THE SREE MEENAKSHI MILLS, LTD. versus THEIR WORKMEN

J.-These three appeals arise out of two industrial disputes Nos. 24 and 26 of 1951 between the appellants and their workmen. Dispute No. 24 of 1951 had arisen between the management and workers of the Sree Meenakshi Mills Ltd., Madurai, whereas dispute No. 26 of 1951, was between the management and workers of the Thiakesar Alai, Manapparai. Both the disputes were in respect of bonus claimed by the workmen for the year 1950-51. 'The workmen claimed bonus for the year 1950-51 on the allegation that the two mills constituted one unit -and had made profits during the relevant year. On the other hand, the appellants contended that the two mills were two different units and the claims for bonus made by the workmen against them . should not be considered together. According to the appellants, during the relevant year there was a trading loss and as such no bonus was payable to the workers. The Industrial Tribunal rejected the pleas raised by the appellantg and held that the two mills formed part of the same unit. It also came to the conclusion that for the year in question there was a surplus of Rs. 2,87,676 against Which the workmen's claim for bonus was justified. That is why the tribunal awarded three months' bonus to the workmen.

p. 880

Against this decision the appellants preferred two appeals Nos. 133 and 134 of 1952 to the Labour Appellate Tribunal of India at Madras. In these appeals the appellants challenged the findings made by the tribunal against them and urged that bonus was not payable during the relevant year. The workmen also preferred an appeal, No. 168 of 1952, and in this appeal they claimed a larger bonus than what had been awarded by the tribunal below. The appellate tribunal confirmed the finding of the tribunal that the two mills formed part of the same unit. According to the appellate tribunal, the net surplus available for distribution as bonus came to Rs. 2,57 ,496. The claim made by the appellants in respect of various deductions was examined by the appellate tribunal and deductions were substantially disallowed in respect of three items. In respect of an amount of Rs. 8,43,927 claimed by the appellants as depreciation on machinery and buildings the appellate tribunal. concurred with the industrial tribunal in holding that the claim only for a sum of Rs. 4,00,000 was admissible; in other words, a claim for deducting the balance of Rs. 4,43,927, was disallowed. It is this finding in parlicular with which we are directly concerned in the present appeals. It may be pointed out at this stage that in determining the amount of net surplus available for distribution as bonus, the appellate tribunal agreed with the industrial tribunal that the provision for taxation made by the appellants to the extent of Rs. 1,75,000 was adequate. In the result, the appeals preferred by the appellants as well as the respondents failed and were dismissed by the appellate tribunal. Against the order dismissing their appeals, the appellants have preferred to this Court by special leave the present Civil Appeals Nos. 218 and 219 of 1956.

pp. 880–881

The appellants had also preferred an application for review before the Labour Appellate Tribunal, Misc. Case No. III-C-387 of 1953 (Review) on the ground that the order passed by the Labour Appellate Tribunal was patently erroneous inasmuch as there was a mistake apparent on the face of the record which should be corrected under the appellate tribunal's powers of review. The appellate tribunal held that it had no power of review and that, even if it had such a power, no case had been made out for the exercise of such power because there was no mistake apparent on the face of the record which could not have been discovered when the order was made in the presence of the parties. Against this decision, the appellants have preferred to this Court by special leave the present Civil Appeal No. 217 of 1956.

p. 881

In Appeals Nos. 218 and 219 of 1956, the main point which has been urged before us on behalf of the appellants is that the appellate tribunal erred in law in disallowing the appellants' claim in respect, of depreciation debited by the appellants to the extent of Rs. 4;43,927. In the appeal preferred against the order· passed by the appellate tribunal refus~g to review its decision, it has been urged before us by the learned counsel for the appellants that the appellate tribunal was in error in holding that it had no jurisdiction to review its decision under 0. 47 of the Code of Civil Procedure. It has also been argued that on the merits it was wrong to have held that the appellants had failed to make out a case for the exercise of the said jurisdiction.

