# • v. TIIEIR WORKMEN

- **Citation:** [1973] 1 S.C.R. 105
- **Court:** Supreme Court of India
- **Decided:** 1972-04-11
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/v-tiieir-workmen-5724
- **Pages:** 13

## Headnote

105
•
EMPLOYERS IN RELATION TO THE MANAGEMENT OF
INDIAN CABLE CO ..
•
c
D
E
F
H
v.
TIIEIR WORKMEN
April 11, 1972
[C. A. VAIDL\LINGAM, D. G. PALEKAR AND K. K. MATHEW, JI.]
Payment of Bonus Act, 1965, ss. 4 & 6-<alculation of available
surphu--Notional tax liability must be worked out
without
deducting
bonus from gross profit..--Ceiling oJ Rs. 750/- under s. 1(13)-Payments
made in rtspect of emoluments ·above ceiling whethb deductible-Return on provision for tloubtjul debis whether deductibl.....Compensation
to workmen for premature-retlremen~ whether must be added backRight· of respondent to support decision of Tribunal on
grounds
not
accepted or noticed by Tribunal.
The appellant company declared bonus for the year 1955-56 at 13.51 %
The workmen demal)lled bonus at the rate of 20%, the maximum providec! in the Payment of Bonus Ac~ 1965. The dispute about the rate of
bonus and calculation of the a\'ailable surplus was referred to the llldustrial
Tribunal. The Tribunal heid that a sum of Rs. 21,06,576 being bonus at
20% of the gross effective salaries and wages was payable foi the year in
question and it directed the surplus amount of Rs. 1,46,252/- to. be set on
As· the bonus at the rate of 13.51 % had already been declared and paid
by the Company, the Tribunal directed the
payment of the
balanc,e
6.49% within a prescribed period.
In appeal to this Court against the
Tribunal's award the appellant company contended : (i) that the Tribunal erred in holding that under ss. 6 . and 7 of the payment of Bonus
Act tile bonus payable for the relevant accounting year has to be deducted from the gross profits for
the calculation of direct tax, (ii)
that
the Tribunal erred in refusing to deduct from tha gross profits the ex·
gratia paynr.nt made to employees in respect of salary above the ceiling
of Rs. 750 fixed by the Act; (iii) that the Tribunal wrongly refused to
deduct the reserve for doubtful debts from the gross profits.
On behalf
of the respondent workmen it was urged that the Tribunal was not justified in allowing deduction of certain items frqm the gross-profits
for
purposes of computing the available and allocable surplus.
HELD : (i) In the case of Metal Box Co., it was held by this Court
that the notional tax liability is to be worked out by firs~ working out
the gross profits and deducting therefrom the prior charges' under s. 6,
but not the bonus payable to the employees. It is clear ,from the above
decision that an employer is .entitled to deduct his tax liability without
deducting first the amount of bonus he would be liable to pay from and out
of tire amount computed under ss. 4 & 6 of the Act. Thjs principle has been
upheld by the Court in later cases. This Court has also held that the
amendment of the Act in 1969 has not effected any change in the earlier decision that the tax' liability under the Act is to be worked aut first
by working out the gross-profits and deducting therefix;m bonus payable
to the employees. It followed that the Tribunal committed an error in
law in computing direct tax after deducting bonus .. [109H-llODJ
Metal Box Co. of India Ltd. v. Thplr Workmen, [19691 1 S.C.R.
7SO, The Workmen of William lack; and
Company Ltd.
Madras v.
Management of William Jacks and Co. Ltd., Madras, A.I.R. 1971 S.C.
:S-1208SupCl/72
106
SUPREME COURT REPORTS:
[1973] 1 S.C.R.
1821, Delhi Cloth and General Mills Co. Ltrl. v. Workmen, [1971] 2
S.C.C. 695, and Indian Oxygen Ltd. etc. v. Their Workmen, A.LR.
1972 S.C. 471. applied.
(ii) Though officers drawing salary upto Rs. 1600 per mensem are
employees under s. 2 (13) of the Act and eligible for bonus, the salary
or wages per month will be taken at the maximum of Rs. 7 50 /- permensem.
What the company had done was to pay such men not ollly
the bonus as calculated under the Act, but also an additional amount
representing bonus on the emoluments above the ceiling of Rs. 750 /-.
Such additional amount paicl to all such officers totalling Rs. 2.5 lakhs
could not be considered

## Text

105
•
EMPLOYERS IN RELATION TO THE MANAGEMENT OF
INDIAN CABLE CO ..
•
c
D
E
F
H
v.
TIIEIR WORKMEN
April 11, 1972
[C. A. VAIDL\LINGAM, D. G. PALEKAR AND K. K. MATHEW, JI.]
