Wo kmtn
Sinha C. J.
684
SUPREME COURT REPORTS (1963]
registered-firm tax, a.s already indicated; (3) tax of
one lakh forty thousand odd on the basis of the
firm being unregistered, which the income-tax
authorities are entitled to do in certain circumstances this would account for about 70% of the
profits; ( 4) income tax amounting to roughly
68 thousand rupe~s, plus ten thousand rupees in
respect of registered-firm tax, on the basis of the
tax payable by the partners on the income of the
registered firm at the rate applicable to their
world income, on their shares in the firm. We have
no hesitation in rejecting the first euggestion of
deducting about 7 annas in the rupee because that
will be on the ha.sis of a tax on a corporation, the
basis which we have already rejected as unfair.
Even more unacceptable is the suggestion of
knocking off a lakh a.nd 4 thousand rupees, which
ha~ the effect of setting apart the major share of
the profits for income-tax on a highly notional
basis. Tbe 4th alternative of taking into account
the world income of the partners of the firm would
be equally unjust and unfair to the workmen in the
case of the members of the firm being very rich
persons. This course would be highly objectionable
from another point of view, which is a very important considera•.ion, namely, that in
order
to
determine the bonus payable for a particular year
of working of the firm, the word income of the
partners of the firm may have to be determined
in the first instance, which process may take years.
As the appellants themselves have rightly stated
that the deduction on account of income tax has to
be on a notional basil~, the basis has got to be such
as to be readily ascertainable, and that can only
be done by ma.king calculations on the profits of
the firm itself, for the particular year. The last
alternative of allowing deduction under this head
of calculating inc.Jme tax on the actual figures of
theprofits of each of the partners separately
appearR to be rea.sona.ble, because the figures
l S.C.R.
SUPREME COURT REPORTS 685
are known and the tax of each
constituent
members of the firm can he easily calculated on
the basis of his share. But it has been argued on
behalf of the respondents that the amount of
income-tax payable by th~ firm as such, viz., about
Rs. 10,000/- should be permissible dedu.~tion and
not what each partner had to pay on his share of
the profits, because it is the firm which is the
employer and which can claim deduction under
this head. But this contention cannot be pushed
to its logical conclusion because a firm is not a
legal person within the meaning of the Industrial
Disputes Act. It is the partner of the firm who are
the employers.
It, is that fact that has to be taken
into account in considering the question of incometax, evon as in other matters like remuneration, etc.;
i.e., the amount of bx pityable by each: partner,
q·ua the business of the firm, irrespective of their
other sources of income or loss, because notional is
quit different from the actual, though not wholly
dissociated from it.
But the question still arises
whether the registered-firm tax can also be added
to the figure of income-tax arrived at by the process just indicateJ. In our opinion. it would not•
be right to give the employers the double benefit of
granting
deduction on the basis of income-tax
payable by each partner in respect of his share in
the profits of the firm, and at the same time adding
the registered-firm tax, which is paid by the firru
in order to obtain certain reliefs under the Income
Tax Act, which they would not otherwise have
obtained. Hence, as a result of the foregoing con·
siderations, the sum of 53 thousand rupet•s, in'
round figures, should be allowable under thiH h<·ad
of income-tax. Even that figure, it was admitted,
would represent about one quarter of the profits.
The next question that fall1:1 to be determined
is what amount should be allowed under the ht"ad
Remuneration to the partners of the firm'. I'n this
196!
TuUrlas Khimji
v.
The;r Jr or km u
Sinha C •. J,
1962
Tu/sidas Khimji
v.
Th1it Wortmen
Sinha G. J.
686
SUPREME UOURT REPORTS (l963J
connection, it has been found by the Tribunal that• ~
the olaim of the partners that they devoted their
whole time to the business of this firm only, is not
correct; and that the individual partners, on their
own account, and certainly as partners of another
firm, have been carrying on their other business
activities. It has also to be borne in mind that
the partners have not been able to adduce any
reliable date to determine the amount of time and
energy which they devote to the business of the
firm in question. It is equally true that the sum
of Rs. 20,000/- fixed by the Tribunal, under this
head, amounting roughly to IO% of the gross prof-
•
its is more or less conjectural. We know that the
sum of Rs. 4,60,000/· represents roughly the wage
,.,
bill for the year in question. Comparing the sum •
allowed by way of remuneration to the partners to
this figure, it appears to us that the amount fixed
by the Tribunal errs on the said of inadequacy. But
this Court is not in a position to come to any
definite conclusion of its own the record as it
stands, assuming that it is open to this Court to
record a finding, which is more or less one of fact,
in disagreement with the finding of the Tribunal.
It must be added that this Court does not function
as a regular Court of Appeal from the Tribunal.
