Maharashtra Veej Mandal Kamgar Sangh v. Maharashtra State Electricity Board And Others

Kania, C.J:— This is an Appeal by the Petitioner who has been unsuccessful in the Court below. The Appellant is a trade union registered under the Indian Trade Unions Act. Respondent No. 1 is a statutory body constituted under the Electricity (Supply) Act, 1948. The names of the other two Respondents have been deleted from the Memorandum of Appeal on the application of Mr. Dharap, Counsel for the Appellant.

2. The Appellant raised industrial disputes relating to bonus for the years 1965–1966, 1966–1967, 1967–1968, 1968–1969 and 1969–1970. The disputes were taken up for conciliation under the provisions of the Industrial Disputes Act, 1947 and a failure report was submitted to the appropriate Government. A strike notice was issued by the Petitioner on November 5, 1971, to Respondent No. 1 and by its order dated February 7, 1972, the Government referred the disputes with regard to the bonus for the five years for adjudication to the Industrial Tribunal. The disputes related to several-items which were sought to be added to or deducted from the profits of Respondent No. 1 for the purpose of ascertaining the available surplus and the allocable surplus under the Payment of Bonus Act, 1965 (Act No. 21 of 1965). Original Respondent No. 3, being the Industrial Tribunal constituted under the Industrial Disputes Act, gave his Award on May 17, 1976. It was held by Respondent No. 3 that as there was no available surplus for the years in question, only minimum bonus at 4 per cent per annum was liable to be paid by Respondent No. 1 to the employees under the Payment of Bonus Act and as that amount had already been paid, the reference was rejected. Aggrieved by this decision, the Appellant Union filed a Writ Petition, being Miscellaneous Petition No. 377 of 1977, in this Court. The said Petition was dismissed by Aggarwal, J., by his judgment and order dated September 8, 1980. The present Appeal is directed against that judgment. As the dispute pertains to the ascertainment of the bonus payable, it may be useful to take a brief look at the relevant provisions of the Payment of Bonus Act as they stood at the relevant time. Section 8 of the Payment of Bonus Act deals with eligibility for bonus and provides as to which employees are entitled to be paid in any accounting year bonus in accordance with the provisions of the said Act. The employees in question here are admittedly entitled to the payment of bonus under Section 8. Section 10 deals with the calculation of bonus. It is not necessary to set out the section here or to analyse it in any details. It should be sufficient to point out that this section provides for a minimum bonus of not less than 4 per cent of the salary or wage earned by the employee during, the accounting year or one hundred rupees whichever is higher. In those cases where there is an allocable surplus earned by the employees, the section provides the mode of computation of bonus and a perusal of the mode of computation shows that the quantum of bonus is related to the allocable surplus. Section 2 of the said Act is the definition section. Sub-section (4) of Section 2 defines the term “allocable surplus”. Very briefly stated, in respect of companies other than banking companies, it is fixed at a percentage of the available surplus during the accounting year. Sub-section (6) of Section 2 runs as follows:—

“‘available surplus’ means the available surplus computed under Section 5:”.

3. Section 5 provides that the available surplus is to be arrived at by deducting from the gross profits of the accounting year the sums referred to in Section 6. There is a proviso to this section which applies to all accounting years commencing on any day in the year 1968 and in respect of every subsequent accounting year. But it is not necessary for us to analyse that proviso, as no dispute before us turns on the proviso, although we are concerned with some accounting years commencing from and after and some years commencing prior thereto. Section 6 deals with sums to be deducted from gross profits as prior charges. Sub-section (a) of this section provides that the amount of depreciation admissible in accordance with the provisions of sub-section (1) of Section 32 of the Income-tax Act has to be deducted from the gross profits as a prior charge. Sub-section (d) of Section 6 provides for the deduction of “such further sums as are specified in respect of the employer in the Third Schedule”. The only item of the Third Schedule, on which arguments have been made, is item No. 6 in the Third Schedule and that item runs as follows:—

“Item No. Category of employer. Further sums to be deducted. (1) (2) (3) 6. Any employer falling under Item No. 1 or Item No. 3 or Item No. 4 or Item No. 5 and being a licensee within the meaning of the Electricity (Supply) Act, 1948. In addition to the sums deductible under any of the aforesaid Items, such sums are required to be appropriated by the licensee in respect of the accounting year to a reserve under the Sixth Schedule to that Act shall also be deducted.”

