# WORKMEN OF NATIONAL & GRINDLAYS BANK LTD v. THE NATIONAL & GRINDLAYS BANK LTD

- **Citation:** [1976] 3 S.C.R. 130
- **Court:** Supreme Court of India
- **Decided:** 1976-01-16
- **Case number:** Civil Appeal No. 2533 of 1969
- **Bench:** H. R. KHANNA .. P. N. BllAGWATI, S. Murtaza Fazal Ali
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/workmen-of-national-grindlays-bank-ltd-v-the-national-grindlays-bank-ltd-6737
- **Pages:** 19

## Headnote

Pr1y111e11t of Bonus Act, 1965-Foreign banking con1pa11y-Bo11us-Cornputt11ion of allocable surplus itr!111s to be taken into account-Depreciation-Cntijictlfl is.Hied by l11coo1c Tax Officer-If posseses
cvidentiary
i·a!ue-Working
j'1111ds-Mea11i1u~ of.
As a result of negotiations between the respondent-Bank and its employees
(appellants) an industrial dispute with regard to bonus for the years 1956 to
J 964 was settled on an ad hoc basis.
By the time of the settlement however,
The Payment of Bonus Act, 1965 came into force.
In respect of the accounting
year 1964, though the bonus formula was applicable, no separate computation
\\·as n1ade in accordance with that formula since it was settled on an ad hoc
basis as a part of tin omnibus settlement.
The Hor.us Act provides a statutory formula for the con1putation of bonus.
Section 2(13) defines an 'employee' to mean 11ny person en1ployed on a salary
or \vage not exceeding one
thousand and six hundred
rupees per
menscm.
Section 4(a) provides that the gross profits shall be calculated in the matl!ler
specified in the First
Schedule.
ltem 2 of the
First
Schedule deals
with
"add back" in respect of (a) bonus to employees, (b) depreciation (c) development rebate reserve and (d) any other reserves.
Item 3(a) deal-; with •·add
back" of bonus paid to employees in respect of previous accounting years. Item
6(e) deals with deduction in the case of foreign banking companies of proportionate adn1inistrative (overhead) expenses of head office allocable to fndian
business. The concept of "available surplus" is defined ins. 2(6) to mean avai!-
able surplus computed under s. 5 and that section lays do\vn that the available
surplus in respect of any accounting year shall be the gross profit for that year
after deducting therefrom the sums referred to in s. 6 which, under clause (a)
include "any aniount by \\·ay of depreciation admissible in accordance \Vith the
provisions of s. 32( I) of the lncome Tax Act'' and under clause (d)
"~uch
further sums as are specified in re'>pcct of the employer in the Third Schedule.''
Clause (iv) of the proviso to item 2 of the Third Schedule provides that in the
case of a banking company any sum v.ihich, in respect of the accounting year,
is deposited by it with the Reserve Bank of India under s. 11 (2)(b)(ii) of the
B;:i.nking Regulation Act, 1949 not exceeding the amount required up.der this
provision to be so deposited shall be deducted from the gross profits as prior
charge.
Section 15 provides for what is liable to be carried forward for being
set on and set off out of allocable surrlus in the succeeding year or yenrs.
An induslrial dispute having arisen betv-1een the parties in regard to the
computation of bonus for the accounting year 1966. it \1{<lS referred to an
Industrial Tribunal for adjudication.
The Tribunal's award was assailed by the
\vorkmen on the following grounds : (a) that there was an excess of allocable
surplus over the amount of maximum bonus for the accounting years 1964 and
1965, which, by reason of s. 15(1 ), was liable to be carried forward f0r being
~ct on in the succeeding accounting year 1966;
(b) that \vhile the object of "add back" was that the entire affiount set apart
;is provision for bonus should be added back in determining the available surplus. in spite of making a provision of a much larger amount as bonus. the
Bank had added back only a small amount representing the bonus of thosl)
\Vorkmen who were employees falling within the n1eaning of s. 2(13) and thereby failed to take into account bonus in respect of those workmen who arc
not such employees: the \Von.I 'e-mployee' in items 2(a) of the First Schedule
\Vas not limited to employees as defined in s. 2(13) but was used, in a wider
sense to include all en1ployees, that is,
employees drawing more than
1600
rupees or less;
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WORKMEN V. GRINOLAYS BANK
13 1
( c) that the Tribunal was wrong in allowing the Bank to deduct a much
A
higher sum by way of depreciation
than

## Text

_Characters 0–39,900 of 64,061. This is a partial read: ask again with offset=39900 for what follows._

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130
WORKMEN OF NATIONAL & GRINDLAYS BANK LTD.
v.
THE NATIONAL & GRINDLAYS BANK LTD.
January 16, 1976
[H. R. KHANNA .. P. N. BllAGWATI AND S. MURTAZA FAZAL ALI, JJ.]
Pr1y111e11t of Bonus Act, 1965-Foreign banking con1pa11y-Bo11us-Cornputt11ion of allocable surplus itr!111s to be taken into account-Depreciation-Cntijictlfl is.Hied by l11coo1c Tax Officer-If posseses
cvidentiary
i·a!ue-Working
j'1111ds-Mea11i1u~ of.