p. 882

It may be relevant at this stage to set out the financial position of the appellants during the rele" vant year as summed up in the judgment of the appellate tribunal :

p. 882

"Net Profit as per Ex. M. l : Rs. 2,40,302 Add the sum wrongly debited

p. 882

as cost of repairs etc. (Rs. 2,57,793 minus

p. 882

Rs. 1,00,000) Rs. 1,57, 793 Add bonus for the year 1949-50

p. 882

wrongly debited to 1950-51. Rs. 1,49,920 Add bonus paid to clerical staff

p. 882

for 1950-51. Rs. 37,896 Add depreciation debited by the

p. 882

company: Rs. 8,43,927 Add provision for taxation : Rs. 1,75,000 Add donation to a College : Rs. 40,000

p. 882

Total Rs. 16,44,838 Thus the gross total profit comes to Rs. 16,44,838. From this the following deductions have to be made : Depreciation allowed : . . Rs. 4,00,000 Bonus for the year 1950-51 paid

p. 882

to clerical staff : Rs. 37,896 Provision for taxation : Rs. 1,75,000 Return on capital (preference and

pp. 882–883

ordinary shares) : Rs. 2,94.500 Return on the reserve used as

p. 883

working capital at 4 per cent. : Rs. 2,23,946 Provision fot rehabilitation (Rs. 6,56,000 minus Rs. 4,00,000) : .. Rs. 2,56,000

p. 883

Total .. Rs. 13,87,342

p. 883

Thus the net surplus available for distribution ··bonus comes to Rs. 16,44,838 minus Rs. 13,87,342- Rs. 2,57,496." Since in the present appeals we are concerned only with the amount of depreciation debited by the appellants, it \Vould be useful to set out the depreciation analysis as explained by the representative of the appellants in the Court of the fo.dustrial Tribunal. The depreciation analysis, according to this statement, is made thus as per the Income-tax Act.

p. 883

Normal Extra Initial "(245 days) Madurai. 3,17,331 38,465 2,87,250 (250 days) Usilampatti. 2,23,206 Including

p. 883

extra. 16,077." It would be noticed that the total of these amounts comes to Rs. 8,82,329.

p. 883

The true nature and character of the workmen's clai.IIt for bontis against their empldyers is now well settled. Boillts is _not, as its etymological meaning wou:Jd suggest, a mere matter of bounty gratuitously made by the employer to his employees; nor is it a me.tfar of deferred wages. It has been held by this Court in Muir Mills Co. Ltd: v. Suti Mills Mazdoor Union, Kanpur( that "the term 'bonus' i~ applied to · a cash payment made in addition to wages. It generally represents the cash incentive given conditionally on certain standards of attendance and efficiency being attained." This decision is based on the view that both labour and capital contribute to the earnings of the industrial concern and so it is but fair that labour should derive some benefit ff there is surplus available for that purpose. Even so, the claim for bonus cannot be effectively made unless two conditions are satisfied· the wages paid to workmen f~ 1 short of what can be properly described as living wages; and the industry must be shown to have made profits which are partly the result of the contribu- . tion made by the workmen in increasing production.

pp. 883–884

In determining the question as to whether the industry has made profit, and, if so, how much is the net surplus in a given year, provision has first to be made in respect of prior charges. This principle has been recognized by what is often described as the full Bench Formula as. laid down in the matter of The Mill Owners Association, Bombay v. The Rashtriya Mill Mazdoor Sangh, Bombay('). According to this formula, distributable surplus has to be ascertained after providing from the gross profits for ( 1) depreciation, ( 2) rehabilitation, ( 3) return at 6% on the paid-up capital, ( 4) return on the working capital at a lesser but reasonable rate, and ( 5) for an estimated amount in respect of the payment of incometax. It is common ground before us that the question as to whether the workmen's claim for bonus is justified or not must be decided in the light of this Full Bench Formula.