4. There is an Explanation to this, but it is not relevant for our purposes. Sub-section (18) of Section 2 defines “gross profits” as meaning the gross profits calculated under Section 4. Section 4, inter alia, provides that in the case of companies other than banking companies, the gross profits shall be calculated in the manner specified in the Second Schedule.

5. As far as the Appeal before us is concerned, the arguments were confined only to four items, although the scope of the dispute before the Industrial Tribunal and in the trial Court was somewhat larger. The first question which was raised was as to whether in computing the allocable surplus, the depreciation in the sum of Rs. 3,31,52,000/- was liable to be deducted from the gross profits or not. In this connection, as pointed out in paragraph 4 of the Award, the Appellant as well as Respondent No. 2 admitted that Respondent No. 1 was entitled to deduct from the gross profits a sum of Rs. 1,57,83,000/- on account of depreciation. The dispute, however, was as to whether it was entitled to depreciation in the sum of Rs. 3,31,52,000/- as claimed by the Petitioner. It is common ground that the depreciation admissible as a deduction is the depreciation admissible under Section 32(1) of the Income-tax Act, 1961, as laid down by Section 6(a) of the Payment of Bonus Act. In respect of this claim, the admitted position is that the only evidence tendered before the Tribunal was in the form of an order of the concerned Income-tax Officer allowing the depreciation in respect of the relevant accounting year in the sum of Rs. 3,31,52,000/-. This pertains to the year 1965–1966. The dispute about depreciation, it may be mentioned, is only in respect of 1965–1966. The submission of Mr. Dharap is that the order of the Income-tax Officer is in no way conclusive and the Tribunal should have determined for itself as to what was the correct amount admissible as depreciation under Section 32 of the Income-tax Act. It was submitted by him that it was the duty of the Tribunal to consider all the material before the Tribunal and to determine what was the correct amount of depreciation allowable under Section 32 of the Income-tax Act. In our view, it is not possible to accept this submission. The record makes it clear that, although the calculation sheets were all tendered by Respondent No. 1 before the Tribunal, the Appellant never challenged the actual figure of depreciation claimed by Respondent No. 1 on the ground that it had been allowed by the concerned Income-tax Officer. The only contention raised by the Appellant was that respondent No. 1 must give particulars of the depreciation claimed. The only evidence on record before the Tribunal was the order of the Income-tax Officer which we have referred to earlier. The correctness of that order was nowhere disputed by the Appellant. In these circumstances, and particularly in view of the fact that there was no specific challenge to the calculation of depreciation as made by the Income-tax Officer, we fail to see how the Appellant can find fault with the Tribunal for not having calculated himself the amount of depreciation.

6. In support of his aforesaid contention, Mr. Dharap sought to place reliance on the decision of the Supreme Court reported in Metal Box Company Of India Ltd. v. Workmen, AIR 1969 SC 612. In that case the claim to depreciation was made by the employer only on the basis of auditors' certificate. The Supreme Court took the view that since the Company claimed the deduction of depreciation, it stood to reason that the burden of proof that the depreciation claimed by it was the correct amount in accordance with the Income-tax Act was on the Company and that burden the Company must discharge once its figures were challenged. It was held by the Supreme Court that no presumption of accuracy could be attached to auditors' certificate. We are afraid, this decision is of no assistance to Mr. Dharap in his arguments. In the first place, there can be no comparison between an auditors' certificate issued by the auditors of a company to its client and an order of the Income-tax Officer who is called upon to determine the correct amount of depreciation. An auditor has no authority in law to determine the amount of depreciation. Unlike that, an Income-tax Officer is the person authorised to determine the correct amount of depreciation allowable under the Income-tax Act subject to any appeal or revision from his order. It is true that the order of the Income-tax Officer cannot be presumed to be correct, but on the other hand, in the absence of any challenge to the correctness of that order and in the absence of either party contending that the correct amount of depreciation is other than what was allowed by the Income-tax Officer, one fails to see why the order of the Income-tax Officer should not be regarded as relevant evidence for determining the correct quantum of depreciation allowable under the Income-tax Act.