Payment of Bonus Act, 1965, ss. 4 & 6-<alculation of available
surphu--Notional tax liability must be worked out
without
deducting
bonus from gross profit..--Ceiling oJ Rs. 750/- under s. 1(13)-Payments
made in rtspect of emoluments ·above ceiling whethb deductible-Return on provision for tloubtjul debis whether deductibl.....Compensation
to workmen for premature-retlremen~ whether must be added backRight· of respondent to support decision of Tribunal on
grounds
not
accepted or noticed by Tribunal.
The appellant company declared bonus for the year 1955-56 at 13.51 %
The workmen demal)lled bonus at the rate of 20%, the maximum providec! in the Payment of Bonus Ac~ 1965. The dispute about the rate of
bonus and calculation of the a\'ailable surplus was referred to the llldustrial
Tribunal. The Tribunal heid that a sum of Rs. 21,06,576 being bonus at
20% of the gross effective salaries and wages was payable foi the year in
question and it directed the surplus amount of Rs. 1,46,252/- to. be set on
As· the bonus at the rate of 13.51 % had already been declared and paid
by the Company, the Tribunal directed the
payment of the
balanc,e
6.49% within a prescribed period.
In appeal to this Court against the
Tribunal's award the appellant company contended : (i) that the Tribunal erred in holding that under ss. 6 . and 7 of the payment of Bonus
Act tile bonus payable for the relevant accounting year has to be deducted from the gross profits for
the calculation of direct tax, (ii)
that
the Tribunal erred in refusing to deduct from tha gross profits the ex·
gratia paynr.nt made to employees in respect of salary above the ceiling
of Rs. 750 fixed by the Act; (iii) that the Tribunal wrongly refused to
deduct the reserve for doubtful debts from the gross profits.
On behalf
of the respondent workmen it was urged that the Tribunal was not justified in allowing deduction of certain items frqm the gross-profits
for
purposes of computing the available and allocable surplus.
HELD : (i) In the case of Metal Box Co., it was held by this Court
that the notional tax liability is to be worked out by firs~ working out
the gross profits and deducting therefrom the prior charges' under s. 6,
but not the bonus payable to the employees. It is clear ,from the above
decision that an employer is .entitled to deduct his tax liability without
deducting first the amount of bonus he would be liable to pay from and out
of tire amount computed under ss. 4 & 6 of the Act. Thjs principle has been
upheld by the Court in later cases. This Court has also held that the
amendment of the Act in 1969 has not effected any change in the earlier decision that the tax' liability under the Act is to be worked aut first
by working out the gross-profits and deducting therefix;m bonus payable
to the employees. It followed that the Tribunal committed an error in
law in computing direct tax after deducting bonus .. [109H-llODJ
Metal Box Co. of India Ltd. v. Thplr Workmen, [19691 1 S.C.R.
7SO, The Workmen of William lack; and
Company Ltd.
Madras v.
Management of William Jacks and Co. Ltd., Madras, A.I.R. 1971 S.C.
:S-1208SupCl/72
106
SUPREME COURT REPORTS:
[1973] 1 S.C.R.
1821, Delhi Cloth and General Mills Co. Ltrl. v. Workmen, [1971] 2
S.C.C. 695, and Indian Oxygen Ltd. etc. v. Their Workmen, A.LR.
1972 S.C. 471. applied.
(ii) Though officers drawing salary upto Rs. 1600 per mensem are
employees under s. 2 (13) of the Act and eligible for bonus, the salary
or wages per month will be taken at the maximum of Rs. 7 50 /- permensem.
What the company had done was to pay such men not ollly
the bonus as calculated under the Act, but also an additional amount
representing bonus on the emoluments above the ceiling of Rs. 750 /-.
Such additional amount paicl to all such officers totalling Rs. 2.5 lakhs
could not be considered to be an expenditure debited directly to Reserves.
The Tribunal was justified in adding back this amount to the gross-profits.
[112A-Cl
(iii) In view of the decision of this Court in Indian Oxygen Lid.
the Tribunal's decision adding back the deduction claimed by the appel ..
!ant on account of return on the provision for doubtful debts must be
upheld. f!12E.PJ
(iv) The respondents were cutitled to support the decision of the
Tribunal even on grounds which were not acc\epted by the Tribunal or
on other grounds which may not have takeu notice of by the Tribunal
while they were patent on the face of the record. [113A, !14A·Bl
Management' of Northern Railway Co-operative Societ,y L~. v. Indus··
trial Tribunal, Rajasthan et.
[19671 2 S.C.R. 476;
J.
K.
Synthetics
Limited v. J.K. Synthetics Mazdoor Union, [1971} 2 L.L.J. 552 and
Rc.manbhai Ashabhai Patel v, Dabhi Ajitkumar
Fulsinji and
others.,
[1965] 1 S.C.R. 712, followed.
( v) The Voluntary Retirement Scheme had not been challenged as
rrwla fide by the Unions.
