Appeals Nos 356 and 357 of 1966
Appeals by special leave from the Award of the Industrial Tribunal Rajasthan in Case No 9 of 1961
Niren De Addl
Solicitor General Sobhag Mal fain an B P Maheshwari for the appellant in C A No 356 of 1966 and respondent in C A No 357 of 1966
782 M K Ramamurthi Shyamala Pappu and Vineet Kumar for the appellants in C A No 357 of 1966 and respondents in CAs
No 356 of 1966
The Judgment of the Court was delivered by Shelat J
These two appeals by special leave one by the appellant company and the other by its workmen are directed against the award dated May 4 1964 of the Industrial Tribunal Rajasthan to which reference was made under section 101d of the 
The dispute referred to the Tribunal related to the workmen s demand for bonus for the years 1956 57 to 1959 60
By the said award the Tribunal disallowed the claim for 1956 57 on the ground that it was belated and allowed the demand for the rest of the years 1957 58 to 1959 60
In working out the available surplus for distribution as bonus the Tribunal in general followed the Full Bench formula evolved by the Labour Appellate Tribunal in Millowners  Association Bombay vs Radhtriya Mill Mazdoor Sangh Bombay1 and approved by this Court in the Associated Cement Co Ltd vs Its Workmen2 The Tribunal worked out first the gross profits for the said years and the prior charges deductible therefrom and arrived at the available surplus
For the year 1957 58 gross profits found were Rs 2829 lacs Rs 2536 lacs for 1958 59 and Rs 3492 lacs for 1959 60
There is no dispute about these figures
The Tribunal then ascertained the prior charges deductible from the gross profits
There is no dispute with regard to the figures for depreciation income tax and wealth tax
As regards interest allowable on paid up capital the Tribunal allowed 6
per annum tax free interest for 1957 58 and the Company remanded interest at the rate of 857 by reason of a change in he Income tax law having been made during the year
The Union on the other hand claimed that only 6  interest should be allowed
The Tribunal allowed a mean between the two viz 7 14
There was no question of interest on working capital as it was not the Company s case that any reserve was utilised as working capital similarly there is no dispute with regard to the rehabilitation charge for buildings allowed by the Tribunal
Apart from the question
as to interest allowable on paid up capital for the year 959 60 the main dispute
in these appeals is with regard to the rehabilitation allowances in respect of plant and machinery for he three years in question and the method followed by the Tribunal in calculating them
1 1950 IIJ 1247
2 783 The Company ever since its commencement has been purchasing new and also old reconditioned machinery
As regards new machinery the Company furnished a cost to the Company b the current price during the year 1963 64 and c percentage in the rise in prices
The Company also furnished in respect of reconditioned machinery a cost to the Company and b estimated cost which its vendors would have paid if they had purchased it as new in the years in which the Company installed the old machinery
In respect of the old machinery the cost to the Company and the estimated cost to the sellers according to the Company were as follows Year Cost to the Estimated cost to Company the sellers In lacs In lacs Upto 1952 53 1387 2005 1953 54 to 1955 56 349 523 1956 57 1 40 210 9157 58 1 77 265 Total 2003 30 03 The difference between the cost to the Company and the estimated cost to the sellers thus come to 150
No old machinery was purchased during 1958 59 and 1959 60
The Company also produced quotations of prices for equivalent machinery current in year 1963 64
The Union did not dispute a the figures of cost to the Company of the new machinery as given in its statement exhibit M2 b the figures of cost of old machinery to the Company and its estimated cost to the sellers as given in exhibit M 3 and c the quota tions of prices received by the Company in 1963 64 from manufacturers of these machines both old and new except in the case of machinery installed during the bonus years
 The Tribunal worked out the rehabilitation requirements for the years 1957 58 to 1959 60 in a Chart which is Annexure A to the award
Since the controversy in these appeals mainly centers round the figures of rehabilitation requirements allowed by the Tribunal it is expedient to set out that Annexure 784 784a Period Cost Cost as Multi Total Less Balance shown by plier break Co in down EX
M value 5 1 2 3 4 5 6 7 1050 51 New 1630 1630 336 5477 081 5396 Old 1337 2005 6737 Nil 6737 1951 52 New 143 143 187 267 007 260 1952 53 New 218 218 147 321 011 310 1953 54 New 112 112 228 255 006 249 Old 124 186 228 424 
 424 1954 55 New 371 371 186 690 019 671 Old 195 293 186 545 Nil 545 1955 56 New 693 693 218 1511 035 1476 Old 030 045 218 098 Nil 098 1956 57 New 1311 1311 235 3080 066 3014 Old 140 210 235 493 Nil 493 1957 58 Now 339 339 1 339 017 322 Old 177 265 1 265 Nil 265 1958 59 New 1295 1295 1 1295 065 1230 1959 60 New 3076 3076 1 3076 154 2922 784b Minus deprociation Balance Divisor Annual Require ment 8 9 10 11 Rupees in lakhs Total cost as new  old Machy3003 2435 7 348 Depre written off upto 31 3 57 4883 260 8 032 310 9 034 Investment as on 31 3 57 249 10 025 1822 424 7 061 Total 96 98 671 11 061  545 7 078 1476 12 123 098 7 014 3014 1 3 232 493 7 070 322 14 023 265 7 038 1139 1230 14 088 1227 2922 14 208 1435 785 It will be observed from Annexure A that the Tribunal accepted as regards new machinery the Company s figures of cost and quotations as cost of replacement and dividing the cost of replacement by the original cost to the Company I worked out multipliers for each year
