TMI Blog1962 (4) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... Messrs. Tulsidas Khimji and for the relevant year ended October 31, 1958, the partners were (1) Shri Karsondas Tulsidas (2) Shri Ranchhodas Goculdas (3) Shri Narandas Tulsidas (4) Shri Moolsing Karsondas (5) Shri Shantu Karsondas and Shri Narendra Ranchhodas. They are closely related to one another. The first two partners aforesaid have been associated with the firm for about 40 years, the third for about 35 years, the fourth for about 15 years, the 5th for about 8 years and the 6th for about 5-6 years. At all material times, the six partners had been working for and in the interest of the firm, which carried on different kinds of business, namely, (1) Clearing and Forwarding Agents, (2) Godown Keepers, (3) Insurance Agents and (4) Cotton Supervisors and Controllers. For carrying on these different kinds of business, they maintained four different and distinct departments. The respondents are workmen employed under the firm. The question referred to the Tribunal was quantum of bonus payable to workmen for the year ended October 31, 1958 . A number of issues were raised before the Tribunal, of which it is only necessary to notice the 4th and the 5th issues, which are as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service and at a customary or traditional bonus, and the respective tests to determine them. The Tribunal, therefore, held that the workmen were entitled to claim bonus on each of the three alternative basis, namely, (1) Profit-sharing bonus, (2) bonus as an implied term of service and (3) customary or traditional bonus on the occasion of Dewali. The Tribunal pointed out that the appellants had already paid to its workmen bonus equivalent to one month's basic wages, which amounted to ₹ 20,780/-. In order to determine the question of the first kind of bonus, namely, profit-sharing bonus, the Tribunal had to determine the available surplus. In order to do that, it had to grant certain deductions from the gross profits. The appellants claimed deductions under a number of heads, but we are concerned only with two out of them, namely, (1) whether the appellants' claim for deduction of 51% out of the gross profits on accounts of Income-Tax was justified, and (2) what should be the amount of remuneration for the six partners, in respect of which also deduction may be granted. The Tribunal decided that the amount of tax payable by the firm, as such, should be deducted and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, or on the basis of the Tax payable on the lumpsum income of 1.95 lakhs by an unregistered firm, or on some other basis which may have some resemblance to what each one of the partners has to pay in respect of his income (2) that the partners' remuneration should not have been fixed by the Tribunal at ₹ 20,000/-, by a rule of thumb, but should have been fixed on the basis of reasonable remuneration which the firm should pay to the partners for running its business in the four departments, aforesaid. In this connection, it was said that if ₹ 96,000/-, as claimed by the appellants, was thought to be too high, a figure of ₹ 48,000/- which is half the amount claimed, would be highly reasonable in the facts and circumstances of the business of the firm; and (3) that the Tribunal had misdirected itself in arriving at a finding that the workmen had succeeded in establishing their claim to traditional or customary bonus at a uniform rate of one month's basic wages plus dearness allowance. We shall take up the points in the order indicated above. It is not contested on behalf of the respondents that some deduction has to be made on account of income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and rupees, which has the effect of setting apart the major share of the profits for income-tax on a highly notional basis. The 4th alternative of taking into account the word income of the partners of the firm world be equally unjust and unfair to the workmen in the case of the members of the firm being very rich persons. This course would be highly objectionable from another point of view, which is a very important consideration, namely, that in order to determine the bonus payable for a particular year of working of the firm, the word income of the partners of the firm may have to be determined in the first instance, which process may take years. As the appellants themselves have rightly stated that the deduction on account of income tax has to be on a notional basis, the basis has got to be such as to be readily ascertainable, and that can only be done by making calculations on the profits of the firm itself, for the particular year. The last alternative of allowing deduction under this head of calculating income tax on the actual figures of the profits of each of the partners separately appears to be reasonable, because the figures are known and the tax of each constituent mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he firm in question. It is equally true that the sum of ₹ 20,000/- fixed by the Tribunal, under this head, amounting roughly to 10% of the gross profits is more or less conjectural. We know that the sum of ₹ 4,60,000/- represents roughly the wage bill for the year in question. Comparing the sum allowed by way of remuneration to the partners to this figure, it appears to us that the amount fixed by the Tribunal errs on the said of inadequacy. But this Court is not in a position to come to any definite conclusion of its own the record as it stands, assuming that it is open to this Court to record a finding, which is more or less one of fact, in disagreement with the finding of the Tribunal. It must be added that this Court does not function as a regular Court of Appeal from the Tribunal. Its function is merely to see that the law is being properly administered, in accordance with well settled ruled of natural justice. Hence, we would not embark upon a fruitless task of determining a figure which will not have any substratum of solid facts and figures to support our conclusion. The remaining question of traditional or customary bonus has been pressed upon us