7. The next decision cited by Mr. Dharap in this connection was the decision of the Supreme Court reported in Workmen of National and Grindlays Bank Ltd. v. The National and Grindlays Bank Ltd., (1976) 1 SCC 925 : AIR 1976 SC 611. There the Supreme Court has pointed out that the calculation of depreciation in accordance with the method Specified in Section 32(1) of the Income-tax Act as provided for in Section 6(a) of the Payment of Bonus Act would necessarily have to be done by the Industrial Tribunal which is entrusted with the task of determining the amount of bonus by applying the statutory formula. It is the Industrial Tribunal which must, in the exercise of its quasi judicial duty calculate the amount of depreciation by adopting the method set out in sub-section (1) of Section 32 of the Income-tax Act. The Industrial Tribunal cannot say that it will blindly accept the figure of depreciation arrived at by another authority charged with the function of determining depreciation under a different statute. In paragraph 9 of the judgment, the Supreme Court has pointed out that the determination of the depreciation by the Income-tax Officer concerned may be wrong or he might have made a bona fide mistake in arriving at the figure of depreciation and the workmen who could not have been present before the Income-tax Officer could not be regarded as bound by the order of the Income-tax Officer. In our view, this decision is also hardly of any assistance to Mr. Dharap. In the present case, as we have already pointed out, there was no such specific challenge to the correctness of the amount allowed as depreciation by the Income-tax Officer and the order of the Income-tax Officer was the only evidence before the Tribunal, which was not challenged by the Appellant. We find from a perusal of paragraph 9 of the judgment of the Supreme Court that after making the observations relied upon by Mr. Dharap, the Supreme Court itself pointed out that as the Income-tax Officer's certificate was admitted in evidence without any objection on the part of the workmen and the admissibility of that certificate was not challenged by the workmen at all, the certificate of the Income-tax Officer could be taken into account in considering the evidence. This would clearly show that the Supreme Court took the view that, when there was no challenge to the Income-tax Officer's certificate, the Tribiinal was entitled to act upon it. The submission of Mr. Dharap with regard to depreciation must, therefore, be rejected.

8. The next dispute relates to the items of (i) interest on bonds amounting to Rs. 37,62,000/-, (ii) interest on loans amounting to Rs. 2,42,000/- and (iii) development rebate amounting to Rs. 1,03,33,532/-. The claim of Respondent No. 1 before the Industrial Tribunal was that these amounts were liable to be deducted from gross profits for the purpose of arriving at available surplus and allocable surplus. This claim was disputed by the Appellant on the ground that these items were not liable to be deducted from the gross profits as the Appellant was not a licensee within the meaning of the Electricity (Supply) Act, 1948 (referred to hereinafter as “the Electricity Act, 1948”). This challenge has been negatived by the Tribunal as well as the learned trial Judge. The term “licensee” has been defined in Sub-section (6) of Section 2 which is the interpretation section of the Electricity Act, 1948. Sub-section (6) of Section 2 of the Electricity Act, 1948, at the relevant time, ran as follows:—

“‘licensee’ means a person licensed under Part II of the Indian Electricity Act, 1910 to supply energy or a person who has obtained sanction under section 28 of that act to engage in the business of supplying energy but, the provisions of Section 26 of this Act notwithstanding, does not include the Board;”.

9. The term “Board” is defined in sub-section (2) of section 2 as follows:—

“‘Board’ means a State Electricity Board constituted under Section 5;”.

10. It is common ground that Respondent No. 1 is a Board constituted under Section 5 of the said Act and hence is a “Board” within the meaning of the said term under the said Act. In view of these two provisions, a plain reading of Sub-section (6) of Section 2 would suggest that Respondent No. 1 cannot be included within the definition of the term “licensee” under the Electricity Act, 1948. It was, however, submitted by Mr. Patankar that it must be regarded as a “licensee” under the said Act by reason of Section 26 of the said Act. Section 26 of the said Act as it stood at the relevant time ran as follows:—

“Subject to the provisions of this Act, the Board shall, in respect of the whole State, have all the powers and obligations of a licensee under the Indian Electricity Act, 1910, and this Act shall be deemed to be the licence of the Board for the purposes of that Act:

…..….….”