This dispute however is with regard to the multipliers arrived at by the Tribunal in respect of old machinery
In Annexure A the Tribunal adopted 336 multiplier in res pect of old machinery installed in 1950 51 ie the same multiplier which it worked out in respect of new machinery installed during that year
For the years 1953 54 to 1957 58 the Tribunal accepted the Company s figures which were agreed to by the Union viz of cost to the Company and the estimated cost to their vendors if the latter had purchased that machinery as new in the respective years of installation
The Company also produced quotations from manufacturers of machinery itemwise in its Confi Annex
I and 2
These quotations were for some machines for 1959 60 for some for 1960 61 and the rest for 1961 62
It would be safe to say that the average cost of these machines was the cost prevalent in 1960 61
Though the average cost of the machinery was thus available the Tribunal in the case of old machinery worked out multiplier for each of these years and then arrived at the figure of Rs 8562 lacs as the total replacement cost of that machinery by multiplying the estimated cost to the seller with the multiplier
The Company s contention was that since the Company had fur nished quotations for all machinery including the old machinery the Tribunal ought to have accepted those quotations as equivalent to replacement cost as it did in the case of new machinery instead of adopting the notional method of working out multipliers and then arriving at replacement cost by multiplying that multiplier with the estimated cost to the sellers
A multiplier is the ratio between the original cost and the cost of replacement
It is one of the methods of arriving at the hypothetical cost of replacement at a future date
But where the cost of replacement is available through quotations and these quotations are not disputed by the Union it would not be necessary to resort to a hypothetical multiplier or if the multiplier must be ascertained it must be the ratio of the cost to the employer and the estimated cost of replacement actually proved through the quotations
According to the Company in the case of old machinery the multiplier so calculated would be 1950 51  398 1953 54  783 1954 55  349 1955 56  247 1956 57  475 1957 58  229 786 The total cost of replacement of old machinery on the basis of these multipliers or in the alternative on the basis of the quotations would then come to Rs 12170 lacs instead Rs 8562 lacs the difference being of Rs 3608 lacs
Therefore even if the divisor of 7 uniformly_ applied by the Tribunal in Annex
A were to be accepted as correct Rs 36087Rs 516 lacs would have to be added for rehabilitation requirement for each of the bonus years
If that is done the entire available surplus found by the Tribunal would be wiped out
It will be seen from the Tribunal s Annex
A that so far as new machinery is concerned the Tribunal accepted the figures of original cost and the quotations furnished by the Company and worked out multipliers forall the years from 1950 51 to 1959 60 by simply dividing the quotations by the original cost
The question is should not the Tribunal have also followed the same method in the case of old machinery when it had before it the estimated cost to the seller ie the cost of old machinery if purchased as new in the year of installation and the quotations for that machinery
If that were done there would be no necessity of finding out a notional multiplier
In that event as seen above there would be a difference of Rs 3608 lacs which would have to be added to the figure of Rs 8562 lacs worked out by the Tribunal as total rehabilitation cost in respect of old machinery
Mr Ramamurti however argued that though the Union had not disputed the quotations those quotations were for the year 1963 64 when the Tribunal was adjudicating the dispute that it is always necessary to first find out the multiplier and then work out the rehabilitation cost and that the cost of machinery in the bonus year or years must be reflected while working out the rehabilitation cost even if the year of replacement worked out from the average life of machinery is later
It is now well established that in the case of old machinery the employees cannot insist that such machinery should be replaced by old machinery
For working out rehabilitation cost of such machinery it is the cost of new machinery that is to replace the old which has to be taken into consideration
The Company as aforesaid produced two kinds of figures both accepted by the Union and the Tribunal 1 the estimated cost to the seller if he had purchased the old machinery as new in the respective years of its installation and 2 quotations of prices of machinery which would replace it
The Tribunal had before it thus the cost of the machinery if it were new in the year of installation and the cost of its replacement by new machinery
There was therefore no particular reason in distinguishing the old from the new machinery for the figures of costs and replacements in both the cases were on the footing that the old machinery was new machinery
Therefore since the Tribunal accepted the quotations and worked out the multiplier in the case of new machinery by dividing the quotations by the original cost it ought to have 787 followed the same method in the case of old machinery as it had before it the cost of the old machinery as new and the cost or replacement both unchallenged by the Union
The question still is whether the quotations can be the sole criterion for working out rehabilitation cost