As a result of negotiations between the respondent-Bank and its employees
(appellants) an industrial dispute with regard to bonus for the years 1956 to
J 964 was settled on an ad hoc basis.
By the time of the settlement however,
The Payment of Bonus Act, 1965 came into force.
In respect of the accounting
year 1964, though the bonus formula was applicable, no separate computation
\\·as n1ade in accordance with that formula since it was settled on an ad hoc
basis as a part of tin omnibus settlement.
The Hor.us Act provides a statutory formula for the con1putation of bonus.
Section 2(13) defines an 'employee' to mean 11ny person en1ployed on a salary
or \vage not exceeding one
thousand and six hundred
rupees per
menscm.
Section 4(a) provides that the gross profits shall be calculated in the matl!ler
specified in the First
Schedule.
ltem 2 of the
First
Schedule deals
with
"add back" in respect of (a) bonus to employees, (b) depreciation (c) development rebate reserve and (d) any other reserves.
Item 3(a) deal-; with •·add
back" of bonus paid to employees in respect of previous accounting years. Item
6(e) deals with deduction in the case of foreign banking companies of proportionate adn1inistrative (overhead) expenses of head office allocable to fndian
business. The concept of "available surplus" is defined ins. 2(6) to mean avai!-
able surplus computed under s. 5 and that section lays do\vn that the available
surplus in respect of any accounting year shall be the gross profit for that year
after deducting therefrom the sums referred to in s. 6 which, under clause (a)
include "any aniount by \\·ay of depreciation admissible in accordance \Vith the
provisions of s. 32( I) of the lncome Tax Act'' and under clause (d)
"~uch
further sums as are specified in re'>pcct of the employer in the Third Schedule.''
Clause (iv) of the proviso to item 2 of the Third Schedule provides that in the
case of a banking company any sum v.ihich, in respect of the accounting year,
is deposited by it with the Reserve Bank of India under s. 11 (2)(b)(ii) of the
B;:i.nking Regulation Act, 1949 not exceeding the amount required up.der this
provision to be so deposited shall be deducted from the gross profits as prior
charge.
Section 15 provides for what is liable to be carried forward for being
set on and set off out of allocable surrlus in the succeeding year or yenrs.
An induslrial dispute having arisen betv-1een the parties in regard to the
computation of bonus for the accounting year 1966. it \1{<lS referred to an
Industrial Tribunal for adjudication.
The Tribunal's award was assailed by the
\vorkmen on the following grounds : (a) that there was an excess of allocable
surplus over the amount of maximum bonus for the accounting years 1964 and
1965, which, by reason of s. 15(1 ), was liable to be carried forward f0r being
~ct on in the succeeding accounting year 1966;
(b) that \vhile the object of "add back" was that the entire affiount set apart
;is provision for bonus should be added back in determining the available surplus. in spite of making a provision of a much larger amount as bonus. the
Bank had added back only a small amount representing the bonus of thosl)
\Vorkmen who were employees falling within the n1eaning of s. 2(13) and thereby failed to take into account bonus in respect of those workmen who arc
not such employees: the \Von.I 'e-mployee' in items 2(a) of the First Schedule
\Vas not limited to employees as defined in s. 2(13) but was used, in a wider
sense to include all en1ployees, that is,
employees drawing more than
1600
rupees or less;
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WORKMEN V. GRINOLAYS BANK
13 1
( c) that the Tribunal was wrong in allowing the Bank to deduct a much
A
higher sum by way of depreciation
than \vas shown in the profit and loss
account, that the burden of showing wha't the amount of depreciation admissible
under s. 32( 1) of the Income Tax Act \\'.as, \Vas on the Bank which it had failed to
discharge and that, at any rate the certificate issued by the Income Tax Officer
was no evidence and could not be taken irrto account;
{d) that the balance sheet of the Bank for the year 1966 showed a much
lesser an1ount than what the Bank clai1ned to have deposited with the Reserve
Bank under s. 11 (2)(b) (ii) of the Banking Regulation Act, 1949 and it was
this sum \Vhich was liable to be deducted under this head and not the larger
stun \\·hich it actually deducted.
The Industrial Tribunal's calculation of proportionate adn1inistrative (over·
head) expenses of head office allocable to the Indian business which are deductible in con1puting the gross profits, both the Bank and the employees assailed it
as being incorrect.
For the bank, it \Vas contended, (a) that borrowings from
other banking
companies, the amount of bills issued by the bank and the balance of profit and
loss uccount constituted part of its "working funds" and that the Industrial
Tribunal \V<Js wrong in rejecting this interpretation of "working funds" and in
limiting it to "paid !JP capital, reserves and deposits only",
(b) that the Tribunal was wrong in refusing to permit the Bank to add back
the 'iUn1 falling under item 3 (a) of the First Schedule.
HELD : 1. The workmen are not enti1led to contend that though the claim
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for bonus for the year 1964 was settled on an ad hoc basis without making
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computation under the provisions of the Act. such computation mu~t now be
made. not for the purpose of determining the bonus payable to them, but for
the purpose of detern1ining whether there is any amount 1iab1e to be carried
forv;ard and set on.