p. 884

The appellants concede that in determining the question as to whether they have made a trading profit during the relevant year the industrial tribunal is not required to adopt the same basis as under the Income-tax Act. It is, however, urged that in deal- . ing with this question there is no justification for not giving effect to the relevant provisions of the Incometax Act m respect of depreciation. Section 10 of the Income-tax Act provides for three kinds of allowances in respect of depreciation. Section lO(vi) deals with allowances in respect of depreciation of buildings, machinery, plant or furniture used for the purposes of the business, being the property of the assessee, of a sum ~uivalent to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other cases, to such percentage on the written-down value thereof as may J. in any case or class of cases be prescribed. This allowance is in respect of what is described as normal depreciation. Section lO(vi) further provides for what is described as initial depreciation in cases where the buildings have been newly erected or the machinery or plant being new, (not being· machinery or plant entitled to the development rebate under cl. ( vi-b) ), has been installed after March 31, 1945, a further sum (which shall however not be deductible in determining the written-down value for the purpose of ·this clause) in respect of the year of erection or installation as prescribed by els. (a), (b) and (c) of s. lO(vi). Thens. lO(vi-a) provides for allowances of what is described as additional depreciation. This is in respect of depreciation of buildings newly erected or of machinery or plant being new which has been installed after March 31, 1948. Section lO(virb) also provides for all9wance "in respect of machinery or plant being new, which has been installed after the 31st day of March, 1954, and' which is wholly used for the purposes of the business carried on by the assessee, a sum by way of development rebate in respect of the year of installation equivalent to twenty-five per' cent of the actual cost of such machinery or plant to the assessee : Provided that no allowance under this clause shall be made unless the particulars prescribed for the purpose of clause (vi) have been furnished by the assessee in respect of such machinery or plant." The question which arises for decision is whether; iii determining the question. as to whether net surplus is available for distribution by way of bonus or not, is obligatory on the industrial tribunals to allow the whole of the depreciation admisi,dble under the said provisions of the Income-tax Act.

pp. 884–885

Before dealing with this question, it may be relevant to mention one fact on which both the tribunals below have placed emphasis in the present- case. It' appears that, when the proceedings were pending before the industrial tribunal, an application was made by the workmen requesting the tribunal to direct the appellants to allow the workmen inspection of accounts. The tribunal passed an order for inspection and inspection was allowed. Thereupon an application was made oil behalf of the workmen on February 28, 1952, for particulars re la ting to the amount of Rs. 8,44~000 <;laimed by the appellants_ by way of depreciation. The. appellants promised to supply the inform~tion on March 8, 1952; but ultimately, on behalf of the appellants, it was stated to the tribunal that the appellants were not able to give the details called for. The industrial tribunal and the appellate tribunal have both adversely comtnented on this conduct of the appellants and they were presumably disposed to draw an adverse inference against the appellants in respect of the amount of depreciation in question. Mr. Viswanatha Sastri, for the appellants, however; contended before us that though the tribunals below n:iay have been ji1stified in commenting on ihe defa'.U'.lt of the appellants to silpj>ly the particlila'ts, that itself woilld not justify a drastic reduction in the amount of depteCiation claimed by the appel- Ia:rits. He argues that the balance-sheet of the appellants has been duly audited and it was not reasonable for the tribunals to have disallowed such a large amount as Rs. 4,43,927 uncier the claim of depreciation. It is fairly conc~ded by hiin that if the triblinals b~low were not boun~ to grant.Claims for depreciation on what is described as initial and additional depreciations, then .he could not challenge the proprlety or correctness of the decision of the tribunals in disallowing the items . appearing . in tl:ie depreciation acc:ount in respect of _these depreciations. It is in the light of these facts that the question raised by the appellants must be considered.