11. There are two provisos to Section 26. It is not necessary to set out these provisos at this stage. The submission of Mr. Patankar is that Respondent No. 1 had all the powers and obligations of a licensee and hence must be regarded as a licensee under the Electricity Act, 1948. A close scrutiny of Section 26, however, makes it clear that Respondent No. 1 cannot be regarded as a licensee under the Electricity Act, 1948. Section 26 of that Act provides that the Board shall have the powers and obligations of a licensee not under the Electricity Act, 1948, but the Indian Electricity Act, 1910 and provides that the Act of 1948 shall be deemed to be the licence of the Board for the purposes of the Indian Electricity Act, 1910. In fact, the Electricity Act, 1948, does not contemplate the granting of any licence under that Act at all. Part II of the Indian Electricity Act, 1910, dealt with the topic of supply of energy and Section 3 thereof contains provisions for the granting of licences. Certain rights were conferred on the licensees under that Act and certain obligations imposed on the licensees. The Electricity Act, 1948, was enacted to provide for a co-ordinated system in which generation of electricity was concentrated in the most efficient units and the bulk supply of energy centralised under the direction and control of one authority. It was with that point of view that Section 5 of Electricity Act, 1948, provided for the constitution and composition of State Electricity Boards. Respondent No. 1 is a Board constituted under that section. It is interesting to note that the Sixth Schedule, under Sections 57 and 57-A of the Electricity Act, 1948, imposes very serious obligations and conditions on licensees. It is nobody's contention, and certainly not that of Mr. Patankar, that Respondent No. 1 is governed by the obligations or conditions imposed on the licensees under the Sixth Schedule of the Electricity Act, 1948. The claim of Respondent No. 1, therefore, amounts to saying that it should be regarded as a licensee within the meaning of the Electricity Act, 1948, for the purposes of benefits conferred on such licensees under the Payment of Bonus Act but not for the purpose of obligations imposed on licensees under the Sixth Schedule of the Electricity Act, 1948. Such an argument obviously cannot stand scrutiny. Apart from this, the plain language of Sub-section (6) of Section 2 of that Act which defines the term “licensee” clearly negatives the contention that a Board can be regarded as a licensee merely by reason of the provisions of section 26. In fact, it specifically negatives such a contention. In view of this, it is clear that Respondent No. 1 cannot be regarded as a licensee under the Electricity (Supply) Act, 1948.

12. The amounts of interest on loans and bonds set out above and of development rebate are claimed as deductions merely on the ground that they are included in item 6 of the Third Schedule to the Payment of Bonus Act and it was candidly stated by Mr. Patankar that these items could not be claimed as deductions under any other provision. A perusal of item 6 makes it quite clear that it is orlly a licensee within the meaning of the Electricity (Supply) Act, 1948, who can claim these deductions and hence that claim of Respondent No. 1 must be negatived. In our view, neither the Tribunal nor the learned trial Judge has analysed correctly the provisions of the relevant Acts which we have construed earlier, in all probability, because all the relevant provisions were nowhere pointed out to them and there is a clear error of law on the face of the record in this connection which is liable to be corrected in this Writ Petition.

13. Even apart from what we have set out earlier, a perusal of item 6 of the Third Schedule also makes it clear that the sums referred to therein can be claimed as deductions only if they are required to be appropriated by the licensee in respect of the accounting year to a reserve under the Sixth Schedule. In this case, the contention of Respondent No. 1 is that it is not bound by the provisions of the Sixth Schedule nor is there any reserve made by it as contemplated in the Sixth Schedule and hence it is certainly not entitled to deductions of the aforesaid three items from the gross profits as claimed by it.

14. It was finally sought to be contended by Mr. Patankar, probably more as an argument of despair than anything else, that the items of interest on loans and bonds should not have been included in the determination of the net profits at all, as they were items required to be expended for earning of profits. We are afraid, this argument is not open to Respondent No. 1 at all. No such argument has been advanced either before the Tribunal or in the trial Court. Such a contention has not even been raised in the affidavit of Respondent No. 1 in reply to the Petition. The Award of the Tribunal points out that the net profits set out in the Award of the Tribunal have been based on the calculation sheets tendered by Respondent No. 1 itself and the question of additions and deductions has been considered by the Tribunal on the basis of those net profits. In view of this, we totally fail to see how Respondent No. 1 can contend at this stage that the figures of net profits given by Respondent No. 1 itself to the Tribunal were incorrect and the matter should be remanded on that count. In the result, we remand the matter to the Industrial Tribunal for determination of the allocable surplus and the bonus liable to be paid to the employees of Respondent No. 1 for the relevant accounting, years in the light of this judgment. Looking to all the facts and circumstances of the case, and as both the parties have partly succeeded and partly failed, there will be no order as to costs of the Appeal. Appeal allowed to the extent aforesaid. It is clarified that the remand is only for the purpose of calculation of the bonus in accordance with the principles we have laid down earlier.

Order accordingly.