Section 15 ( 1) can have no application where no computation is made under the Act and bonus is paid, not in accordance with the
statutory forn1ul~ but on an ad hoc basis.
Then it is not possible to say what
W3S really the bonus payable under the Act. It may be less or mo~ than the
bonus in fact paid.
That enquiry being rendered
irrelevant by the ad hoc
settl<.!ment, there can be no question of carry forward and set on of any amount,
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unL::-,s specifically agreetl upon as part of tha settlement. [137 F-138 G]
2. The workmen cannot be permitted to raise a new contention for the first
time in this Court that the provision for bonus liable to be added back was
not n1erely the provision for bonus payable to employees as defined in s. 2(13)
of the Act but also the provision for bonus payable to workmen who are not
such empl_oyees.
What is liable to be added back under item 2(a) of the First
Schedule is not the amount of bonus payable to the workmen nor the amount
of bonus in fact paid, but the provision for. b?nps made in the profit and, loss
account, 3(a) Though the amount of dcprec1at1on calculated in accordance with
account. [139 B-CJ
F
J. (a) Though the amount of depreciation calculated in
accordance with
m.eth_ods kno\vn to a~countancy practice may be unexceptionable from the point
of vte\v _of commercial accountancy, it would not necessarily be admissible as
a deduction from gross profits under s. 6(a). What is allowable as a deduction
from the gros~ profits under that clause is not depreciation calculated according
to any recognised method but only such depreciation as is adniiss;b[c in accorG
da1~ce with th~ provisions of s. 32(1) of the lncon1c Tax Act, 1961. rt39 E-FJ
(b) The burden of providing that the depreciation claimed by the Bank
v.·a5 the correct amount admissible under s. 32(1) of the Income Tax Act 1961
\Va5 on tile Baf!k cn1d th~t ?urden had to be discharged by the Bank by producing
prot1er and satisfactory evidence. rt 41 Cl
. Cc) A certificate issued by the Tncomc Tr1x Officer was not admissible
in
._ ... _. cv1~cnce to ~rove the.d~preciation admissible under s. 32(! )." It is the Industrial
TnbunaI ~'h1ch fl!US~, in the exercise of its quasi-judicial duty, calculate
the
H
amount of deprec1at1on. by adopting the n1ethod set out ins. 32(1). The Tribuna~ cannot S?Y that 1t would accept the figure of depreciation arrived at by
anot.er authonty charged with the function of determining depreciation under
132
SUPREr-..IE COURT REPORTS
[ 1976] 3 S.C.R.
A
a different statute.
There is nothing in the Jncome Tax Act or in the Payn1ent
of Bonus Act or in any other provision of lnw which attaches a presumption of
accuracy to the determination of the Jncome Tnx Officer in· this matter or invest<;
it with probative or evidentiary value in the J>TOcec<lings before the Industrial
•
Tritunal. l142 F-143 Cl
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In the ino.;tant case. however, there is no reason to interfere with the decision
of the Tribun<1l in rcg:ird to the
amount of depreciation
deductible
under
s. 6(a). The certific;1te of the lncome Tax Officer was admitted in evidence
without any objection by the workmen. Had the wcrkn1en objecled to its ndmissibility before the Tribunal the Bank could hnve led other evidence to substantiate its claim for depreciation.
Since no such objection was taken before the
Tribunal the BaFJk contented it.,clf by tenUering in evidence only th: ccrtificati:
of the Jncon1;; 'Tax ()fticer. l 143 C-D_l
4. No reliance can be placed by the workmen on the bG..~ance sheet for 1966
for repelling the Bank's claim to deduct from the gross profit the amount deposited with the Reserve Bank of India under s. 11(2) (b)(ii) of the Banking
Regulation Act, 1949.
The balance sheet for the accounting year 1966 would
not show the amount deposited by the Bank \Vith the Reserve Bank in respect
of tllar acco1111ti11u year, because that amount would ordinarily be deposited only
after the expiration, and riot during the
currency of that
<H.:connting
year.
[144 C-FJ
5. (a) The Industrial Tribun;il had committed a manifest error in regard to
the calculation of Proportionate Administrative (Overhead) Expenses of head
otlice all@cablc to Indian business. Although item 1 of the First Schedule requires
the Industrial Tribunal to take as the starting point of computation ''net profit as
shown in the profit and loss account after making usual and necessary provisions",
The fact that item 6( e) provides for deduction of proportionate administrative
expenses of hend office allocable to Indian business in arriving at the gross profit
for the purpose of bonus under item 7 shows that the net profit contem1)lated
in item 1 is the net profit arrived at without (lcducting proportion.1te .1dn1inistn1tive expenses of head office allocable to India business. The amount in respect
of the actual head office administrative expense<; allocable to lndian husinc~s
should be added back in arriving at the figure of net profit for the purp0~c of
item 1. [145 D-146 BJ
(b) In con1puting the Indian gross profit the Industrial Trib_un.al added back
only the amounts representing bonus to employees a~d depreciation a~ set out
in item 2 of the First Schedule. Fo?t _note 3 requtres that t~e lnd1an gross
profit should be determined as shown tn Item 7 and, therefore, it \Vas necessary
to add back not only amounts under ite-m 2 but also an1ounts ~n~der item 3 an~ .i
and to deduct amounts under item 6 for the purpose of 1unv1ng at the Indian
gross p1ofit under item 7. 1146 A-Bl
(c) In calculating the total gross profi.t~ the Industrial Tribunal committed
an error by adding back merely the prov1s1on made under the pi:o~t and loss
account of the Indian business for bonus to employees and depreciation .. Foot
note 3 requires that the- total v.:or19 gro&s. pr?fit should. be as p:r consoh<lat.ed
profit and lo~s account a~ter ad1ust1ng as 111 item 2 \vh1ch_ mean~ that the pro,·
vision made in the consohdated profit and loss account for bonus to employees.