pp. 885–886

This question has been decided by a Full Bench of the Labour Appellate Tribunal in U.P. E_!ectric Supply Co. Ltli. v. Their Workinen('). It is true that the qttestion of bonus had to be considered in this case in the light of the provisions of the U.P. Electricity (Supply) Act, 1!148. Nevertheless the Full Bench has dealt with this matter on general considerations and has set at rest the divergence of views expressed by differ~nt Benches of the tribunal on this point. According to this decision, the initial depreciation and additional depreciation are in a sense abnormal additions to the income-tax depreciation and they are designed to meet particular contingencies and for a limited period. It would, therefore, not be fair to the workmen that these two depreciations are rated as prior charges before the available surplus is ascertained. It is likely tha.t, in many cases, if these. two depreciations are allowed as prior charges no surplus would be left even though workmen may have laboured during the year to the best of their ability and the concern was for all purposes prosperous; In other words, according to this decision, considerations on which the grant of additional depreciation may be justified under the Income-tax Act are different from considerations of social justice and fair apportionment on which the original Full Bench formula in regard to the payment of bonus to the workmen is based. That is why, in the result, this subsequent Full Bench held that only normal depreciation including multiple shift depreciation, but not. initial or additional depreciation, should rank as prior charge in applying the Full Bench forrnula as to the payment of bonus. If it cannot be disputed that in industrial adjudication it is not obligatory fo adopt the very same procedure as prescribed by the Income-tax Act for ascertaining gross profits and then determining the amount of ,net surplus available, it is not easy to accept the appellants' argument that in respect of depreciation alone industrial tribunals must necessarily and in .every case follow the relevant provisions of the lncome-tax Act. If that be the true position, then we see no reason why, in respect of one item of debit only the technical provisions of the Income-tax Act must be followed in industrial adjudications in respect of workmen's claim for bonus. On the whole, the reasons given by the appellate tribunal in the case of The U.P. Electric Supply Co. Ltd. (1) appear to us to be satisfactory; and so we are not prepared to accept the appellant's argument that the appellate tribunal in the present case has erred in law in not allowing the appellant's claim for initial and additional depreciations. In our opinion, therefore, the main point urged by the appellants in Appeals Nos. 218 and 219 of 1956 cannot succeed.

pp. 886–888

That takes us to the two other points r:iirnd by the appellants in Appeal No, 217 of 1956. 'The first point which has been raised in this appeal by the appellants is about the jurisdiction of the appellate tribunal to review its own orders in appropriate ca~s under 0. 47 of the Code of Civil Procedure. This Court has recently· had occasion to consider the question about the applicability of the Code of Civil Procedure to the proceedings before the Labour Appellate Tribunal in Mis. Martin Burn Ltd. v. R. N. Banerjee (Civil Appeal No. 92 of 1957). Section 9(1) ands. 10 of the Industrial Disputes (Appellate Tribunal) Act, 1950, as well as the relevant rules and orders framed under the Act were considered and it was held that the Code of Civil Procedure applies to the proceedings before the appellate tribunal with the result that the appellate tribunal can exercise its powers under 0. 41, r. 21 as well as under s. 151 of the Code. It is true that in this case there was no occasion to consider the applicability of the provisions of 0. 47 of the Code but that does not make any difference. If the Code of Civil Procedure applies to the proceedings before the Labour Appellate Tribunal, it is clear that the provisions of 0. 47 .would apply to these proceedings as much as s. 151 of the Code or the provisions of 0. 41. We must accordingly hold that the appellate tribunal erred in law in coming to the conclusion that it had no jurisdiction to review its own order under the provisions of 0. 47 of the Code.

p. 888

As we have already pointed out, the appellate tribunal has also held that even if it had jurisdiction to review its decision or judgment, in the present case it would not grant the appellants' request because it had not been i;hown that the order or decision suffered from any mistake which could not have been known when the order was pronounced in open court in the presence of botli the parties in the present proceedings. Mr. Viswanatha Sastri, for the appellants, argues that this view is obviously wrong and should be reversed. In support of his argument, the learned counsel has invited our attention to the fact that, when the appeal was pending before the appellate tribunal, a statement had been filed by the appellants showing that the provision for incometax had .to be r~vise~ in view of the. findings ~ecorded by the industrial tribunal. According to this statement, no surplus was available for payment of bonus to workmen even on the assumption that the findings recorded by the tribunal were correct. The appellants pointed out in this statepient that if an amount of Rs. 4,43,927 was disallowed by way of depreciation that would necessarily add to the amount of gross profits and. in consequence the provision for income- . tax would have to be proportionately increased. The appellants' case was that instead of Rs. 1, 75,000 which had been allowed by the industrial tribunal by way of provision for income-tax, it would be necessary to allow an amount of Rs. 4,75,582 in that behalf. The appellants' grievance is that though this statement was filed before the appellate tribunal, the appellate tribunal has not considered it at all.