The payment of Compensation to induce the
\VOrkmen to retire prematurely was an item of expenditure incurred by
the company on the ground of commercial expense in order to. facilitate
dar!rying on of the business and it was an expenditure
~
1~vwable under
s. 37(i) of the Income tax Act. It was not an expenditure of a capital
natme. The Tribunal was justified in declining to add back this iten;i
of expenditure to the gross P.rofits, [115B-Cl
(vi) The Company had filed an appeal against the order of the
In·
come tax officer po•tponing consideration of the company's claim for
extra-shift allowance.
The Company had
produced fi<;ures of
depreciation and that had not been subjected to any serious challenge by the
Unions. In the circumstances the Tribunal rightly refused to add back
the amount claimed by the Company as extra-shift allowance. [115F·GJ
Jabalpur Bijlighar Karamchari Panchayat v. The Jabalpur Electric
Su12JilY Co. Ltd. and another, A.LR. 1972 S.C. 70 applied.
A
c
D
F
(vii) The amount claimed by fhe Company in
respect of repairs
<T
and renewals was supported by evidence and had been accepted by the
auditors. The contention of the Unions that the Company was not justified
in incurring the said expenditure had been rightly rejected by the Tribunal.
[!15AJ
(viii) Since from the evidence produced on behalf of the company
it was clear that there was no surplus after paying bonus for 1964-65
the question of set on for the next year did not a!rise.
The plea of the
H
Unions in this regard had to be rejected. fl16F]
[After working out the available and allocable surplus on the basis.
of the above findings the Court fixed the bonus payable at 14.02%].
A
B
c
D
E
F
G
H
MANAGEMENT I. c. c. v. WORKMEN (Vaidia/ingam, 1.) 107
CML APPELLATE JURISDICTION :
Civil Appeal No. 855 of
1968.
Appeal by Special Leave from the Award dated October 26,
1967 of the National Industrial Tribunal, Calcutta in Reference
No. NIT-3 of 1967.
D. N. Mukherjee, for the appellant.
P. S. Khera and S. K. Nandy, for respondents Nos. 1 and 3.
The Judgment of the Court was delivered by
V 11idi111ingam, J. This appeal, by special leave, is directed
against the Award dated October 26, 1967 of the National Industrial Tribunal, Calcutta in Reference No.
NIT-3 of 1967,
holding that for the accounting; year 1965-66, rthe quantum of
bonus payable by the appellant to its workmen is 20% of rthe
effective salaries or wages with a further direction to set on a
sum of Rs. 1,46,252.
The appellant, Indian Cable Company Ud. (h·~reinafter to be
referred as the Company) occupies a very prominent position in
1he Cable Industry of India having its Head Office at Calcutta
and its factory at Jamshedpur. It has branches in Bombay, Madras, New Delhi, Kanpur, Ahmedabad, and Bangalore. (In addition to insulated cables, the Company manufactures Aluminium
Rods, Radio Aerials, Fuse Wires and other products.). Its paid
up capital is Rs. 2,48,65,450. It employed workmen numbering
over 5000.
The gross effective salaries· and wages of its employees for the
relevant
accoun1ing
year amounts
to
Rs. J ,05,32,880. Its accounting year is from 1st April to 31st
March of the succeeding year.
For the accounting year 1964-65, the Company declared and
paid bonus at 20% to all employees in accordance with the provisions of 1he Payment of Bonus Act, 1965 (hereinafter to be referred as the Act). For the year in question 1965-66, it calculated a sum of Rs. 23,68, 785 as available surplus. This amount
was arrived at by the Company after calculating direct tax without deducting the provision for payment of bonus payable to its
workmen.
A sum of Rs. 14,21,271 being 60%, of the said availal;>le surplus was declared as bonus for the year 1965-66. This,
amount represented 13.51 % of the wage bill. The workmen
were dissatisfied with this offer of bonus at 13.51 % and demanded ~ayment of bonus 'lit the maximum rate of 20% as provided
in the Act.
In consequence they raised a dispute with the Company.
In view of the agreement dated November 24,
1966
between the parties to refer the claim for additional bonus for
adjudication to a Tribunal, the workmen received the bonus at
JOS
SUPREME COVltT JU!POR."
[1973) 1 S.C.R.
the rate of 13.51 % offered by the Company.
The Central Gov,.
A
ernment by order dated June 23, 1967 referred for adjudicati<ln
to the National Industri<tl Tribunal, Calcutta, the following dis1>ute :
"What should be the ~uantum of bonus payable to
the Workmen of the Indian Cable Company Limited
B
Calcutta for the accounting :year 1965-66" ?
The Unions contended before the Tribunal that the computation of allocable surplus by the Company has not been properly
made in accordance wrth the Act and that several items shown in
the profit and Joss account as expenditure have to be added back · C
to arrive at the actual gross profits.
The Unions further alleged
that the Comp.any has spent large amounts for payment of liability
for future years with a view to reduce the available and allocable
surplus, which in consequence has resulted in the reduction of
percentage of bonus.
The Company on the other hmd maintained that it h11$ kept proper ·accounts which have been audited
by a reputed firm of auditors Messrs Lovelock & Lewes and that
D
the computation of allocable surplus has been properly arrived
at having due regard to the provisions of the Act.