The principle accepted in the Full Bench formula and approved by this Court in the case of Associated Cement Co Ltd 1 was that payment of bonus is in recognition of the contribution of labour in the profits earned by the industry and to assist labour to overcome as far as possible the difference between the actual wage and the living wage
The Formula at the same time accepted the point of view of the industry that investment made by it must imply a legitimate expectation of securing recurring returns and that could only be ensured by machinery being continuously kept in good working order
Such maintenance would necessarily be to the advantage of the labour for the better the machinery the larger the earnings and the brighter the chance of earning bonus
It is on this twin consideration that the amount necessary for rehabilitation is recognised as a prior charge on the gross profits when surplus profit for distribution as bonus is being worked out
It is true that depreciation is allowed by the tax laws but that is only to the extent of a percentage on the written down value
The depreciation fund set apart on that basis would obviously be insufficient for rehabilitation and therefore an extra amount would have to be annually set apart notionally to make up the deficiency
That is the reason for the Full Bench formula having accepted the industry s claim to rehabilitation in addition to the admissible depreciation
While ascertain in the claim of rehabilitation the Tribunal has first to ascertain the cost of the machinery to the employer and then to estimate its probable future life
It then becomes possible to anticipate approximately the year when the machinery would need replacement and it is the probable price of such replacement at such future date that ultimately decides the amount to which the industry is entitled by way of replacement cost
The question is how to estimate the probable price of machinery at such future date As observed in the Associated Cement Company s case1 such probable price can be considered itemwise where the industry does not own too many factories and In itemwise study of machinery is reasonably possible
It is when the industry owns several factories and the number of plant and machinery is so large that it becomes difficult to make an estimate of replacement cost itemwise that the estimate has to be block wise
In either case the Tribunal has to estimate the probable cost of replacement at the time when such replacement would become due
Such in estimate depends obviously on several uncertain factors
The estimate of the probable life of machinery is itself a matter of anticipation and 1 LpN7SCI 11 788 the estimate of the probable trend of price during the In tervening period is also to a degree a matter of conjecture
However the entire process of ascertaining replacement cost is hypothetical depending largely on expert evidence
It would appear therefore that whenever it is possible
to estimate itemwise the probable cost of machinery in the year of replacement such a method is not only permissible but is more desirable
The block wise estimate has to be resorted to when item wise estimate is not possible
Where therefore there is clear evidence of the probable price of each piece of machinery itemwise when replacement is to become due it would be more accurate to proceed on the basis of such price and it would not be necessary to find out multipliers such multipliers being after all the ratio between the cost and the probable cost of replacement ascertained from the trend of prices during the intervening years
The multiplier thus is at best an approximation arrived at from the trend of price level during the intervening period
But where the cost of replacement is ascertained from quotations of prices for the year of replacement such cost is more accurate than a notional one worked out from the multiplier
It is therefore not always necessary to arrive at a multiplier for estimating the probable cost of replacement
In the instant case the Tribunal estimated the life for old machinery at 10 years and that for new machinery at 15 years after taking into consideration the fact that the machinery was worked at least since 1955 56 on three shifts a day and the fact that it is being used for manufacturing precision machines
On this basis the old machinery installed in 1950 51 became due for replacement in 1960 61 and the rest of it installed in succeeding years would become due after 10 years from the respective years of its installation
It is in evidence that though the average life of the old machinery was exhausted it was still being worked though uneconomically
It was agreed that the entire machinery needed immediate replacement and this fact was accepted by the Tribunal
It is well established that an employer cannot be allowed to postpone the date of replacement on the footing that he has operated the machinery in fact beyond its average life and thus boost the cost of replacement taking advantage of the rise in price every year
In the instant case however that cannot be said to be the position
As stated earlier the quotations produced by the Company represented an average price as near as possible prevailing during the period for replacement
Since they were not disputed by the Union they were the best available data
There was therefore all the more reason for the Tribunal to have worked out the cost of replacement from these undisputed quotations instead of working out the multipliers and then arriving at the total re placement cost