pp. 888–889

On the other hand, it appellrs from the judgment of the appellate tribunal that this point was not raised by the appellants before it in their arguments. No grievance was made and no higher amount was claimed by them to be reserved for taxation. The appellate tribunal has also observed that the point raised by the appellants in their review petition did not show that any new and important matter had been discovered which, after the exercise of due diligence; would not have been discovered by the parties at the · time of the hearing of the appeal. Besides, the appellate tribunal also held that there was no mistake apparent on the face of the record. Technically there· may be some force in the observations made by the appellate tribunal; but we cannot overlook the fact that a written statement had been filed before the appellate tribunal expressly and specifically raising . this point. That is why we propose to deal with the merits of the argument' and not tQ reject it on the ground that this argument had not been urged at the proper siage. .

p. 889

On the merits,"the argument is that, if out of the total amount of RS. 8,43,927 debited -by the appellant$ to depreciation, an amount of Rs. 4,43,927 is disallowed, that must inevitably add to the total amount of gross profits and if the total amount of gross profits is increased, logically provision for a higher amount of income-tax must be made, Thus presented the argument .is simple and at first blush appears to be ·attractive; but the difficulty in accepting the argument is that the total amount of gross profits determined by Industrial Tribunals in these proceedings is not and cannot necessarily be the taxable gross profits of the employer. We have already observed that in determining the trading profits of the employer in such disputes, the method adopted by the industrial tribunals does not conform to all the requirements and provisions of the Income-tax Act, and so it would be fallacious to assume that the gross profits determined by the industrial tribunal should be taken to be gross profits that would be necessarily taxable under the Income-tax Act. Besides, it would be relevant to remember that the provision for taxation in question has been made by the appellants themselves and presumably it is based on the appellant's anticipation as to how much approximately they will have to pay by way of income-tax. But, apart from this consideration, there can be no doubt that the appellants would get exemption from the payment of income-tax in respect of the amounts of initial and additional depreciation also as shown in their books of accounts. That is a right which has been conferred on the appellants by the relevant provisions of s. 10 of the Income-tax Act; and the benefit which the appellants are entitled to get under the said section cannot be ignored in deciding whether or not the provision of the sum of Rs. 1,75,000 for taxation purposes is adequate or not. We think it is not open to the appellants to contend that though for the amounts covered by the normal and additional depreciations they would not be required to pay income-tax, nevertheless they should be allowed to provide for the payment of income-tax .in respect of these two items merely on the ground that they are disallowed by the industrial triburlal and have thus added to the total of gross profits as determined by the tribunal. The adequacy or otherwise of the provision for income-tax must necessarily be judged in the light of the Income-tax Act since it is under the said Act that the liability to pay tax would ultimately be determined. Besides, if the appellants' argument is accepted and an amount notionally payable by way of income-tax in respect of disallowed items of depreciation is added to the estimated amount of incometax provided by the appellants, the very object of disallowing the two items of depreciation would be substantially defeated. On the other hand, the rejection of the appellants' argument would not mean any hardship because the additional amount sought to be added by them in the provision for income-tax would definitely not have to be paid by them. We are, therefore, satisfied that the grievance made by the appellants against the order passed by the appellate tribunal on the ground that it suffers from a mistake apparent on the face of the record is not wellfounded.

pp. 889–891

It would now be necessary to refer briefly to the decisions of industrial courts to which our attention has been drawn by the learned counsel for the appellants. In Model Mills, etc. Textile. Mills, Nagpur v. Rashtriya Mills Mazdoor Sangh(1 ), the implications of the Full Bench formula for ascel,'tainment of bonus have been explained. It is observed that "the formula did not purport to direct what a concern should do or should not do with its own moneys. In evolving the formula the rights and liabilities of the parties inter se in notional satisfaction of their legitimate claims as two co-operating units in the venture were tried to be equated. Opinions might differ as to the weightage to be attached to the various components constituting the formula. But the formula has to be taken as a whole in order that ~n equitable balance between the rights of capital and labour might be achieved for the ascertainment of bonus."