The Company denied the allegations of the Unions that enormous expenditure has been shown with a view to reduce the quantum
of
bonus.
On the other hand, the Company pleaded that all items
of expenditure were justified and those items are deductable in
E.
considering the claim for bonus.
At this stage it may be mentioned that the Unions
served
interrogatories requiring infor)Ilation on various matters
and
there is no controversy that the Company furnished all the informations that were called for.
Before the Tribunal the Company required various deductions to be made from the net profits shown in i1ts profit and loss
account.
On the other hand, the Unions required various. items
to be added back.
The ·Tribunal accwted the contentions of
both the J>a11ies with regard to certain ·items. We ·will in due
course refer to the items which are in dispute before us at the
instance ·Of both the Company and the Unions.
The Tribunal
computed the available surplus at Rs. 37,54,713, 60% of this
amount 'being Rs. 22,52,828 was fixed as allocable surplus.
The
Tribunal held that a sum of Rs. 21,06,576 being bonus at 20%
of the gross effective salari·~s and wages was payable for the year
in question and it directed the surplus amount of Rs. 1,46,252
to be set on.
As the bonus at the rate of 1.3.Sl % had already
been declai:.ed and paid by the Company, the Tribunal directed
the payment of the balance 6.49% within the period mentioned
F
G
H
-
A
B
c
D
E
F
G
ff
MANAGE.'Ml!NT I. c. c. v. WORKMl!N (VaUlialingam, /.)
109
in the Award. One aspect which has to be acted is that (in calculating the available surplus, the Tribunal before calculating the
notional direct tax, deducted the bonus· payable for the accounting year in qq~tion.
The grievance of the Company, as placed before us by its
learned coun~l Mr. D. N. Mukherjee, relates to three items:
(I) the method of computation of notional direct tax; (2) disallowance of the deduction from gross-profits of the sum of
Rs. 2.65 lakhs made as ex-gratia pa}'l!lent for the accounting
year 1964-65 to employees
drawing
emoluments exceeding
Rs. 7 50 per mensem; and ( 3) dis allowance of the claim for return on provision for doubtful debts.
The first contention relates to the principle to be adopted for
calculating din;ct tax when computing the available and allocable
surplus for payment of bonus under the Act. According to the
Tribunal, under ss. 6 and 7 of the Act, the bonus payable for
'the relevant accounting year has to be deducted from the grossprofits foc calculation of direct tax or alternatively rebate for
bonus found payable has to be calculated and 60% of the rebate
has to be, added back as allocable surplus.
The Tribunal took
notice of the fact that the Income-tax Authorities did not object
to deduction of the provision made by the Company for payment
of bonus for the accounting year 1965-66.
On this reasoning
the. Tribunal added back to the gross-profits as per the profit and
loss account the provision
made for payment of bonus.
For
coming to this view the Tribunal followed it~ previous decision in
Indian Oxygen Ltd. v. Their Workmen (N.I.T.-1 of 1966). Tue
Tribunal has 111~0 noted that its Award in 'the Indian Oxygen Ltd.
was pending appeal in this
Court.
According to Mr. D. N. ·
Mukherjee, this method of calculation of direct tax under the
Act, adopted by the Tribunal is contrary to the decisions of this
Court.
We are in entire- agreement with this contention of Mr.
Mukherjee.
In view of 'the decisions of this Court, to which we
will immediat~ly refer, Mr. P. S. Khera, learned counsel for the
Unions was unable to support the reasoning of the Tribunal on
this aspect.
Tiie question of calculation of direct tax under the Act was
considered for the first time by this Court in Metal Box Co. of
India Ltd. v. Their Workmen.(1)
It was held therein that the
notional tax liability is to be worked out by first working out the
gross-profits and deducting therefrom the prior charges under s. 6,
but not the bonus payable to the employees.
Therefore, it is
tlear from this decision that an employer is entitled to deduct
(I) [1969] I S.C.R. 750.
SUPREME COURT REPORTS
[1973p S.C.R.
his tax liability without, deducting first the amount of bonus he
would be liable to pay- from and out of the amount computed
under ss. 4 and 6 of the Act. The same principle has been reitera>ted in The Workmen of William
Jacks and Company Ltd.
lvladi·as v. Management of William .Tacks and Co., Madras,(')
Delhi Cloth and General Mills Co. Ltd. v.
Workmen ( 2 )
and
Indian Oxyg~m Ltd. etc. v. Their Workmen. (3 )
In fact the last
decision overruled the decision of the National Industrial Tribumil in Reference No. NIT-1 of 1966, which has been followed by
the present Tribunal. We may also state thart after the first deci•
sion of this Court, referred to-.a '>ove, the Act w·as amended in
1969. The last three decisions
of this Court considered the
question whether the . amendments effected to the Act had made
any change in the principle laid down by thi~ Court in the first
decision. It was uniformly held in all the three d.ecisions that
the amendment has not effected any change in the principle laid
down in the earliest decision that the tax liability under the Act
is to be work>~ out. first by working out the gross-profits and deducting therefrom bonus payable to the employees.