depreciation development rebate reserve and any other reserves should be added
back to the' net profit as shown in the consolidated profit and loss .accou!1t for
the purpose of arriving at the total. ~orld gros.s profit.
Th~ Industrial Tnbunal
did not examine \vhat was the proviston, made tn the_ ~onsohd;1ted pro~t and los~
account of the Bank under this head.
1 f any prov1s1on were made 1n the consolidated profit and loss account for bonus to en1ploy~e~. which would mean em·
toyees of the Bank throughout the world. depre.c1al1on on world assets and
~evelopment rebate and other rese~ves such p_roy1st~n \V~uld ~ave to. b.e ?dded
t . k to the n··t profit a'i 'ihO\Vn 1n the conso\ltlah:d prpfit ,1nd
lo~'> account.
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[146 C-FJ
6. (a) 'Ihe Industrial Tribunal was
rig~.~ in _its
interpi:etatio~ of the tern1
··working funds" occurring in cl. (ii) and (1n) of tl:e pr.oy1so to_c1ti;:~1 2.,o~,.1,~~
Third Schedule. The tern1 n1ust be construeJ to n1cdll p,ud up c.ip1\al. ti.:"o..:. \1.:s
•
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WORKMEN v. GRINDLAYS BANK (Bhagwati, J.)
133
and average deposits for 52 weeks of each year for which weekly returns of
A
depvsits are sub111itted to the Reserve Brink of India. It could hardly be disputed
that borrowings from other banking 'ompanies, the amounts of bills issued by
the Bank and the balance of pr~)fit and loss account are neither reserves.nor
<lepusits and they are not liable to be shown in the weekly returns of deposit
subn1itted to the: Reserve Bank of India. ll47 F-HJ
(b) The term "'working funds'' was firsl defined in the award of Mr. K. C.
Sen in 1949 in regard to Banks, and it was also used in the Shastri award made
in 1953 in reg'<tr<l to industrial disputes between certain banking companies and
their work1nen. These words have ahvays been understood in the above sense
and that is the sense in which they must be deemed to have been used by the
legislature when it enacted clauses (ii) and (iii) of the proviso to item 2 of the
ThirJ Schedule. J 147 D-F]
7. The Industrial Tribunal was wrong in refusing to permit the Bank to add
back the sum of Rs. 13.27 lacs on the ground that "a sum out of 1965 account
niust not be allowed to adulterate the amount of 1966." This sum paid to the
employees in respect of bonus for the accounting year 1965 was, on the plain
terms of itc1n 3(a) of the First Schedule, liable to be added back. [143 F-HJ
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2533 of 1969.
Appeal by special leave from the Award dated the 25th June, 1969
of the Central Government Industrial Tribunal, Calcutta, in Reference
No. 35 of 1968.
M. K. Ramamurth;, Ramesh Pathak, Vineet Kumar for the Appellants.
G. P. Pai, 0. C. Mathur, D. N. Mishra and J. B. Dadachanji & Co.
for Respondent.
The Judgment of the Court was delivered by
BHAGWATI, J .-This appeal by special leave is directed
against
an award made by the Industrial Tribunal, Calcutta in
a reference
between the National and Grindlays Bank Ltd. (hereinafter referred
to as the Bank) and its workmen represented by the All India National
& Grindlays Bank Employees Federation.
The Bank is a banking
company within the meaning of s. 5 of the Banking Companies Act,
1949 and has its Head Office in London and branch offices in dificrcnt
parts of the world, including India. .The principal office of the Bank
in India is situate in Calcutta. The Bank maintains
its
accounts
according to the calender year and it brings out not only a consolidated balance sheet and profit and loss account for its world business, but
also a separate balance sheet and profit and loss account for its Indian
business.
There was an industrial dispute between the Bank and its
workmen in regard to bonus for the years 1956 to 1964 and as a result
of negotiations, this industrial dispute was settled between the parties
on an ad hoc basis under a Memorandum of Settlement dated 28th
December, 1-965.
The material terms of the settlement were :
"I. The Bank will pay and the workmen and non-workmen staff will receive.a swn of.Rs. 27 lakhs (Rupees twentyseven lakhs only) in full and final settlement of all bonus
claims covering the periods from 1st January 1956 to 31st
December 1964, including any claims relating to Centenary
Jlonus.
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134
SUPREME COURT REPORTS
[1976] 3 S.C.R.