Its function is merely to see that the la.w is being
properly administered, in accordance with well
settled rules of natural justice. Hence, we would
not embark upon a fruitless task of determining a
·'
figure which will not have any substratum of solid
facts and figures to support our conclusion.
The remaining question of traditional or customary bonus has been pressed upon us on behalf of
the appellants. It has been argued that the Tribunal has not followed. the rulings of this Court on
the question of a b'.mus of the kind we are now
dealing with. 'fhe Tribunal has come to the conclusion that the workmen have proved that bonus
at a uniform rate of one month's basic wages plus
1 S.C.R.
SUPREME COURT REPORTS
687
dearness allowance, on the occasion of Dewali, has
been paid throughout the period of more than 15
years, between 1940-41 and 1956-57.
That is a
finding of fact. But it has been contended that
according to the judgments of this Court, in order
to establish the claim for a bonus of this kind,
four conditions must be fulfilled, namely, ( l) that
the payment bas been made over an unbroken
series of years; (2) that it has been so made for a.
sufficiently long period, (3) that the paytnent has
been made at a uniform rate throughout, and (4)
lastly, that it has been paid even in years of loss,
and did not depend upon the earning of profits. It
has been found by the Tribunal that the first three
conditions, if they can be so called, have been fulfilled, but that the last one has not been established
and could not be established because the firm was
singularly fortunate in having an unbroken record
of profits, year after year.
It was vehemently
argued on behalf of the appellants that as this last
condition bas not been fulfilled, the Tribunal was
not justified in law in coming to the conclusion that
the olaim of tradition11l or customary bonns at the
rate indicated above had been established. In our
opinion, this contention is not acceptable for several
reasons. Firstly, the four so-called conditions are
not really in the nature of condirions precedent
but
are
circumstances
which
have
been
taken into account by this
court
in
The
Graham Trading Oo. (I rulia) Ltd. v. I ts TV orkmen (1)
for oomtng to a conclusion as to whether or not
a claim to customary or traditional bonus had
been ma.de out. In the case just referred to, this
Court pointed out that the Tribunal hBs to consider
those four circumstances. That those are circumstances, and not conditions precedent, is shown by
the fact that this Court has nointed out that the
length of the period will depend .. upon the circumstances of each case. A condition precedent, as
(1) (1960) I S.C. R. 107.
l96i
Tit/sidas Khimji
v.
Tf.eir Workmen
Su.hu C. J.
196Z
Tv.lJidaa Khirnji
v.
Their ltt1rl111en
688
SUPHEME COURT REPORTS [1963)
Euch, has to be more definite than one which
dflpends upon the
circumstA.nce~ of each case.
Secondly, there is no rational ground for hol,;ing
that payment even when there were losses is a
condition precedent because, as has happened in
this case a company or a firm ma.y have an
unbroken record of profit~ ever since it started
working. Hence, if it were to be held as a condition precedent, payment of bonus satifying the
three conditions aforesaid but not this one, for
however long a period, would have to be held as
insufficient to establish the claim for this kind of
bonus. Between profits and loss in a particular
year, there may be a very small gap. The loss may
be of one rupee; and similarly profits may be
equally nominal. The third alternative, which may
be supposed, is neither loss nor profit. According to
the appellants' contention, the <'ase for such a bonus
is made out in the first supposition of a nominal
lo~s, but not of the second or the third alternatives. The law cannot be
founded on such
unsubstantial
considerations.
The question in
such
cases
is
always
one
of
substance,
and
not
of
form.
We
cannot,
therefore
accept the submission that loss substantial or otherwise is a sine qua non. The observations of this
Court in the decisions referred to above must be
understood as based on considerations of substance
and not of form.
Such a bonus has reference to
a special occasion like a festival, for example, the
Pujas in Bengal and the Dewali in Western Indiaoecasiona which arc genarally utilised by employers
to rewaro! the services of their employees. Hence
in our opinion, what is more important to nega.
tive a plea for customary bonus would be proof
that it was made ex gratia, and accepted as such, or
that it was unconnected with any such oocasion
like a festival, as laid down by this Court in the
1 S.C.R.
SUPREME COURT REPOR'£S
689
case of B.N. Elias & Oo. Ltd. Employee,s' Union v.
B.N. Elias & Oo. Ltd. (1).