Therefore,
it follows that the Tribunal committed an error in Jaw in computting direct tax after deducting bonus.
Therefore, this point
will have to be held in favour of the appellant.
The second item relates to the disallowance of Rs. 2.65 lakhs
which represented the ex-gratia payment made by the Comp•my
to certain. empl_oyees. drawing emoluments exceeding Rs. 7 50 per
mensem for the year 1964-65. The Company claimed that this
amount should be deducted from the gross-profrts whereas the
Unions contended that the same has to be added back to the
gross-profits shown in the profit and Joss account. . The factual
position relating to this claim is as
follows : From the Jetter
dated February 4, 1966, Ext. I, written by the Company to one
of its officers Mr. S. N. Banerjee, it is seen that the Company in
appreciation of the officer's services during the year 1964-65 ·
made an ex-gratia payment of Rs. 90. Mr. Banerjee has given
evidence on behalf of the Unions.
He has deposed to the fact
that he was drawing about Rs. 1,000 per mensem and thaChe
received the letter Ext. r as well as the sum of Rs. 90 mentioned
therein.
He has further stated that over and. above this sum of'
Rs. 90 he has also received the bonus payable to him under the
Act for the year 1964-65.
He has also deposed to the effect
that the ex-grat1ia payment of Rs: 90 was paid to him in lieu of
bonus calculated on the difference in emoluments drawn by him
and the ceiling, of Rs. 750 per mensem fixed by the Act. It was
(I) A.lR. 1971 S.C. 1821.
(2) [1971] 2 s.c.c. 695
(3) A.LR. 1972 S.C. 471.
A
-·
B
c
D'
E
F
G
H
.B
D
F
G
H
MANAGEMENT I. c. c. ll. WORKMEN (Vaidialinzam, 1.)
111
the practice of the Company to pay bonus to all the members of
its staff without application of any ceiling.
In view of the fact
that a ceiling had been fixed under the Act, to make up for the
lesser amount that the employees Jike Mr. Banerjee will
get
under the Act, this amount of Rs. 2.65 lakhs was paid to all
such· officers. The Tribunal accepted the evidence of Mr. Banerjee that the ex-gratia amount was paid to keep up
the ·old
practice of the Company of paying all the members of the staff
without the application of any ceiling.
The Tribunal held that
such a payment was not an item which could be deducted from
the gross-profits under tho~ Act as claimed by the management.
Accordingly, it added back the sum of Rs. 2.65 lakhs to the
gross-profits shown in the profit and loss account.
Mr. Mukherjee urged that the Company was
justified in
claiming the above amount by way of deduction. He referred us
to the definition of "employee" in s. 2 (13) of the Act as also to
the employees declared eligible for bonus under s. 8. He also
relied on ss. 10 and 11 which make it obligatory on an employer
to pay lthe min:imi;m bonus and also the maximum bonus upto
20% respectively.
We are not inclined to agree with the contention of Mr.
Mukherjee that the Tribunal committed an error when it added
back the sum of Rs. 2.65 lakhs. From the evidence of Mr.
Banerjee, which has lJ.>...en accepted by the Tribunal, read along
wi'th the letter Ext. I, it is clear that Mr. Banerjee received not
only bonus due to him under the Act, but also the extra amount
of Rs. 90. Mr. Banerjee was admittedly drawing a salarv of
Rs. 1000 per mensem. For a person to be an "employee" under
s. 2 ( 13), am9ng other things, he is a person drawing a salary or
wage not exceeding Rs. 1600 per mensem.
Under s. 8, it i~
provided that every employee is entitled to be paid in an accounting war bo"\us as per the Act provided he has worked in the
establishment for not less than thirty working days in that year.
Section 10 provides for payment of minimum bonus to every
employee.
Similarly s" 11 provides for payment of bonus to
every employee subject to a maximum of 20% of his salary or
wage.
According to Mr. Mukherjee there is no prohibition in
the Act from paying bonus to officers like Mr. Banerjee upto a
maximum of 20%. Therefore, when the payment as in Ext. l,
has been made to officers like Mr. Banerjee and others, such
amounts have to be computed as an item of e;;:penditure, under
the Second Scll"..,du\e of the Act. It is no doubt 'true that an
officer drawing a salary not exceeding Rs. 1600 per mensein is an
employee under s. 2 (13) and he will also be eligible for payment of bonl\S under s. 8 read with ss. 10 and 11 of the Act. But
the point that is niissed by the learned counsel is the limitation
112
SUPREME COURT REPORTS
[19'73] 1 S.C.R.
contained in s.
12.
Though officers drawing salary upto
Rs. 1600 per mensem a~e employees under s. 2(13) and eligible
for bonus,, still for purposes of calculation of bonus payable
under ss. 10 and 11, such officers, whose salary exceeds
Rs. 7 50 per niensem, for calculating bonus, the salary or wages
per month will be taken atthe maximum of Rs. 750 per mensem.