2. The above sum of Rs. 27 lakhs will be allocated as to
one-third thereof to Award-staff only and as to the remaining
two-thirds to both the Award and non-Award staff, in both
cases based on the basic salary paid over the period, namely,
!st January, 1956 to 31st December, 1964, and unrelated
to any particular year.
*
*
8. The parties agree that this Settlement shall not be
taken as the basis or govern the principle for this determination of bonus in future, but nevertheless this Settlement shall
be final and binding on the parties as regards bonus claims
for the years 1956 to 1964 (both inclusive) and any claim
relating to Centenary Bonus, as also regards qualifications
for eligibility and procedures as set ciut above.
It may be noted that this Settlement was arrived at between the parties
after the Payment of Bonus Act, 1965 came into force on 25th September, 1965.
This Act provided a statutory formula for computation and payment of bonus and it was admittedly applicable in respect of the accounting year 1964, but no separate computation of
bonus for that year was made in accordance with this statutory formula and it was settled on an ad hoc basis as a part of an omnibus
settlement for the accounting years 1956 to 1964. So far as the
claim for bonus for the accounting year 1965 was concerned, computation was made in accordance with the statutory formula provided
in the Payment of Bonus Act and the maximum 20% of the salary or
wage earned during that accounting year was paid by way of bonus to
the workmen. The claim for bonus for the accounting year 1966, however, could not be settled between the parties and, though the Bank paid
18% of the wage or salary earned by the workmeu during that accoul)ting year as bonus, the workmen were not satisfied and the industrial
dispute arising from their claim had to be referred for adjudication.
There were different aspects of this industrial dispute which required
consideration and the Central Government, tl1erefore, formulated each
aspect as a separate question and referred those questions for adjudication to the Industrial Tribunal, Calcutta. The Industrial Tribunal made
an award holding that, on an application of the statutory formula, the
amount available for paymenut of' bonus was Rs. 22.17 lakhs and the
workmen were, therefore, entitled to a little over 9% of their salary
or wage as bonus, but since they had already been paid by the Bank
bonus at the rate of 18 % of their salary or wage, which was much more
than what they were entitled to receive, nothing further remained to
be paid and they were not entitled to any relief. This award is impugned in the present appeal brought by the workmen with special leave.
There are only certain items in the computation of bonus which
are now in dispute in the appeal before us and we shall confine our
attention to them. But before we deal specifically .with these items, it
could be convenient to refer to some of the relevan~ provisions of the
Payment of Bonus Act. We will refer only to those provisions which
have a bearing on the items in dispute between the parties. Section 2
is the definition section and cl. (13) of thcit section defines 'cm\,1oyec'
•
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WORKMEN v. GRIND LAYS BANK (Bf;iagwati, l.)
13 5
to mean any person employed on a salary or wage not exceeding one
A
thousand and six hundred rupees per mensem in any industry to do any
skilled or unskilled manual, supervisory,
managerial, administrative,
technical or clerical work for hire or reward. The mode of computation of gross profits in the case of a banking company is laid down in
section 4, cl. (a) which provides that the gross profit shall be calculated in the manner specified in the First Schedule. The First Sche-
-Oule sets out in items 2, 3 and 4 various amo\lnts which arc to be added
B
and in item 6, various amounts which are to be deducted from the net
profit as shown in the profit and loss account. We are concerned in
this appeal only with items 2, 3(a) and 6(e) which read as follows:-
Item No.
Particul1rs
2. Add back provi·sion for :
(a) Bonus to employees
(b) Depreciation
{c) D~velopm~nt Rebate
Reserve.
(d) Any other reserves
Total of Item No. 2
Rs.
3. Add back also
(a} Bonus paid to employees in respect of
previous accounting
years
6. Deduct :
Amount of
sub-items
Amount of
main items
Remarks
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(;.!) In the case of foreign
. E
banking
companies
proportionate administrative (overhead)
expenses
of Head
office allocable to Indian business
The concept of 'available surplus' is defined in s. 2, cl. ( 6) to mean
F
available surplus computed under s. 5 and that section lays down that
the available surplus in respect of any accounting year shall be the
gross profit of that year after deducting therefrom the sums referred to
in s. 6. Clauses (a) and ( d) of s. 6 provide that the following sums
shall be deducted from the gross profits as prior charge, namely :-
" (a) any amount by way of the depreciation admissible in
accordance with the provisions of sub-section ( 1) of section
G
32 of the Income-Tax Act, or in accordance with the provisions of the agricultural income-tax law, as the case may be :''
" ( d) such further sums as are specified in respect of the
employer in the Third Schedule."
The Third Sched'!le is rather material as it bears on one item in dispute
):ietween t.he par!Ies.
Clauses (ii) and (iii) of the proviso to item 2
.!n the Tl.urd Schedule enact that in case of a banking company which
H
1s a foreign company within the meaning of s. 591 of the Companies
10-390SCIJ76
.
13 6
SUPREME COURT REPORTS
[197 6] 3 S.C. R.