In our opinion, therE'fore,
the Tribun'.11 was fully justified in finding that
the traditional or customarv bonus had been established in this case, notwithstanding that it had
not been shown, as it could not have been shown,
that it was paid in a year of loss. On behalf of
the respondents an attempt was made to show
th~t such a bonus could be granted as an implied
term of contract of service. But as such a case
has not been made in the statement of the case in
this Court, we did not allow thQt case to be made
out at the time of the arguments. We must make
it clear that this Court has to be very strict in
enforcing the rules of pleading, as ]aid down in
the rules of this Court bearing on the question of
statement of case <if the parties. These rules have
been la.id down with a view to help the Court in
narrowing down the controvercies between the
parties and also for the purpose of giving notice
to tho other side that a particular question will be
rai3ed, and that that party should be ready to
meet that particular point. This Court wou Id not
ordinarily permit
any laxity in the matter of
pleadings in this Court, and litigants and their
legal advisers must take note of what we. have said
so often in the course of arguments in a number of
cases coming before us recently.
Lt remains to consider wh11.t is the effect of
our finding on the first question relating to deciuction on account of income-tax on the award made
by tho Tribunal. At page 129 of volume I of the
papC'r book, there is a statement of the profits of
tho firm between the years 1943-44 and 1957-58
and at page 157 of the reasons of .the Tribunal in
volume II appears a tabular statement of the bonus
paid for the curn·sponding period of years, which
has t:onsistently heen equivalent. to three months'
(.l) llY60] :i S.C.R. 3fl2.
1962
Tulsidas K!iimji
v.
Their Wo1km•11
Sinha C. J.
1903
Tulsidos Kh~mji
••
T/Jeif Wr,rkm.en
Sinh4 C. J.
690
SUPREME COURT REPORTS [1963]
basic wages, which is the bonus allowed in respect
of the year in question also. This was so in spite of
the fact that the profits have fluctuated considerably from year to year. Even after payment of the
bonus as directed by the Tribunal, and making
allowance for the higher amount of income-tax as
determined by us, the appellants are left with a
substantial amount by way of their share of the
profitP. It would thus appear that the Tribunal has
not been too generous to the workmen when it
allowed a consolidated bonus of three months' basic
wages minus the amount already paid to them.
In the result, the appeal fails and is dismissed
"ith costs.
AYYANGAR, J.-I regret my inability to agree
in the order proposed by my Lord the Chief Justice
'lhe facts of the case and the points in dispute·
arising for decision have been exhaustively set out
in that judgment and I consider it unnecessary to
repeat them. It will be seen that the controversy
is confined to two matters: (1) the quantum of the
profit-bonus, if any to which the respondents would
be entitled, for Samvat year 2013 (1956-1957) and
(2) the correctness of th~ declaration by the Tribunal in its award now under appeal that the respondents are entitled to customary or festival bonus on
the occasion of Diwali, and these I shall deal in
that order.
Taking up first the question of profit-bonus, its
quantum admitted depends upon the surplus avail·
able for distribution. The Tribunal has awarded a
bonus equivalent to three months' basic wages, this
including the bonus equivalent to one month's basic
wage already paid by the appellant-firm. The figure
of 3 months' basic ,wages has been derived by
following t.he formula enunciated by the Full Bench
of the Labour Appellate Tribunal in Mill Owners'
Association, Bombay v.
Rashtriya MiU Mazdoor
Sangh(') which has received the approval of this
(I) [1950] L.L.J. 1247.
1 S.C.R.
SUPREME CO~JRT RFiPORTS
691
Court in several decision of which it is sufficient
to refer to the Associated Cement Companies Ltd.
v. I ts Workmen (1 ).
'£he gross profit i.e., the net
prorit earned by the firm dul'ing the relevant year
after adding back items which are inadmissible for
the purpose of calculating bonus for workmen for
that year was Rs. 1,95,060/·. Both the parties
before us accepted this figure as correct d.nd the
only dispute related to the items to be deducted
from it for the purpose of ascertaining the residuary
surplus available for distribution among tile parties
entitled to a share in it. Out of this sum of
Rs. l,~5,060/- the Tribunal deducted the following:
I. For income tax.
10,305/-
2. For return on partners' capital.
\J,810/-
3. For return on working capital.
5,595/-
4. Remuneration for the six
partners. 20,000/-
45,710/-
which left a residuary surplus of Rs. 1,49,350/- out
of which bonus equivalent to three months' basic
wages absorbing Rs. 62,340/- was awarded to the
workmen leaving Rs. 87,010/· as the share of the
employer and the Tribunal added
that the
latter "would be adequate share for the Company
providing Rs. 4,250/- for gratuity and ta.king into
consideration the income tax rebate on the a.mount
of bonus awarded.''
Out of the four items of deductions those in
controversy before us are two ( 1) the quantum of
the income tax deduotable, and (2) the remuneration allowable to the partners. As regards the first
item, viz., income tax payable, I am in respectful
agreement with the reasoning and conclusion of my
(1)
(1959) s.c.R. 925.
196Z
Tu/1idas Khimji -
...
Their Workmen
r .4jyangar J.