Thar is, if an officer is getting Rs. 1500 per mensem he will be
eligible for bonus; nevertheless for calculating bonus payable to
him he will be treated as drawi,ng a salary of only Rs. 750 per
mensem.
Therefore, Mr. Banerjee, in 1the case before us, has
admittedly to be paid bonus, which is due to him under the Act
for the year 1964-65 on the basis that his salary is only Rs. 7 50
per mensem. What the Company has done was to pay him not
only the bonus as calculated under the Act, but also an additional amount. Such additional amount paid to all such officers
totalling Rs. 2.65 lakhs cannot be considered to be an expenditure
debited directly to Reserves. The Tribunal was justified in adding
back ithis amount to the gross-profits.
The third item relates to return on provision for doubtful
debts. The Company had calculated return of Share capital and
Reserves. It further Claimed a return at 6% on Rs. 2.5 lakhs,
which according to it was a revision for doubtful debts. The
amount claimed as return under this head was Rs. 15,000 and the
Company claimed to deduct this amount from the gross-profits as
an item of exwnditure. The Tribunal has rejected this claim of
the Company. It is not necessary for us to dwell on this point
at any great length in view of the decision of this Court in Indian
Oxygen Ltd. etc. v. Their Workmen('), where the decision of
the Tribunal directing such an amount to be 'added back in com·
putin ~ the gro~s-profits has been approved.
The legal position
has been.dealt with in the said .iudgment. Accordingly, we hold
that the Tribunal was justified in adding back the said amount to
gross-profits.
Mr. P. S. Khera, learned counsel for the Unions has contended
that the Tribunal was not justified in allowing deduction of certain items from the gross-profits for purposes of computing the
available and allocable surplus. The Unions no doubt have not
filed any appeal.
In faot in the particular circumstances of this
case they could not have filed an appeal because they have been
aw~rded the maximum 20%
allowable under the Act. But,
according to Mr. Khera, if the items on which he has relied on
had been added back, the Award of the Tribunal can be mainJained even on the basis that the principle adojYted by the Tribunal in respect of direct tax is found to be erroneous by this Court.
(I) A.tR. 1972 S.C. 471.
c·
D
n:
.....
A
B
c
MANAGEMENT I. c. c. v. WORKMEN (Vaidia/ingam, J.) 113
The right of parti>~s like the respondents before us even in
labour adjudication to support the decision of the Tribunal on
grounds which were not accepted by the Tribunal or on other
grounds which may not have been taken note of by the Tribunal,
has been recognised by this Court in Management of Northern
Railway Co-operative Society Ltd. v. Industrial Tribunal, Rajasthan etc.('1~) In fact this decision had to d·~al with an appeal filed
a Co-operative Society against the Award of the Tribunal setting
aside the order passed by 1the Society removing from its service
an employee. This Court permitted the Union concerned, which
was respondent in the appeal, to support the Award of th·~ Tribunal, directing reinstatement of the employee on grounds which
had not bee11 accepted by the Tribunal and also on ground which
had not been taken notice of by the Tribunal. Similarly, in J. K.
Synthetics Limited v. J. K. Synthetics Mazdoor Union('), this
Court permitted the Union, which was the respondent in the
appeal, to support the decision of the Industrial Tribunal on a
method of computation regarding bOnus which was not adopteff
by the Tribunal.
Though the management-appellant therein
D
challenged the right of the Union to support the award on other
grounds without filing an appeal, that contention was rejected by
this Court as follows :
E
F
G
H
"On behalf of the management the right of the
union to challenge the multiplier and divisor, in the ab•
sence of an appeal by it, is strenuously contested but in
our view there is little force, in . this objection. The
appeal by the· employer is against the grant of bonus to
the employees which implies that the method of compu'
tation of the 11;ross profits, as well as of the available
surplus and the rate at which the bonus is ii;ran:ted can
'ee subjected to scrutiny. It is needless to recount the
ieveral priorities that have to be deducted and the items
in respect of which amounts have to be added, before
arriving at the available surplus. In an appeal. the several steps which have to be taken for computation of the
available surplus, either in respect of the actual amounts
or the method adopted, can be challenged. If so, the
union, even where it has not appealed against 1the award;
can support it on a method of computation, which may
not have been adopted by the Tribunal but nonetheless
is recol!lli~ed bv the Full Bench formula of this Court
so lone .as in the final resu~t the amount awarded is not
exceeded. We. are supported in this view bv a decision
of this Court in Manaf(ement of Northern Railway Cooperative Society Ltd. v. llldustrial Tribunal, Rajasthan,
(1) [l 967]2 S.C.R. 476.
(2) [1971] 2 L.L.J. 55T
l14
SUPREME COURT REPORTS
[1973] 1 S.C.R.
