TMI Blog1971 (8) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... pply Co., and in this Appeal by Special Leave challenges the Award made against it, by the Industrial Tribunal (111) at Allahabad on 15th November 1965. The dispute between the Appellant and its Workmen is one relating to the bonus payable for the year 1960-61. As an amicable settlement could not be arrived at, the State of U. P. by its order dated 24-1-1962 referred the following dispute for adjudication to the Tribunal: "Should the employers be required to pay bonus to their workmen for the year 1960-61 ? If so, at what rate and with what details ?" The case of the Appellant was that after allowing for prior charges no available surplus was left for the payment of bonus to workmen. According to the Company a gross profit of Rs. 6,06,684/- was earned for the year ending 31st March, 1961, but the Tribunal added to it a sum of Rs. 9,949/- as representing extraneous income and consequently computed the gross profit at Rs. 6,16,633/-. The following prior charges were claimed by the Appellant and we have indicated as against each one of these in the opposite columns what the Tribunal has awarded and disallowed:- Amount claimed by the Appellant Amount allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was not entitled to claim the double shift depreciation during the year in dispute. The contingency reserve and the development reserve were disallowed as in the view of the Tribunal they were not a charge on the profits. The rehabilitation requirements were rejected on the ground that the Company had failed to prove the original cost of the plant and machinery; that it had failed to show the actual amount spent on rehabilitation of plant and machinery either in the year in dispute or in any subsequent year; that no rehabilitation allowance was claimed in the previous year; that the cost of the assets of the Company had not been duly proved as engineers were not called and that the quotations produced by the Company could not be relied upon. The return on working capital was disallowed on two grounds; namely that the calculation of the working capital has been made on the basis of the assets and rehabilitation as they stood on the closing day of the year 1960-61 namely on 31-3-61 Which is a mistake because whatever may have been the assets and liabilities at the end of the year they would not be the same at the beginning of the year nor could they be applied as the working capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation and designated under that head would not be sufficient for these purposes, so an extra amount would have to be annually set apart under the heading reserves to make up the deficit. The question what is the ratio of the available surplus which could be awarded as a bonus was also considered. The Full Bench felt that the answer was not an easy one, but essentially the quantum of bonus must depend upon the relative prosperity of the concern during the year under review which is reflected in the amount of surplus; the needs of labour at existing wages is also a consideration of importance. It observed in para 37: "........ but we should make it plain that these are not necessarily the only considerations; for instance no scheme of allocation of bonus could be completed if the amount of which bonus is to be paid is unrelated to the employees" efforts; and even when we have mentioned all these considerations we must not be deemed to have exhausted the subject". This Court in Muir Mills Co. Ltd. v Suti Mill Mazdoor Union, Kanpur([1955] (1) S.C.R. 991), generally accepted as sound the view of the Full Bench, that since labour and capital both contribute to the earnings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Their Workmen.([1960](3) S.C.R. 68), In this case also this Court held that the Full Bench formula was applicable to electrical undertakings and to the formula relating to the statutory depreciation except for additional and initial depreciation-though there was nothing in it which would indicate whether the depreciation deductible was according to the Electricity (Supply) Act or the Income-tax Act. There is however, no doubt that in the U. P. Electricity case the Full Bench did in fact apply the income-tax Rules for ascertaining depreciation. In Ahmedabad Miscellaneous Industrial Workers Union v. Ahmedabad Electricity Co. Ltd.([1962] 2 S.C.R. 934) the Full Rench formula applying the Income-tax Act rules to ascertain depreciation as a prior charge was approved. It was also observed that it was not open to the Appellant to raise the question that the provisions of the seventh schedule to the Electricity (Supply) Act should be applied for purposes of calculating depreciation in preference to the income-tax rules in working ,out the Full Bench formula. Even on the assumption that the question was still open, because as Wanchoo, J., -observed "it was never directly raised in this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have to be a scertainad and for that purpose the balance sheet and the profit and loss account as required under the Companies Act has to be looked into. If the entries are contested then they have to be proved like any other contested fact. (2)The relevant year for which bonus is claimed is a self sufficient unit and the appropriate accounts have to be made on the notional basis in respect of the