On the basis of these quotations even if the multipliers were to be worked out the multipliers and the cost of replacement of old machinery would be as follows 789 Old machinery esti Replacement cost Multiplier Year mated cost to the proved byquota seller if he had pur tions disputedby chased as new in the the Union year of its installa tion not disputed by the Union Rs in lacs Rs in lacs 1950 51 2005 7972 398 1953 54 186 1457 783 1954 55 293 1025 349 195556 045 111 247 1956 57 210 997 475 1957 58 265 608 229 3004 12170 The replacement cost thus arrived at would be Rs 12170 lacs as against Rs 8562 lacs as worked by the Tribunal
Indeed where the cost of replacement is proved itemwise from price quotations and they are undisputed it becomes difficult to appreciate how the total cost of replacement can be less than the cost proved through quotations
Counsel for the Union however urged that while working out the replacement cost it is the cost during the bonus year which is relevant and therefore though the Union had accepted the quotations they would not be the proper criterion and the price prevalent during each of the bonus years would be the relevant price
He also argued that
even if the quotations were to be accepted as cost of replacement the prices of only those machines which are required for replacement and not for expansion which can be the basis of estimation
As regards the first argument a similar contention was raised in Associated Cement Co s case1 and was rejected
At p 967 of the report the Court said What the Tribunal has to do in determining such cost ie probable cost of replacements is to project the price level into the future and this can Be more satisfactorily done
if the price level which has to be projected in future is determined not only in the light of the prices prevalent during the bonus year but also in the light of subsequent price levels
 The submission that it is the price level during the bonus year which is the criterion therefore is not correct
The test is the probable cost of replacement when rehabilitation becomes due If the bonus year and the year of rehabilitation coincide the price 1 790 level during the bonus year would no doubt be the relevant basis
But where they do not coincide and the due year of rehabilitation is the year beyond the bonus year that which is relevant is the probable cost of replacement during that year and the Tribunal therefore would have to consider all relevant evidence necessary to estimate the cost during that future year
Where there is tangible evidence through quotations of prices for that year and such quotations are not in dispute the Tribunal does not have to conjecture what the trend of price level would be by taking into consideration the price level during the intervening period which would include the bonus year
However this does not mean that the Tribunal must mecha nically accept the quotations
The rehabilitation cost allowed under C the Full Bench formula is the probable cost of rehabilitation which while including modernization does not include expansion
But the distinction between modernization and expansion may in some cases be subtle and not capable of clear distinction
The question therefore would always be whether replacement of one machine by a new one is the introduction of modem machinery or one which is an item of expansion
If it is an item of expansion its cost naturally has to be excluded
The test is whether by the introduction of the new machinery the production capacity is likely to be significantly augmented If that is found the Tribunal would have to apportion the cost on the basis that replacement is partly modernization and partly expansion
On the other hand E if the increased production is not significantly on the higher side it would be a case of modernization incidental to replacement
The question is on whom is the burden of proving whether a given replacement amounts toexpansionor modernization
It seems to us that since it is the employer who seeks replacement cost it is for him to satisfy the Tribunal as to what will be the overall cost of replacement and in doing so it is he who must satisfy that the cost is of replacement only and does not include any expansion of machinery
Counsel for the Union was therefore right in saying that the Tribunal has to satisfy itself that no cost of expansion is injected in the rehabilitation cost
In the present case however it does not appear from the record that any question of expansion Garose as the Union accepted the quotation as equivalent to the replacement cost
Consequently the Tribunal proceeded on the footing that the entire machinery had become due for replacement and the prices proved by quotations were of machines to be replaced in the process of replacement and modernisation and not expansion
According to Rajendra Mills Ltd1 the employer has to discharge this burden by adducing proper evidence and giving the other party an opportunity to test the correctness of that evidence by cross examination and merely bringing on record balance sheets for instance would not be enough
see also the Workmen vs The National Tobacco Co2
1 2 1966 II LLJ 200
791 But in the present case there is no question of the Company not having properly discharged the burden for it not only produced balance sheets but also produced statements quotations and examined two expert witnesses Jones and Desai
These witnesses were cross examined on the statements relied on by the Company in regard to the cost to the Company the estimated cost of replacement the average life of machinery etc
The Union also the Confidential Annexs
1 and 2 which showed itemwise the cost of replacement as proposed by the Company and quotations of prices therefor
These Annexs
also indicated that where a machine was to be replaced not by the same kind but by a modern one it was to be substituted for two or more of the old machines