Jaipur and another('), where it was held that the respondents were entitled 1to support the decision of the
Tribunal even on grounds which were nQt accepted by
the Tribunal or on other grounds which may not have
been taken notice of by the Tribunal while they were
patent on the face of the record."
In the said decision this Court also found support for the
above view in the decision of Ramanbhai Ashabhai Patel
v.
Dabhi Ajitkumar Fu/sinji and others('), though the latter decision related to an election appeal.
We will now deal· with the items, which, according to 1he
Unions should nClt have been allowed to be deducted from the
gross-profits.
The first item relates to a sum of Rs. 18,24,047
·paid by the Company to retired workmen at Jamshedpur Workshop under a Voluntary Retirement Scheme.
This Scheme is
Ex. G. and it was framed on August 9, 1965. The Schem~ states
that the Company has been suffering from an acute shortage of
imported raw materials in view of the diflicul1y in getting foreign
exchange and as such production could not be maintained for
some considerable time. In view of these difficulties rt is stated
that the Company has found it necessary' substantially to reduce
the number of workers in the Workshop. The Scheme offered
substantial benefits to workmen who choose to retire voluntarily,
uam~ly, ex·gratia payment equal to retrenchment compensation
under s. 25 of the Industrial Disputes Act, and gratuity admissible
to the workmen. There is evidence on the side of the Company
that about 450 workmen availed themselves of the Voluntary Retirement Scheme and a sum of Rs. 18,24,047 was paid. This
item has been included in the profit and loss account under the
heading "Salary, Wages, Bonus and Retirement gratuities." The
Company gave a break-up of these items in answer to the interrogatories furnished to it by the workmen.
The contenition on behalf of the Unions is that under the Retirement Gratuity Scheme, which is in force, a workman retires
at the age of 60 and normally during the year 196§-66, the payment of gratuity to persons so reti!".,d would have come
to
Rs. 1.21 lakhs. Therefore, i.t was argued that the payment of
Rs. 18.24 lakhs and odd paid as lumpsum under the Voluntary
Retirement Scheme durinl!: the year 1965..66 was not proper as
that amount would have in the ordinary course been spread over
eight or ten years,.
Th~ Tribunal has rejected this claim of th~ Unions, and_in
our .opmion, quite rightly. If there had been a retrenchment and
CQll'lpensation had been paid to all these workmen, the Unions
-cannot raise any objection in law to the payment of such amount.
'(I) (1961) 2 S.C.R. 476.
(2) [1965] l s.c.R. 712.
A
B
c
D
E
F
G
II
A
B
c
D
E
F
G
H
MANAGEMENT I. c.c. v. WORKMEN (Vaidialingam, !.) 115
If retrenchment had been restored, the junior most men under
the principle "last come first go" would have been sent out of
service.
On the other hand, 'the Vojuntary Retirement Scheme
enabled the younger workmen to continue in service while it
offered a temptation for the older employees to retire from service. The Voluntaij"-Retirement Scheme has not been challenged
as mal11 {ides by the Unions'. We are in agreement with the view
of the Tribunal that the payment of compensation to induce the
workmen to retire prematurely was an item of ·~xpenditure incurred by the Company on the ground of commercial expense in
order tc facilitate carrying on of the business and it was an expenditure allowable under s. 37 ( 1) of the Income-tax Act. It
was not an e](penditure of a caphal nature. The Tribunal was
justified in declining to add back this item of expenditure to the
gross-profits.
The second item, which according to the Unions should have
been added back is tlre sum of Rs. 65,764 which was claimed as
extra shift allowance of plants and machinery added during the
year.
The consideration of this claim was
postponed by the
Income-tax Officer on ithe ground that the Company had not furnished the requisite particulars. The Company claimed a sum of
Rs. 36,10,594 as depreciation allowable under s. 32(1) of the
Income-tax Act.
According to the Unions,
as
the sum of
Rs. 65,764 has not been accepted by the Income-tax Officer, the
Company can claim depreciation only in ili~ sum of Rs. 35,44,830.
The Tribunal did nat accept this contention of the Unions on 1he
ground that the amount of Rs. 65,764 has not been disallowed by
the Income-tax Officer. It is now stated in an affidavit filed in
this Court on March 23, 1972 by the Chief Financial Accountant
of the Company that the Company has liled an appeal against
the order of the Income-tax Officer refusing rto allow Rs. 65, 7 64
as extra shift allowance for the year 1965-66. In our opinion,
the re;·~ction of the Unions' contention in •this regard by the Tribunal is justified. It is seen that th! Company has produced
figures for depreciation and that has not been subjected to any
serious challenJ;e by the Unions. Hence •the objection regarding
extra shift allowance has also to .be rejected in view of the decision of this CQurt in Jabalpur Bijlighar Karamchari Panchayat v.
The Jaba/pur Electric Supply Co. Ltd. and another.(')
The third item objected to by the Unions related to the expenditure shown by the Company for repairs and renewals. AcCqrding to the Unions the expenses shown are very heavy ·and
large and that the Company was not justified in incurring the
same.