A
Act, 1956-the Bank in the present case being such banking companythe amount to be deducted shall be the aggregate of-
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"(ii) 7.5 per cent. of such amount as bears the same proportion to its total paid up equity share capital as its total
working funds in Ind.ia bear to its total world working funds;
(iii) 5 per cent of such amount as bears the same proportion to its total disclosed reserves as its total working funds
in India bear to its total world working funds;~
Then Wf1 come to the concept of allocable surplus which is defined in
s. 2, cl. ( 4) and under that clause, 60% of the available surplus is to
be taken to be the allocable surplus and it is this allocable surplus
which is to be distributed by way of bonus to the workmen, subject
to a limit of 20 per cent. of the total salary or wage of the employees
employed in the establishment. Sec. I 0, sub-sec. ( l) provides for payment of a minimum bonus of 4 per cent. of the salary or wage earned
by the employees, irrespective whether or not there are profits in the
accounting year, and sub-sec. ( 1) of s. 11 lays down that where the
allocable surplus exceeds the amount of minimum bonus payable under
s. 10, sub-s. (I) "the employer shall, in lieu of such minimum bonus,
be bound to pay to every employee in the accounting year bonus which
shall be an amount in proportion to the salary or wage earned by the
employee during the accounting year subject to a maximum of twenty
per cent. of such salary or wage". Sec. 15 is the next material section
and it provides, inter alia :
" (I) Where for any accounting year the allocable surplus
exceeds the amount of maximum bonus payable to the employees in the establishment under sec. 11, then, the excess
shall, subject to a limit of twenty per cent, of the total salary
or wage of the employees employed in the establishment in
that accounting year, be carried forward for being set on in the
succeeding accounting year and so on up to and inclusive of
the fourth accounting year to be utilised for the purpose of
payment of bonus in the manner illustrated in the Fourth
Schedule.
(2) Where for any accounting year, there is no available
surplus or the allocable surplus in respect of that year falls
short of the amount of minimum bonus payable to the employees in the esta_blishment under sec. 10, and there is no
amount or sufficient amount carried forward and set on under
sub-sec. ( 1) which could be utilised for the purpose of payment of the minimum bonus, then, such minimum amount or
the deficiency, as the case .may be, shall be carried forward
for being set off in the succeeding accounting year and so on
up to and inclusive of the fourth accounting year in the manner itlustrated in the Fourth Schedule.
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( 4) Where in any accounting year any a1!1ount. has been
carried forward and set on or set off under this sectton, then·,
in calculating bonus for the succeeding accounting year, the·
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WORKMEN v. GR!NDLAYS BANK (Bhagwa.ti, J.)
137
amount of set on or set off carried forward from the earliest
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accounting yea~ shall first be taken into account." .
Sec. 34, sub-s. ( 3) enables employees employed in any establishment
or class of establishments to enter into agreement with their employer
for grant of bonus under a formula which is different from that under
the Payment of Bonus Act, so long as it does not deprive them of the
minimum bonus payable under s. 10,·sub-sec. (1). It is in the light
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of these provisions that we have to consider the various points arising
for determination in the appeal.
We will first take UQ for consideration question No. 2 referred to
the Industrial Tribunal.
That question raises the issue whether any
amount is liable to be carried forward for being set on in the accounting year 1956 and if so, what amount.
The claim of the workmen
was that there was excess of allocable surplus over the amount of maxiC
mum bonus in both accounting; years 1964 and 1965 and the excess
in respect of both these years was, by reason of s. 15, sub-s. (1), liable
to be carried forward for being set on in the succeeding accounting
year 1966. Now, so far as the claim in respect of the accounting year
1965 was concerned, the amount to be carried forward and set on was
settled at the figure of Rs. 10.23 lacs under an agreement arrived at
between the parties and no dispute, therefore, survived in respect of
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that claim. But the claim in respect of the accounting year 1964 was
strongly resisted on behalf of the Bank and a preliminary objection
was raised that the question whether any amount was liable to be carried
forward and set on ou~ of the profits of the accounting year 1964 did
not form the subject-matter of the reference and hence this Court, in
appeal from the Industrial Tribunal, had no jurisdiction to adjudicate
upon this question.
We do not think there is any substauce in this
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preliminary objection. Question No. 2, referred to the Industrial Tribunal, in terms raises the issue "whether any amount is to be carried
forward for being set on--in the accounting year 1966", and this
issue is wide enough to cover the question in regard to carry forward
and set on of an amount out of the profits of the accounting year 1964.
The Bank then contended that since the bonus payable for the accounting year 1964 was settled on an ad hoc basis, it was not possible to say
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that the allocable surplus exceeded the maximum bonus payable for that
year and hence there could be no question of any excess to be carried
forward and set on in the succeeding year. There is great force in this
contention.