This was presumably done to avoid expansion
It is true that in respect of the old machinery installed in 1953 54 and 1956 57 the multiplier calculated on the basis of the quotations comes to 783 and 475 respectively while it ranges from 229 to 398 for the rest of the years
At first sight the multiplier might suggest that there might be an element of expansion in the case of those machines
But it was pointed out that the prices of those particular machines had gone unusually high and furthermore that in the process of replacement the modern machines which were to replace the old ones were in the approximate proportion of one for two
It cannot therefore be validly said that the Company had not placed sufficient materials to enable the Union to check up by cross examination whether this was a case of expansion or not
Mr Ramamurti s contention next was that even though the quotations were not disputed by the Union taking them as the sole basis for estimating the replacement cost was not satisfactory as the Union had qualified its acceptance by a reservation that it did so except for machinery installed in the bonus 1 years
This argument does not appear to be tenable
Exhibit M2 shows that so far as the bonus years are concerned old machinery was installed in 1956 57 and 1957 58 only
The cost of such machinery for 1956 57 was Rs 139871 and that for 1957 58 was Rs 176730
On the basis of the Union s reservation the Tribunal did not accept the quotations for machinery installed in those years and fixed the replacement cost on the basis of multipliers calculated by it de hors the quotations
It is difficult to comprehend such an approach by the Tribunal
The Tribunal accepted the quotations in regard to the rest of the machinery and worked out the multiplier on the basis of those quotations
The Union did not challenge those quotations and the multiplier calculated therefrom
If the quotations for the new machinery for all the years and for old machinery for the years except the bonus years were accepted by the Union and the Tribunal also there is no reason why the quotations for the bonus years could be said to be unacceptable
 No objection to the replacement cost of the new machinery was taken even in regard to the bonus years
As regards the old
machinery the Union accepted the Company s figures both as to cost to the Company and the estimated cost to the seller if he had 792 purchased it as new
Even if a multiplier has to be calculated it would be the ratio between the estimated sellers cost and the probable cost of replacement
So calculated both the old and new machinery stand on the same footing because it is the seller s estimated price if he had purchased it new in the year of its installation that was taken by the Tribunal for arriving at the multiplier
That being so the multiplier in both the cases would he the ratio between the cost in the case of new machinery and the estimated cost to the seller in the case of old machinery and the cost of replacement proved by the Company through quotations
If the quotations were acceptable to the Union in regard to new machinery and the old machinery installed in the years except the bonus years it is difficult to understand how quotations for the old machinery installed in bonus years could be questioned especially as the Union did not produce any data to prove them incorrect
 In these circumstances we are of the view that the multipliers arrived at by the Tribunal in the case of old machinery were not correct
The Tribunal should have either calculated the replacement cost from the quotations proved by the Company itemwise or if it had to work out the multiplier it should have done so by finding out the ratio between the estimated cost to the seller accepted by the Union and the quotations proved by the Company
The deficiency in following this method comes to Rs 36 lacs and odd as stated earlier
Regarding the new machinery purchased during the bonus years the Tribunal held that the price rise for such machinery cannot be taken to be more than zero
In exhibit M2 the Company has given the quotations for this machinery and has worked out therefrom the multiplier for each of the bonus years viz 235 for 1956 57 337 for 1957 58 148 for 1958 59 and 166 for 1959 60
Presumably the Tribunal thought that though the prices for this machinery in 1963 64 were available considering that its life was 15 years it was too early to find out with any precision the trend of prices during the intervening years
With the gradual growth of indigenous production and corresponding availability of these machines it would be difficult to say whether the same trend would continue or not by the time the year for its replacement was reached
It is not possible to say therefore that the Tribunal s view that the price rise of such machinery should be taken as zero was unreasonable
In the case of machinery purchased in 1950 51 and onward its period of replacement would commence from 1965 and onwards
It was possible from the quotations produced by the Company to predicate for such machinery the trend of price but not so in the case of machinery purchased in very recent years
In their case the quotations may not be taken for granted as showing any definite trend in price level
As stated earlier the Tribunal has given in Annex
A a uniform remainder life of 7 years to old machinery irrespective of the year of its installation
in our view is not correct
Taking 793 the life of old machinery to be 10 years the old machinery purchased in 1950 51 would require replacement in 1960 61 and so on In