In our opinion, this contention also has been properly
rejected by the Tribunal.
Apart from the fact that .the Unions
(ll A.l.R. 1972 S.C,70
116
SUPREME COURT REPORTS
(1973] l S.C.R.
are not techJl\cally entitled to raise this objection, as they have
no1: pleaded the same in their statement of case filed before this
Court, this contention can be rejected even on merits. The Unions
had furnished interrogatories requiring the Company to furnish
certain particulars. Mr. R. N. Gupta, the Chief Financial Accountant of the Company fil·~d an affidavit before the Tribunal
giving answers to 'the interrogatories. He had categorically given
details as to !iow the amount of Rs. 12. 94 lakhs has been incurred
as expenses for rep_airs and renewal. Mr. Gupta had also given
evidence about this matter. In cross-examination he' had· stated
that all the vouchers for repairs and renewal were scrutinised by
the audrtors and this evidenre has been accepted by the Tribunal.
Therefore, the Tribunal was justified in rejecting this claim of ihe
Unions.
The las1 item relates to the claim made by the Unions that
after distrib]ltion of bonus at 20% for the year 1964-65, there
must have been a surplus and it should have been set on for the
next year, namely, 1965-66. This amount so set on should be
taken into account for computing bonus for the year 1965-66.
This assertion made on behalf of the Unions was controverted by
the Company on the ground that there was no surplus left after
paying the maximum 20% bonus for the accounting year 1964-65.
In fact the evidence of Mr. Gupta shows that apart from
there not having bern any surplus, the Company paid 20% bonus
merely becal!.se they had already announced tha:t they will pay
the same. It is clear from his evidenre that bonus at 20% could
not have been declared for the year 1964-65 and in order to
honour the declaration made by the Company, bonus was paid
at that percentage. This evid.~nce of Mr. Gupta has been, in our
opinion, rightly accepted by the. Tribunal. No evidence contra
has been adduced by the Unions. Once the evidence of Mr.
Gupta is accepted, it is clear that there was no surplus after paying bonus for 1964-65. J;herefore, the question of set on does
not arise. This pl.ea of the Unions also has to be rejected.
From what is stated above, it is seen that the only aspect in
respect of which the Award of tpe Tribunal requires modification
·is in respect of the principle to be adopted fqr calculating dire,¢!
tax. As we have accepted the contention of_the Company in that
regard, it follows that recoruputation of the~ available and allocable surplus will have 'tO b.e made after making a calculation of
direct tax without &~ducting bonus payable for the year 1965-66.
In the ori11:inal calculation filed by the Company, it calculated
tax only in 1the sum of Rs. 98,10,893. It has later on corrected
this figure by adding a sum of Rs. 1,34, 921 being surtax. Therefore, the total direct tax will be Rs. 99,45,814. Here again Mr.
A
B
E
F
G
H
A
MANAGEMENT I. c. c. V. WORKMEN (Vaidialingam, !.) 117
Gupta in his af!idavi1 dated March 23, 1972 has given the correct
figures.
Therefore the recompu'tation of the available surplus,
allocable surplus and the percentage of bonus for the accounting
year 1965-66 on the basis of our judgment will be as follows :
Rs.
Gross.Profit as J)er·Award of National Tribunal
Rs.
216,16,195
..B
Less : (t) Deureciation admissible under s.
c
.E
F
G
32 (1) of l.T. Act .
(2) Development Rebate admissible
Less : Direct Tax as per cl. 6 (c) including Di·
vidend Tax
Le"Ss : Statutory DeductiJns
Share Capital
Rs. 248,65,450
@ 8 ·5% Reserves
Rs. 46,81,37,739
@ 6% (without taking into account 6 %
of Rs. 250,000/- being provision for
Doubtful debts)
Avajlable Surplus
Allocable Surplus 60 % of above
36,10,594
6,76,224
21,13,563
28,08,824
Effective Gross salary
105,32,880
Bonus paid@ .
.
13 ·51 %
14,22,992
Balance
.
·51 %
53,714
~~~~~~~~
14 ·02%
14,76,706
42,86,818
1, 73,29,377
99,45,814
73,83,563
49,22,387
24,61,176
14,76,706
From the above, it will be seen tha1 the workmen will be
entitled to bonus at 14.02% of their total salary or wages
and
the amount will be Rs. 14,76,706 and not Rs. 20% as awarded by
the Tribunal. From this it follows that the further direction in
the Award of !he Tribunal regarding set on cannot be accepted.
Admittedly, the Company has already declared · and paid
Rs. 14,22,922 repres·~nting 13.51 % of the total wages or salary.
Therefore, the balance addrtional amount tha't the Company wi!l
have to pay by way of bonus to make up the 14.02%, as stated
above, is Rs. 53,714. This amount will be paid by 1he Company
within a period not exceeding two months from today.
The Award of the Industrial Tribunal is accordingly modified
and the appeal allowed in part. Parties will bear -their own
costs.
G. C.
Appeal allowed in part.