said year. Once the bonus year is taken as a Unit self sufficient by itself the decision of the Labour Tribunal in regard to the refund of excess profits tax and the adjustment of the previous years depreci-ation and losses against the bonus year s profit must be treated as logical and sound. (3)The ascertainment of depreciation is according to the Income-tax Act and what is allowed as a prior charge is the annual notional normal depreciation and not the actual depreciation which is in fact allowed. The formula of the Full Bench in the U.P. Electricity case as explained and clarified in Surat Electricity"Co. Ltd. Staff Union v. Surat Electricity Co. Ltd., ([1957] (2) L..LJ. 648) was approved in the Ahmedabad Miscellaneous Industrial Workers Union case and in the case in Hamda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Then the cost of these separate blocks has to be ascertained and their probable future life has to be estimated. Once this estimate is made it becomes possible to anticipate approximately the year when the Plant or machinery would need replacement; and it is the probable price of such replacement on a future date that ultimately decides the amount to which the employer is entitled by way of replacement cost. The claim for rehabilitation includes also the claim for replacements and modernization. It is quite conceivable that certain parts of machines, which constitute a block may need rehabilitation though the block itself can carry on for a number of years. This process of rehabilitation is a continued process and unlike replacement, its date cannot always be fixed or anticipated. So with modernization all these three items are included in the claim for rehabilitation. It is therefore necessary for tribunals to exercise their discretion in admitting all available evidence to determine this difficult question. For a fuller discussion in see: The Associated Cement Companies case at pages 966-968. The probable cost is reached by adopting a multiplier based on the rates between the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in many cases it plays a significant part in the final distribution. It was also held that overtime payment ought not to have been taken into account as part of the basic wage in calculating bonus payable. This innovation would make an unreasonable distinction between workmen and workmen on the basis that G some have contributed more and the others less to the earning of profits. We now propose to examine each of the claims of the Appellants in the light of our observations as to the formula applicable in determining its validity or otherwise. At the outset it may be noted that on behalf of the Appellant only a solitary witness, M. K. Ghosh a Chartered Accountant of the Company who on his own admission had joined the Company six months prior to his giving_ evidence was produced. Obviously this witness could not speak about the relevant matters from his personal knowledge. Apart from this infirmity the Tribunal has characterised his eividence as contradictory, evasive and not reliable. Innumerable statements, letters, balancesheet, profit and loss account and other documents called for or otherwise were filed on behalf of the Appellants. It cannot be denied that the mere fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-estimated. The item of rehabilitation is generally a major item that enters into the calculations for the purpose of ascertaining the surplus and therefore, the amount of bonus. So, there would be a tendency on the part of the employer to inflate this figure and the employees to deflate it. The account of a Company are prepared by the management. The balance sheet and the profit, and loss account are also prepared by the Company s officers. The labour has no concern in it. When so much depends on this item, the principles of equity and ,justice demand that an Industrial Court should insist upon a clear proof of the same and also give a real and adequate opportunity to the Labour to canvass the correctness of the particulars furnished by the employer," At Pages 847-850, the Indian Hume Pipe Co s case (citation given is incorrect--the -correct citation is 1959 (2) LLJ 357) -Tata Oil Mills Co. Ltd., Vs.. Its Workmen (citation given in the report incorrect) and Anil Strach Products Ltd. v. Ahmedabad Chemical Workers Union, cases (Civil Appeal No. 684 of 1957) were referred to and discussed. It was pointed out that Anil Starch Products Ltd., again reinforced the view of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us that as the Evidence Act does not strictly apply the calling for of the several documents particularly after the employees were given inspection and the reference to these by the witness Ghosh in his evidence should be taken as proof thereof The observations of Venkatram lyer J, in Union of India v. Varma, ([1958] 2 L.L.J. 259, 263-264) to which our attention was invited do not justify the submission that in labour matters where issues are seriously contested and have to be established and proved the requirements relating to proof can be dispensed with. The case referred to above was dealing with an enquiry into the misconduct of the Public Servant in which he complained he was not permitted to cross-examine. It however turned out that he was allowed to put questions and that the evidence was recorded in his presence. No doubt the procedure