Sec. 15, sub-s. (1) provides for carry forward and -set
on and, on its plain terms, it comes into operation only when, in a given
accounting year, the allocable surplus exceeds the maximum bonus payable under the Act, so that after payment of the maximum bonus; there
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is surplus left which can be carried forward and set on, subject, of
course, to the limit of 20 per cent. of the total salary or wage. It is
clear from the scheme of the Act and the context in which this subsection occurs, following closely upon sections 4 to 10, that the basic
condition for the applicability of this sub-section is that bonus is computed in accordance with the statutory formula provided in the preceding section_§ of the Act atid as a result of such computation, it is found
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that the allocable surplus is more than sufficient ..•. to cover the maximum bonus payable under the Act and where such is the case, the subsection provides that the excess over the amount of the maximum bonus
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138
SUPREME COURT REPORTS
[I 976] 3 S.C.R.
shall, to the extent of 20 per cent. of the total wage or salary, be carried forward and set on in the succeeding ygar. This sub-section can
have no application where no computation is made under the Act and
bonus is paid, not in accordance with the statutory formula, but on an
ad hoc basis. Then it is not possible to say what was really the bonus
payable under the Act. It may be less or more than the bonus in fact
paid. That inquiry being rendered irrelevant by the ad hoc settlement,
there can be no question of carry forward· and set on of any amount,
unless specifically agreed upon as part of the settlement. The workmen
!n the present case were, therefore, not entitled to contend that, though
the claim for bonus for the accounting year 1964 was settled on an ad
hoc without making computation under the provisions of the Act,
such computation must now be made, not for the purpose of determining the bonus payable to them, which is the only purpose for which
such computation is contemplated to be made, but for the purpose of
determining whether there is any amount liable to be carried forward
and set on.
The claim of the workmen for carry forward and set on
in respect of the accounting year 1964 must accordingly stand rejected.
We now, proceed to consider the items in dispute in the computation of 'available surplus' for the accounting year 1966, which fall within
question No. 1 referred to the Industrial Tribunal. The first item to
which wc must refer is the item of provision for bonus to employees
made in the profit and loss account.
This item figures as item 2(a)
in the First Schedule to the Act and it is required to be added back
in the computation of the gross profits under s. 4(a). Now, so far as
the profit and loss account of the Bank in respect of it& Indian business
was concerned, the provision for bonus to employees did not figure in
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it as a separate item, but, according to the Bank, i,t was included under
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the heading "Salaries and Allowances" or "Other Expenditure" and
it came to Rs. 19.52 lakhs. The Bank thus agreed to an add back of
Rs. 19.52 lakhs in respect of provision for bonus to employees. The
workmen, however, contended that the provision for bonus made by the
Bank was for a much larger amount and the amount of Rs. 19.52 lakhs
represented provision for bonus only in respect of those workmen who
were 'employees' within the meaning of s. 2, cl. ( 13) and the Bank
had failed to take into account _the provision for bonus in respect of
those workmen who were not such 'employees'. The argument of the
workmen was that tha word 'employees' in item 2 (a) of the First Schedule was not limited to 'employees' as defined in s. 2, cl. (13), but
covered all employees, because the object of adding back provision for
bonus to employees was to arrive at the figure of profit available for
distribution of bonus and that required that the entire amount set apart
as provision for bonus should be added back, for in determining what is
the available fund with reference to which bonus should be paid, one
cannot exclude the amount already paid or provided as bonus, whether
to employees drawing more than Rs. 1600/- or to employees drawing
less. It is true, said the workmen, that the word 'employees' is defined
in s. 2, cl. ( 13 ), but they contended that every definition is subject to
the requirement of the context and here the context clearly showed
that the word 'employees' was not used in the restricted sense, but in a
wider sense, including all employees. Now, this argument of the Workmen would have required serious consideration by us, br;t we do not
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WORK~lEN v. ORINDLAYS BANK (Bhagwati, J.)
139
think we can permit the workmen to raise it, as i~ does not appear to
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have been advanced by them before the Industrial Tribunal. The award
of the Indnstrial Tribunal does not show that this argument was at any
time urged by the workmen. The only argument raised by· the workmen before the Industrial Tribunal was that the amount of bonus payable to them for the accounting year 1966 was Rs. 38.66 lacs representing 18 per cent. of their wage or salary and this amount of Rs. 38.66
lacs was liable to be added back and not the amount of Rs. 19.52 lacs.
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This argument was rightly rejected by the Industrial Tribunal because
what is liable to be added back under Item 2 (a) of the First Schedule
is not the amount of bonus payable to the workmen, nor the amount of
bonus in fact paid, but the provision for bonus made in the profit and
loss account. We cannot, therefore, permit the workmen to raise a new
contention for the first time in this Court that the provision for bonus
liable to be added back was not merely the provision for bonus to
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'employees' as defined in s. 2 cl. (13), but also the provision for bonus
to workmen who were not such 'employees'.
The next item in dispute relates to the amount liable to be deducted
from the gross profits under s. 6, cl. (a). What is required to be deducted under this. clause is the amount of depreciation admissible in
accordance with the provisions of sub-s. (1) of s. 32 of the IncomeTax Act. Now, depreciation represents the diminution in value of a
capital asset when applied to the purpose of making profit or gain. There
are various methods known to accountancy practice for measuring such
diminution in value and a banking company, like any other firm or company, may follow any one of these methods in maintaining its accounts
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and the amount of depreciation calculated according to such method
would be reflected in its profit and loss account.