that case the remainder life in the bonus year 1957 58 of old machinery installed in 1950 51 would clearly be 3 years of old machinery installed in 1953 54 6 years of old machinery installed in 1955 56 8 years of machinery installed in 1956 57 9 years and that installed in 1957 58 10 years
The divisor therefore could not be the uniform 7 for all these years but a graduated one on the basis that the estimated life of old machinery was 10 In estimating the rehabilitation requirement of each year the graduated divisor should have been used
The question which raises a serious controversy is with regard to the figure of Rs 2435 lacs found by the Tribunal as the total cost of rehabilitation in respect of machinery both old and new installed in 1950 51
Dividing this figure by 7 as the remainder life for both the types of machinery the Tribunal allowed Rs 348 lacs as the rehabilitation requirement for that year
Counsel for the Company objected to the Tribunal s calculations on various grounds
It will be seen from column 7 of Annex
A that whereas the Tribunal accepted the Company s quotations for new machinery it did not do so in the case of old machinery and calculated instead the replacement cost by means of a multiplier
It is difficult to say on what principle the multiplier 336 for old machinery was adopted except that the Tribunal adopted the same multiplier which it calculated in the case of new machinery by working out the ratio between the cost to the Company and the price of replacement as appearing from the quotations
Since the Tribunal adopted that principle for new machinery it would be logical that it should similarly do so in the case of old machinery also as the basic cost adopted was the cost price to the seller if he had bought that machinery as new in 1950 51
The total cost of machinery old and new would in that case be Rs 5477 lacs plus Rs 75 lacs ie Rs 13377 lacs instead of Rs 5477 lacs less 5  break down ie Rs 5396 lacs for new and Rs 6737 lacs for old machinery as calculated by the Tribunal
The figure of Rs 6737 lacs was arrived at by multiplying Rs 2005 the estimated cost to the seller by the multiplier 336
According to the Tribunal the gross replacement cost would be Rs 12133 lacs instead Rs 13377 lacs
The figure of Rs 12133 lacs arrived at by the Tribunal cannot be sustained as it was not justified in calculating replacement cost for the new machinery in one way and that for the old machinery in another way
The next miscalculation said to have been committed by the Tribunal was in deducting the depreciation for the entire old machinery installed during 1950 51 to 1957 58 ie Rs 30 lacs from the total replacement cost for 1950 51
The Tribunal took the whole of the cost of old machinery to the seller ie Rs 30 lacs as depreciation
For that the Tribunal derived support from the 794 decision in South India Millowners  Association and Ors
vs Coimbatore District Textile Workers  Union and Ors1 where while dealing with old machinery
this Court has said that where purchase price is determined but it is difficult to ascertain the depreciation amount thereafter then at the highest the whole of the purchase money would be taken as depreciation amount
Assuming that the Tribunal was entitled to treat the price of the old machinery viz Rs 30 lacs as depreciation it was not correct on its part to deduct it from the replacement cost
The reason is that it also deducted Rs 488 3 lacs to which we
shall presently refer to which amount includes depreciation of Rs 30 lacs
The Tribunal thus deducted Rs 30 lacs as depreciation twice over
The deduction of Rs 30 lacs was thus clearly an error
Counsel for the Company next objected to the sum of Rs 4883 lacs having been deducted from rehabilitation cost in respect of machinery old and new installed in 1950 51
The objection was two fold 1 that the Tribunal erred in deducting the whole of this amount from the rehabilitation cost in respect of 1950 51 machinery and 2 that the said amount represents total deprecation ie the notional Written down value of all machinery up to the year 1956 57 and is shown as such in the balance sheet for 1956 57
It was urged that since this amount represents depreciation on various kinds of assets viz bungalows plants and machinery cars and trucks furniture and tools and implements the whole of this amount should not be deducted when calculating rehabilitation provision for the machinery of 1950 51 and should be deducted only when calculating rehabilitation provision for each item in respect of which this depreciation has been included in the accounts
We do not think that this submission can be accepted
No doubt the sum of Rs 4883 lacs represents depreciation up to 31 3 1957 in respect of plant machinery buildings as well as other items of property but there is no principle which requires that depreciation fund in respect of a particular item must only be utilised in rehabilitating the same item
The Tribunal held that the entire depreciation fund must be utilised for rehabilitation of those items of property which require rehabilitation at the earliest point of time that is the machinery of 1950 51 which needed replacement earlier than the other items of property
We do not think that this decision of the Tribunal was in any way unreasonable as would justify interference
As regards the second objection the principle is that while arriving at the rehabilitation cost deduction should be made of all available funds
It was argued that an amount which is a notional depreciation mentioned in the accounts for the purpose only of showing the true Value of fixed assets would not be a reserve which in point of fact can be said to be available for replacement and that it is on account of this that the decisions mention reserves including 1 765 depreciation reserve which if available are liable to be deducted from rehabilitation cost