prescribed in the Evidence Act by first requiring his chief-examination then to allow the delinquent to exercise his right to crossexamine him was not followed, but that ,the Enquiry Officer, took upon himself to cross-examine the witnesses from the very start. It was contended that this method would violate the well recognised rules of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fidavit or by witnesses who have executed them, if they are alive and can be produced. Again if a party wants an inspection, it is incumbent on the Tribunal to give inspection in so far as that is relevant to the enquiry. The applicability of these principles are well recognised and admit of no doubt. We now propose to examine the claim under each one ,of the heads, not-only those in respect of the prior charges but also in respect of contingency and development reserves which have to be taken into consideration for determining the amount of bonus to be declared out of the available surplus. The first claim is in respect of depreciation on account of double shift. The Appellant did not claim any depreciation in respect of electric cables. The only was relating to plant and machinery which comprises of boilers and turbines. Ghosh P. W. I stated that the plant and machinery worked more than double shift. In support of his statement he filed Exhibit E. 16 which he stated was correct as he had verified it from the records. Exhibit E.- 16 is not a document prepared by the witness but appears to have been prepared and signed by the Resident Engineer, according to which the total nu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for the notional depreciation.- In calculating the amount deductible from gross profits. On account of Income-tax the learned Advocate of the Appellant contends that the Tribunal s calculations were: wrong. What the tribunal has done-is though it deducted the notional normal depreciation of Rs. 2,02,814/- from the gross profits it had for the purposes of computation of Incometax deducted the statutory depreciation of Rs. 2,52,442/- and on the balances of that figure namely Rs.. 2,32,035/- computed Income-tax @ 45% amounting to. Rs. 1,04,415/-. If the contention of the learned Advocate, for the Appellant was accepted and only the notional nor-mal depreciation alone was deducted for computing the Income-tax the Income-tax deductible would come to Rs.. 1,26,748/-. It was again sought to be contended that the development rebate on plant installed @ 25 % on, Rs. 1,28,513/- amounting to Rs. 49,628/- could not form. part of the statutory reserve which together with the notional normal depreciation came to Rs. 2,52,4421-. It was submitted that development rebate is not one of the species of depreciation; that it is a rebate for development which is, dehors depreciation and has nothin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also another statement Ex. E. 18 which showed details of the approximate working capital required for running the Undertaking. Ex. E. 6 is a statement. Showing the annual wages and salaries and E. 7 shows ,deficiency of surplus of funds for normal working of the Undertaking. The Tribunal attached no value to these -statements as the calculations of working capital was arrived at on the basis of assets of reserve as they stood on 31-3-61 i.e. on the closing day of the year 1960-61. The ,learned Advocate for the Appellant had to concede that the Tribunal was right in rejecting this basis as the basis for working capital. What he says should have been done ,was to have taken the amount at the beginning of the year namely 1st April 1960 and to add to this amount the amount of reserve actually utilised during the bonus year as working capital. The evidence of Ghosh in this as in other matters was of little assistance to the Appellant. While he stated that Rs. 10,09,000/- was the working capital of the Company during the year, in cross-examination he admitted that the consumers deposits have been used in the business as working capital. Later on he sought to explain it by an applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isor. In support of the replacement cost, quotation of prices Ex. E. 21 to E. 24 have been filed. These are from M/s. Martin Burn Ltd., as Agents of M/s. C. A. Pearson Co. Ltd., Babcocks Willcox of India (P) Ltd., -Indian Cable Co. Ltd., representing British Insulated Calendar Cables Ltd., and the Indian Iron Steel Co. The first objection against the admissibility of these letters is that they have not been proved by anyone of the persons who have written these letters or any of the representatives of the firms whose letters they are. As has been noticed Ghosh is the omnibus witness and he has no knowledge whatever in respect of any of the matters- stated therein nor can he speak to the precise requirement for rehabilitation. It is rather surprising that the employer who is making such a big claim have not called any one as a witness who can speak with knowledge of the age, the, requirements and the increase in the prices of replacements. The original cost ,of these blocks has been prepared by Shri Chatterji (Ex. E. 19 and Ex. 20). But he has, not been produced and an ,attempt was made to prove them through the evidence of Ghosh. The Tribunal states that a number of questio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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