p. 891

It may incidentally be pointed out that this deci· sion recognizes that income-tax calculated on the trading profits for the year must be deducted as a prior charge from the profits even though exemption under the Income-tax Act is granted for the year in question taking into consideration the past year's

pp. 891–892

losses. The .same view has been expressed by the · appellate tribunal in Mahalaxmi Woollen Mills Ltd. v.

p. 892

Their Workmen('). In this case, it has been held that "even if a concern is allowed exemption from the levy of income-tax because of prior losses or unabsorbed depreciation, etc., tl!at by itself is no ground - for preventing the concern from claiming the amount of income-tax it would have been liable to pay if the profits made in the relevant year alone had been taken into account. Hence, in calculating the amount of available surplus, the amount of income-tax payable for that trading year is to be deducted irrespective of the fact whether the company in fact pays tax for the year or not". Similarly in Bennett Coleman and Company, Ltd. v. Their Workmen('), the Labour Appellate Tribunal has held that "unabsorbed depreciation and loss iJ;i.curred during prior years are allowed under s. 24(2) of the Income-tax Act to be adjusted against the profits of a future year. Where the company claims either to adjust this amount against gross profits or to deduct such amount of income-tax as would be payable on the profits lf the said two items are not to be adjusted, labour cannot be permitted to refuse relief resting on unabsorbed loss and depreciation and, at the same time try to get benefit for itself by refusing provision for tax resting on those very items. which are permitted to be adjusted by the income-tax authorities which will result in reduced income-tax or no tax at all." It would thus appear from the decisions cited before us that industl'ial tribunals have cxinsistently taken the view that in<;ome.tax calculated on th~ trading profits for the relevant year must be deducted as a prior charge from the gross profits even though the employer may be entitled to claim exemption under the Income-tax Act in view of the fact that he had i;uffered loi;ses during the previous year. Prima facie it may be said facie it may be said ·that, if the essential basis for deciding the workmen's claim for bonus year is tho existence of the net surplus available that year, it may not be permissiole . to propriety for the provision for income.tax the employer solely on the ground that in previous year's losses he may not be called income-tax during the year in question. all, in this connection the calculations are reference to the financial position of the during the particular year only and in _these_ calcula- . tions considerations relevant under the Act in regard to the financial losses of the in the previous year would not be allowed However, in the present appeals we are upon to consider the correctness of the by the Appellate Tribunal in these cases need not pursue the matter any further.

pp. 892–893

Mr. Viswanatha Sastri has strongly relied labour decisions reported in B. E. S. T. TV v. Bombay Suburban Electric Supply Ltd.(•), Cotton and Crompton Parkinson, Ltd. v. Its These two decisions no doubt support the arguments before us but, for the reasons which we have already given, we must hold that these are not sound or correct.

p. 893, margin A

The last case to which our attention has by :r.Ir. Viswanatha Sastri is the decision of Appellate Tribunal in_ Bengal Chemical ceutical Works, Ltd. v. Their Workmen ( decides that "in providing for income-tax payable by the. concern on its income earned year for which bonus is claimed must be The amount of. income-tax actually paid year which is the tax of the income of year should not be taken into account." the tribunal has observed that "for the ascertaining the income-tax which may be the employer for the year in question, J. J. figures appearing on the expenditure.side of the profit and loss account of that year have to be marshalled and examined." This case is not of much help in deciding the point with which we are concerned.

pp. 893–894, margin A

In the result, the appeals fail on the merits and mus~ b d' . d . h Th h

p. 894

1sm1sse wit costs. ere w1 , owever, be one set of costs in all these appeals.

p. 894, margin E

Appeals Dismissed.

p. 894, margin E