The contention is that this amount being merely a notional depreciation is a mere paper entry and does not represent any available reserve
Reliance was placed on G F Mills vs Its Workmen1 where the Court set aside deduction of Rs 30 lacs the Company had raised a debenture loan of Rs 50 lacs on credits on the ground that that amount was locked up in Pakistan and could not be brought to India for the Company s use
it was argued that the principle thus is that the amount to be deducted must in reality be available to the employer for replacement
As found by the Tribunal the Company s fixed assets were of the value of about Rs 110 lacs
The Union s contention was that as against this amount the Company s subscribed capital was Rs 60 lacs the Company had raised a debenture loan of Rs 50 lacs on the security of its fixed assets and thus the subscribed capital and the debenture loan were sufficient to meet the whole cost of the fixed assets
On this basis the Tribunal upheld the Union s contention that Rs 4883 lacs shown as depreciation were available towards replacement cost as no part of it could have gone in the investment of fixed assets
Counsel for the Company however pointed out that the debenture loan was raised in  1958 59 and therfore that amount cannot be said to be available at any rate during the year 1956 57
But this fact taken in isolation does not furnish a correct picture of the fund available to the Company during the bonus years
The balance sheets show that besides the said loan of Rs 50 lacs the Company had obtained a secured loan of Rs 650 lacs in 1956 57 and another loan of Rs 2468 lacs in 1957 58
Except producing the balance sheets the Company led no evidence to show as to how these loans had been utilised whether as working capital or in acquiring fixed assets
Apart from this fact we do not see how the fact that the debenture loan was raised in 1958 59 makes any difference
Though the life of a large part of the machinery had run out the Company had not replaced any of it and was carrying on its work with the worn out machinery even though its working was uneconomical
The Tribunal has found and the parties also were agreed that the entire machinery required immediate replacement
Therefore the question was how much rehabilitation cost the Company would require
In calculating such cost the Tribunal was entitled to take note of the fact of Rs 50 lacs having been raised as debenture loan on the security of its fixed assets presumably because that loan was required for rehabilitating the fixed assets
Even so Counsel argued the question would still be whether Rs 4883 lacs represented an available fund for rehabilitation or whether they represented a mere paper entry for showing the true value of machinery in 1956 57
In our view it is not necessary for us to go into the question whether a sum shown as notional depreciation without its being shown as reserve can be treated or 1 AIR 1958 SC 382
796 not as a fund available for rehabilitation nor whether such depreciation is or is not deductible even if it is not available as a fund
The Company produced exhibit M 4 showing the amount which according to it was required for rehabilitation for the bonus years
According to that statement the Company would require Rs 11020 lacs Rs 12706 lacs Rs 14987 lacs and Rs 15591 lacs for the four bonus years respectively
In working out these amounts the Company itself deducted Rs 4825 lacs from the rehabilitation requirement for the year 1956 57 and pointed out in a footnote that that amount was comprised of an investment of Rs 1822 lacs in stocks and shares and Rs 3003 lacs as depreciation taking the entire estimated cost to the seller of old machinery if such seller had purchased it as new
In face of this admission it is difficult to appreciate how the Tribunal can be said to have erred in treating Rs 4883 lacs as available fund
We may also mention that before the Tribunal the argument was not that the amount of Rs 3003 lacs was merely a notional depreciation and not a fund actually available to the Company
The Company s contention on the contrary was that the whole of Rs 4883 lacs was utilised in fixed assets and therefore was not available for replacement
The Tribu nal rejected that contention on the ground that except for the balance sheet which did not give precise information as to how that amount was deployed by it
the Company had not produced
its accounts to show that that amount was utilised towards acquiring fixed assets
Counsel argued that if that was the view of the Tribunal the Company ought to have been given an opportunity of showing its sources of fixed assets
There is no merit in this contention
It was the Company who had the necessary information
The onus was on the Company to explain from its accounts and other data that the amount of Rs 30 lacs and odd was not available
As regards Rs 1822 lacs the amount being an investment in liquid assets it is difficult to say why the Tribunal was not justified in treating it as available for rehabilitation
But the Company s contention was that the investment of Rs 1822 lacs in shares can either be treated as a trading transaction carried out in the ordinary course of business or as a capital asset
If it was treated as a trading transaction the Tribunal ought to have allowed Rs 172 lacs which was the loss in 1957 58 in these shares as trading expenditure and the Tribunal ought not have added that amount to the gross profits for that year