-
1911 --
Tvl,;das KAimJi
••
Th1ir W ,rtm1n
692
SUPREME COURT REPORTS [1963]
Lord the Chief Justice that where the employer is a
firm that is Registered under s. 26-A of the Indian
Income Tax Act the income t.ax that the <'mployer
is entitled to deduct, is not the "Registered firm
tax" on the gross profits of the firm but the tax that
would be payable on the share income of each
partner. Both the learned Attorney-General for
the appellants and Mr. Aggarwal& for the workmen
laid stress on the fact that the deduction from gross
profits of income tax for computing the available
surplus has been referred to by this Court as a
"notional" item (vide e.g. p. 281 1960 3 S.C.R. 378)
and each of them developed an argument founded
on this description. Helying on the "notional"
character of the tax deduction, the learned Attorney
General contended that the figure deducted ought
to be the some whether the employer was a company, firm or any other unit of assessment, viz.,
7 annas in the Rnpee at one age and 51% when
the income tax payable by a company was raised to
that figure.
Mr. Aggarwala on the other band submitted that in the case of a registered firm one
should iguore the tax the individuals composing the
firm were under an obligation to pay on the profits
desired but the Tribunal had to tak11 into account
that only "the registered firm tax" which had been
imp010d on registered firm ever since the Finance
Act of 1956. I consider that both these arguments
proceed on a mis-apprehension or a misunder·
1tanding of the real import of the expression
"Notional" in the context in which the term has been
used by this Court. The expression "notional" has
been used to distinguish it from the actual tax payable by the employer for the year for which profitbonus is being calculated and the reason why the
actual tax paid was discarded as a proper deduction
was thus explained by this Court in the Associated
Cement Coy's case. "Tho formula for awarding
bonus to workmen is based on two considerations;
first that Labour is entitled to claim a share in the
1 S.C.R.
SUPREME COURT REPORTS
693
trading pro.fits of the industry because it has
partially contributed to the same, ......... In consequanco in working out the formula it RhO'llrl not be
ign0red that the formula proceeds to deal with the
labour's claim for bonus on the basis that the relevant year for whioh bonus is claimed is a self·
sufficient unit and the appropriate accounts have to
be made on the notional basis in respect of the said
year. It is because the bonus year is taken as a
unit self -sufficient by itself that the refund amount
received by the employer being the refund paid by
him in previous yearf is not included on the credit
side .......... Similarly, the same principle governs
losses incurred in previous years which the employer
is entitled to have claimed under s. 24(2)during the
bonus year ......... Similarly, that the employer was
not required to pay tax during the bonus year as a
result of the adjustment of previou11
yea.r's
unabsorbed depreciation has no relevance in
determining the available surplus from the trading
profits of the bonus year. It is on the same ground
viz.; that the unit is the bonus year a.nd the trading
profits of that year determining the quantum of
bonus available that the initial and additional
depreciations besides a statutory depreciation are
held not allowable".
But after these factors which are either exoeptional being either special reliefs for the purpose
of aiding an industry or reflecting the credits or
debits attributable to different year are eliminated,
one has to work out the actual tA.x payable on the
income under the relevant provisions of the Income
Tax Act before the figure of available surplus
which could be distributed between the employer
and the workmen could be ascertained. The rate of
7 anna.s in the Rupee was applied by this oourt to
cases where the employer was company to whom
that rate applied under the then Income Tax Act,
and not as any ''notional" figure to be deducted.
Tulsidas Kht"!f 4
v.
Th1ir Workmen
AJ'JG'llG' J,
I96Z
Tulsidas Kliimji
v.
Their Wt rkmen
694
SUPREME COURT REPORTS [1963]
It has to be borne in mind that the calculations are
for the purpose of ascertaining the available surplus and so have to be rdated to the amount available after payment of the tax. The fact that
certain items such as, for instance, the penalty
payable for defaults under the Income Tax Act or
credits received thereunder which are unrelated to
the normal tax payable on the income derived by
the employer are ignored, does not imply that the
amount deductible under this head is wholly
unrelated to the provisions of the Income Tax Act
or to the amount that would be ava.ilable as surplus
in an idealised condition, i. e. after elimination of
the inadmissible factors.
ft is only in that sense
that the figure is notional i. e. in the sense that it
does not take into account the actual tax payable.
But it is real and otherwise then notional if the
irrelevant fectors are excluded. It is for this reason
that I find no basis for the argument that in the case
of an employer such as the one we are concerned
with, the ra~e of tax applicable to companies for the
year in question is relevant as affording any basis
for computing the amount decluctible under the
head "income tax". I therefore reject without hesitation the main submission of the learned Attorney
General.
For the same reason I consider that the conten·
tion urged by Mr.