on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even when there were losses is a condition precedent because, as has happened in this case a company or a firm may have an unbroken record of profits ever since it started working. Hence, if it were to be held as a condition precedent, payment of bonus satisfying the three conditions aforesaid but not this one, for however, long a period, would have to be held as insufficient to establish the claim for this kind of bonus. Between profits and loss in a particular year, there may be a very small gap. The loss may be of one rupee; and similarly profits may be equally nominal. The third alternative, which may be supposed, is neither loss nor profit. According to the appellants' contention, the case for such a bonus is made out in the first supposition of a nominal loss, but not of the second or the third alternatives. The law cannot be founded on such unsubstantial considerations. The question in such cases is always one of substance, and not of form. We cannot, therefore accept the submission that loss substantial or otherwise is a sine qua non. The observations of this Court in the decisions referred to above must be understood as based on considerations of substance and not of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed in respect of the year in question also. This was so in spite of the fact that the profits have fluctuated considerably from year to year. Even after payment of the bonus as directed by the Tribunal, and making allowance for the higher amount of income-tax as determined by us, the appellants are left with a substantial amount by way of their share of the profits. It would thus appear that the Tribunal has not been too generous to the workmen when it allowed a consolidated bonus of three month's basic wages minus the amount already paid to them. In the result, the appeal fails and is dismissed with costs. AYYANGAR, J. I regret my inability to agree in the order proposed by my Lord the Chief Justice. The facts of the case and the points in dispute arising for decision have been exhaustively set out in that judgment and I consider it unnecessary to respect them. It will be seen that the controversy is confined to two matters (1) the quantum of the profit-bonus, if any to which the respondents would be entitled, for Samvat year 2013 (1956-1957) and (2) the correctness of the declaration by the Tribunal in its award now under appeal that the respondents are entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the partners. As regards the first item, viz., income tax payable, I am in respectful agreement with the reasoning and conclusion of my Lord the Chief Justice that where the employer is a firm that is Registered under section 26-A of the Indian Income Tax Act the income tax that the employer is entitled to deduct, is not the Registered firm tax on the gross profits of the firm but the tax that would be payable on the share income of each partner. Both the learned Attorney-General for the appellants and Mr. Aggarwala for the workmen laid stress on the fact that the deduction from gross profits of income tax for computing the available surplus has been referred to by this Court as a notional item (vide e.g. p. 381 1960 3 S.C.R. 378) and each of them developed an argument founded on this description. Relying on the notional character of the tax deduction, the learned Attorney General contended that the figure deducted ought to be the some whether the employer was a company, firm or any other unit of assessment, viz., 7 annas in the Rupee at one age and 51% when the income tax payable by a company was raised to that figure. Mr. Aggarwala on the other hand submitted that in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different year are eliminated, one has to work out the actual tax payable on the income under the relevant provisions of the Income Tax Act before the figure of available surplus which could be distributed between the employer and the workmen could be ascertained. The rate of 7 annas in the Rupee was applied by this court to cases where the employer was company to whom that rate applied under the then Income Tax Act, and not as any notional figure to be deducted. It has to be borne in mind that the calculations are for the purpose of ascertaining the available surplus and so have to be related to the amount available after payment of the tax. The fact that certain items such as, for instance, the penalty payable for defaults under the Income Tax Act or credits received thereunder which are unrelated to the normal tax payable on the income derived by the employer are ignored, does not imply that the amount deductible under this head is wholly unrelated to the provisions of the Income Tax Act or to the amount that would be available as surplus in an idealised condition, i.e. after elimination of the inadmissible factors. It is only in that sense that the figure is notional i.e. in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 26-A of the Income tax Act the position since 1956 is briefly this. Income tax as specially low rates is assessable on the profits of a registered firm, but not super tax. The partners of the registered firm are liable to be charged in their individual assessments to both income tax and super tax in respect of their share of profits derived from the firm. There is thus an element of double taxation-in the case of registered firms, in respect of income tax but not for super tax and only a partial relief against the double taxation is afforded by section 14(2)(aa) of the Income Tax Act. What I desire to point out is that the registered firm tax is as much a tax paid by the partners together and is as much a deduction out of the surplus profits available for distribution as the income tax paid by the partners individually. I do not therefore see any basis for the distinction between the registered firm tax paid by the partners together and the individual income tax payable on their share income by each of the partners. In my opinion, subject to the rebate allowed under section 14(2)(aa) the amount of registered firm tax payable by the firm should be added to the ₹ 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeared to consider that ₹ 48,000/- was reasonable, he however, latter stuck to the position that it we did not accept the finding of the Tribunal that ₹ 20,000/- was reasonable, remuneration the case should be sent back for a computation on the basis of further evidence which the parties might adduce. Bearing in mind that the dispute before us relates only to one year and that the parties might adduce more satisfactory evidence in regard to latter years if there should be a dispute, I consider that it would not be worthwhile as it would impose an unnecessary strain on the parties, to have the matter remitted to the Tribunal for a fresh finding on the Issue. In the circumstances, I consider that the best courts would be for this Court to determine the reasonable remuneration on the basis of the materials already on record. It is in evidence that the managerial staff, who are undoubtedly working under the partners, were paid a remuneration of ₹ 750/- p.m. That, in my opinion would afford some indication of the scale or wages in this concern payable to the superior staff. If a paid manager instead of a partner were employed, his remuneration would reasonably ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two months' basic wages and even taking into account the concession that the learned Attorney-General made that the return on partners' working capital be computed not at 9 per cent. as the Tribunal has done, but at 6 per cent.; the result would not be very different, for the would add only ₹ 3000/- and odd rupees to the surplus pool. In my opinion therefore, the bonus that should be awarded to the respondents should be reduced from three months' basic wages to basic wages for a period of 2 months' which would absorb ₹ 41,560/- and leave something less then ₹ 40,000/- to the employer instead of the ₹ 87,000/- which the Tribunal considered as a reasonable apportionment for the employer. The next matter in controversy is whether the Tribunal was right in declaring that the workmen were entitled to customary festival bonus of one months' basic wage on the occasion of Diwali. The question of customary bonus has been the subject of consideration by this Court on more than three occasions. Before referring to these decisions it is necessary to restate some facts which are not in controversy (1) It is an admitted fact that a bonus has been p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus that the said payment should have been made in a year in which there was loss and as admittedly this condition was not satisfied in the case of the appellants' business, the declaration granted by the Tribunal was unjustified. I shall now proceed to refer to the authorities Messrs Ispahani Ltd. Calcutta v. Ispahani Employee's Union ([1960] 1 S.C.R. 24.) and Graham Trading Co. (India) Ltd. v. Its Workmen ([1960] 1 S.C.R. 107.) were heard by the same Bench and the judgment in both were delivered by Wanchoo J., the earlier on May 6, 1959 and the latter on the next day. One of the point involved in Ispahani's case was whether the workmen were entitled to Puja bonus for 1953. It was an appeal by special leave from a judgment of the Labour Appellate Tribunal, Calcutta. The Industrial Tribunal had held that it had not been established that Puja bonus had been paid at uniform rates for a sufficiently long and unbroken period, an rejected the claim for Puja bonus for 1953. There was an appeal by the workmen against this award of the Tribunal which was allowed by the Labour Appellate Tribunal which held that the claim to Puja bonus had been established. This decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to justify an inference of traditional and customary puja bonus than may be the case with puja bonus based on an implied term of employment; (iii) the circumstance that the payment depended upon the earning of profits would have to be excluded and therefore it must be shown that payment was made in years of loss........... (iv) the payment must have been at a uniform rate throughout to justify an inference that the payment at such and such rate had become customary and traditional in the particular concern. It will be seen that these tests are in substance more stringent than the tests applied for proof of puja bonus as an implied term of employment. Lather, dealing with the facts from which the Court drew an inference that the workmen had established the right to customary bonus and particularly condition (iii) italicised earlier, the learned Judge added The conditions that the payment should have been made in years of loss also to exclude that hypothesis that it was paid only because profit had been made, has also been satisfied, for the evidence is that payments were made in at least two years of loss. The third case of this Court in which the point arose was Eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here it is referred to as the third condition and the specific reference to loss in the three other decisions, particularly bearing in mind the fact that the same members of the Court had taken part in these several decisions, and Gajendragadkar, J. took part in all the four, I feel unable to hold that the learned Judges did not intend this to be an essential condition. In the Graham case the reason for the insistence of this condition is stated viz. that is only a payment during a year when there is loss that would negative the payment being a bounty. In these circumstances I do not consider it possible to construe these judgments as laying down that payment during a year of loss was merely a relevant circumstance and not a necessary condition. If, as I have pointed out earlier, what the Court is now called on to do is only to construe these decisions, and not consider the question afresh, I feel compelled to hole that in these several decision this Court did lay down that this was a sine qua non for making good the claim. It was suggested during the course of the argument that there was no difference between a loss of one rupee for the year and a profit of a similar sum and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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