The Judgment of the Court was delivered by
K.N Wanchoo, J.— This is an appeal by special leave against the award of the Industrial Tribunal, Bombay, in a dispute between the Anil Starch Products Ltd., Ahmedabad (hereinafter referred to as the Company) and its workmen, in the matter of profit bonus for the year 1953. The dispute arose over the demand made by the workmen for payment of six months' wages as bonus for that year. This dispute was referred to the Industrial Tribunal by the Government of Bombay by its order dated 15-7-1955. The Company had already paid one month's basic wages as bonus to its workmen and the real dispute was thus only about the remaining bonus for five months.
2. The case of the workmen was that the Company had made substantial profits during the year. The wages-cum-dearness allowance paid by the Company was low and therefore, profit bonus at the rate of six months' wages should be granted to fill the gap between the wages paid and living wage. The company on the other hand contended that it was giving high wages and had already paid one months' basic wage as profit bonus and there was no scope for further payment of bonus as the available surplus, according to the Full Bench formula, did not justify it.
3. The main dispute before the Tribunal related to three items, namely—
(i) Depreciation, and how it should be calculated for the purposes of the Full Bench formula?
(ii) Whether any return should be allowed on the money in the depreciation reserve fund used as working capital; and if so, what?
(iii) What should be the amount to be provided for rehabilitation?
4. The Industrial Tribunal took into account the total statutory depreciation, even though this was against the decision of the Labour Appellate Tribunal in the U.P Electricity Supply Co. Ltd. &c., electricity supply undertaking v. workmen (1955) (II) LLJ 431. The Tribunal also disallowed any return on depreciation fund, even if any part of it had been used as working capital. Lastly, it reduced the amount claimed for rehabilitation from Rs 5.16 lakhs to Rs 2 lakhs. After making the relevant calculations on this basis, it came to the conclusion that there was surplus available for giving bonus at the rate of two months' basic wage. It may be mentioned that bonus at the rate of one month's basic wage works out at Rs 18,000. The Company thereupon applied for special leave to appeal which was granted; and that is how the matter has now come before us for decision.
5. The three points which were agitated before the Tribunal, have also been raised before us. We shall first take the question of depreciation. This matter has been considered by us in The Associated Cement Companies Ltd., Bombay v. workmen CAs Nos 459 and 460 of 1957 judgment in which is delivered today. In accordance with the decision in these appeals we are of opinion that depreciation should be allowed on the basis of what is called “notional normal depreciation”. Income tax should be deducted on the basis of the amount payable, which means that the entire statutory depreciation has to be taken into account for purposes of income tax. This is also the decision of this Court in Meenakshi Mills, Madurai v. CIT, Madras (1956) SCR 691. In the calculations that we are making in this appeal, this method is being followed.
6. We then come to the question whether any return should be allowed on depreciation reserve used as working capital. The Tribunal, in our opinion, was in error in not allowing any return on the depreciation reserve used as working capital. The reasons given by it for this view are, in our opinion, untenable and unsatisfactory. Method of accounting has nothing to do with the question whether a return should be allowed on depreciation reserve or such part of it as may have been actually available and used as working capital. We also cannot understand why if money is available in the depreciation reserve and has actually been used as working capital during the year, as explained in Tata Oil Mills Co. Ltd. v. Workmen CA 321 of 1958 no return should be allowed on it, simply because provision for depreciation out of which depreciation reserve is accumulated is made from year to year in the accounts. We have considered this matter at length in the appeal, Tata Oil Mills Co. Ltd. v. Workmen CA 321 of 1958 judgment in which is delivered today, and for reasons given there we are of opinion that if there is in fact money available in the depreciation reserve and if that money is used actually as working capital as explained there, a return should be allowed on the same. Learned counsel for the respondents, however, wanted to contest that the sum of Rs 14 lakhs shown in the depreciation reserve was not available for being used as working capital. It is enough to say in that connection that an affidavit was filed by the Manager of the Company to the effect that all its reserves including the depreciation fund had been used as working capital. The Manager appeared as a witness for the Company before the Tribunal and swore that the affidavit made by him was correct. He was cross-examined as to the amount required for rehabilitation, which was also given by him in that affidavit; but no question was put to him to challenge his statement that the entire depreciation reserve had been used as working capital. The Tribunal also did not go into the question whether any money was available in the depreciation reserve fund and had been actually used as working capital. It dismissed the claim for return on the depreciation reserve on entirely different grounds. In the circumstances, we must accept the affidavit so far as the present year is concerned and hold that the working capital was Rs 34 lakhs. It will, however, be open to the workmen in future to show by proper cross-examination of the Company's witnesses or by proper evidence that the amount shown as depreciation reserve was not available in whole or in part as explained above to be used as working capital and that whatever was available was not in fact so used. For purposes of the present appeal, 4 per centum interest on the working capital on the total sum of Rs 34 lakhs must be allowed.
7. As to the question of rehabilitation, we do not think it necessary in this appeal to go into that; for even accepting the sum of 71 lakh allowed by the Tribunal, there will be nothing left to justify the grant of any further profit bonus beyond that given by the Company. This matter may be gone into again in any future adjudication that may arise.
8. We now come to the calculations in accordance within the Full Bench formula, subject to what we have said above.
In lakhs
Rs
Gross Profits
5.68
Less notional normal depreciation.
1.29
Balance…………………
4.39
Less income tax at -/7 in the rupee (see Note A below).
1.80
Balance…………………
2.59
Less 6% return on paid-up capital.
.60
Balance…………………
1.99
Less 4% return on working capital of Rs 34 lakhs.
1.36
Balance…………………
.63
Less Rehabilitation Charge.
.71
Balance…………………
—.08
Note A
In Lakhs
Gross Profits
Rs
5.68
Total statutory depreciation
1.57
Balance……
4.11
Income tax @-/7 in the
rupee…………………..
1.80
9. There is thus no available surplus even to pay one month's bonus. In the circumstances, the Tribunal was in error in allowing any further bonus. We, therefore, allow the appeal and set aside the order of the Tribunal allowing further bonus over and above what had already been paid by the Company. In the particular circumstances of this case, we order the parties to bear their own costs.