But, though such
amount of depreciation shown in the profit and loss account may be
unexceptionable from the point of view of comm.,rcial acc\)untancy
principles, it would not necessarily be admissible as a deduction from
gross profits under s. 6, cl. (a). What is allowable as a deduction
from the gross profits under that clause is not depreciation calculated
according to any recognised method of accountancy followed by a bankE
ing company, but only such depreciation as is admissible in accordance
with the provisions of sub-s. (!) of s. 32 of the Income-tax Act. The
profit and loss account of the Bank for the accounting year 1966 showed
an amount of Rs. 22.40 lacs debited against the composite item "Depreciation and Repairs to the Banking Company's Property" and according to the Bank, this figure included an amount of Rs. 1.89 lacs by
way of depreciation. Now, there would be no difficulty if the Bank
clai~ed to deduct only the amount of Rs. 1.89 lacs by way of deprec~al!on under s. 6, cl. (a), as that was the amount of depreciation de-
?1ted m th.e profit and loss accoun~. But the Bank claimed that, though
1t had debited by way of deprec1at10n in the profit and loss account only
a;i an;ount of Rs. 1.89. lacs, the an~ount of depreciation actually admissible m accordance with the provisions of sub-s. (1) of s. 32 of the
Income-tax Act was Rs. 12.79 lacs and in support of this claim the
Bank produced a certificate issued by the Income Tax. officer ,,;hich
was marke~ Ex. 12 in evidence. The Industrial Tribunal relying solely
on the certificate Ex. 12 held that "depreciation admissible in accordance with the provisions of sub-s. (1) of s. 32 of the Income-tax Act"
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140
SUPREME COURT REPORTS
[1976) 3 S.C.R.
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was Rs. 12.79 lacs as evidenced by the certificate Ex. 12 and the Bank
was, therefore, entitled to deduct that amount froll). the gross profits
under s. 6, cl. (a).
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This decision of the Industrial Tribunal was assailed before us and
it was contended on behalf of the workmen that the burden of showing wha\ was the amount of depreciation admissible in accordance with
the provisions of sub-s. (1) of s. 32 of the Income-tax Act was on the
Bank and this burden, the Bank had failed to discharge by producing
proper evidence. The only evidence produced on behalf of the Bank,
said the workmen, was the certificate Ex. 12 issued by the Income-tax
officer, but that certificate was no evidence and could not be taken into
account for the purpose of holding that the depreciation admissible
under sub-s. (I) of s. 32 of the Income-tax Act was Rs. 12.79 lacs.
The Bank, however, contended that the workmen did not at any time
dispute that the depreciation admissible under sub-s. (I) or s. 32 of
the Income-tax Act was Rs. 12. 79 lacs nor did they at· any time cha!·
lenge the correctness of the certificate Ex. 12 issued by the Income-tax
officer and in the circumstances, this certificate was sufficient to establish
the claim of the Bank.
Now, in the first place, it is not correct to say that the workmen
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did not at any time dispute the correctness of the figure of depreciation
claimed by the Bank. Both the workmen and the Bank filed their respective computations of bonus before the Industrial Tribunal and while
the Bank, in its computation, claimed to deduct the amount of Rs. 12.79
lacs as depreciation, the workmen agreed to deduction only of the
amount of Rs. 1.89 lacs as appearing in the profit and loss account.
The workmen did not at any time accept the position that the correct
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am@unt of depreciati· n admissible under s. 32, sub-s. ( 1) of the Incometax Act came to Rs. 12. 79 lacs as claimed by the Bank. They seriously
disputed it before the Industrial Tribunal and hence the Industrial Tribunal had to go into that question and come to a finding upon it. Even
prior to the making uf tlw reference, when the calculation sheet regarding bonus payable for the accounting year 1966 was sent by the Bank
to the workmen with its letter dated 26th July, 1967, the workm~n by
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their letter dated 3rd August, 1967 called upon the Bank to furnish
particulars in regard to the amount of Rs. 12.79 lacs claimed by the
Bank as depreciation and the only reply given by the Bank to this demand was that the information required by the workmen went "far
beyond any legal requirements" and the Bank was not in a position to
accede to the same. Vide Bank's letter dated 8th August, 1967. This
circumstance would also show that the workmen did not accept the
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figure of depreciation claimed by the Bank. It is true that in the ap·
plication made by the workmen to the Industrial Tribunal for certain
clarifications on 8th January, 1969, the workmen did not ask for any
clarification in regard to the amount of Rs. 12.79 lacs claimed by the
Bank by way of depreciation, but if we look at this application, it will
be clear that the clarifications sought by the workmen were 'on various
aspects of the published balance-sheet of the company for the accountH
ing years--1-1-1966 to 31-12-1966 and other figures' and there was
no attempt at seeking clarifications in respect of the various items in
the computation sheet filed by the Bank. Moreover, when these clarifications were sought by the application dated 8th January, 1969 the
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WORKMEN v. GRINDLAYS BANK (Bhagwati, !.)
14 I
controversy between the parties was already crystallised in their pleadA
ings and it was cle_ar from the computation sheets filed by them that there
was real dispute in regard to the amount of deprccia!ion and, therefore, mere failure on the part of the workmen to ask for clarification in
respect of the amount of Rs. 12.79 lacs claimed by the Bank, could
not justify an inference that the workmen had conceded the claim of
the Bank and abandoned the dispute.