In doing so the Tribunal treated the investment as capital asset and it could not therefore deduct Rs 1822 lacs as a fund available for rehabilitation cost
We fail to see any contradiction on the part of the Tribunal
The balance sheet for the year 1956 57 contains two Schedules  Sche dule A shows fixed assets and Schedule B shows trade investments of the value of Rs 1821571  
The Company not being an investment Company the investment of Rs 1822 lacs in shares of other joint stock Companies prima facie represents extra capital not required as working capital for otherwise the Company could not have spared this amount for investment in the stocks of other 797 companies
The Tribunal was right in treating this investment as a capital asset and in refusing to treat the loss therefrom as trading expenditure
The Tribunal at the same time could deduct this amount from the rehabilitation cost because that amount was available to meet the rehabilitation cost
The investment in shares could easily if the Company was so minded be converted into cash and utilised for replacement of its worn out machinery
But it was said that even if the amount of Rs 1822 lacs could be held deductible that figure was not correct for the value of investment was Rs 1123 lacs at the close of the year 1957 58 as shown in the balance sheet for that year
This contention is not correct
What appears to have been done in 1957 58 was that instead of showing the entire investment of Rs 1822 lacs as trade investments as in the previous year the investments were classified into investments and current assets
The value of investments at the beginning of the year is shown at Rs 1822 lacs but at the close of the year the shares of companies other than the National Bearing Company Jaipur Ltd a subsidiary of the appellant company were regrouped and shown as current assets and their cost was shown at Rs 657 lacs instead of Rs 1371 lacs as shown at the close of the preceding year
Except producing the balance sheet for 1957 58 the Company gave no explanation before the Tribunal as to why these investments were re grouped and on what footing they were revalued
Besides the figure of Rs 1822 lacs does not appear to have been disputed before the Tribunal and the Tribunal was never told that the investments during that year were reduced to Rs 1123 lacs
It would not therefore be right to say that the Tribunal erred in taking Rs 1822 lacs as a fund available for rehabilitation
The next contention was as to 7 14  interest allowed by the Tribunal on paid up capital instead of 857 claimed by the company
By the Finance Act of 1959 the provision in the Income tax Act that the Income tax paid on dividend distributed to the shareholders was deemed to have been paid on behalf of the shareholders was abrogated
The contention was that though the corporation tax was reduced in that year from 515 to 45 the Company since 1959 had on the whole to bear at larger burden of tax and therefore the Company would not get a net tax free 6  interest unless interest at 875 was granted
It is true that the Full Bench formula provided for payment of net interest at 6 per annum on paid up capital but as pointed out in the Associated Cement Co s cave1 and subsequent decisions of the Tribunals the rate of 6  interest is not to be regarded as something inflexible
In awarding interest on paid up capital and also on working capital the proper approach is that the industry is entitled to a reasonable return on investments made in establishing and running concerns it its risk
At the same time the claim for bonus is no longer treated as an ex gratia payment
It is recognised on the consideration that 1 798 labour is entitled to claim a share in the trading profits of the industry as it partially contributes to the same
Since the industry and labour both contribute to the ultimate trading profits both are entitled to a reasonable share
While awarding interest if the Tribunal were to find that if it were to grant 6  interest on paid up capital nothing or no appreciable amount would be left for bonus it can adjust the rate of interest so as to accommodate reason ably the claim for bonus and thus meet the demands of both as reasonably as possible
If the Tribunal were to award interest at a rate lower than 6 after considering all the relevant facts we do not think that the employer can legitimately claim that it has erred in doing so
If the Tribunal has exercised its discretion after consideration of all the relevant facts this Court would not ordinarily interfere with such exercise of its discretion
These were all the contentions raised by Counsel for the Company in the Company s appeal To the extent that we Accept as hereinabove the Company s contentions Annexure A to the award will have to be modified
These modifications are shown in the charts thereto annexed and collectively A
We now proceed to consider the Workmen s appeal
Counsel for the Union argued that the Tribunal ought to have fixed the life of the Dew machinery at 25 years as is usually done and not at 15 years
In some cases it is true that Tribunals have fixed 25 years as the machinery s average life
There can however no rigidity in fixing the life of machinery since it differs from industry to industry
Consequently there can be no hard and fast rule applicable to all sorts of machinery
The Millowners  Association Bombay1 and South India Millowners  Association2
In the present case the Tribunal had before it evidence showing that the industry required machinery of special precision and was therefore not comparable with machinery such as that in textile mills for which 25 years  life was fixed
In suggesting the life of 25 years for this machinery Counsel for the Union did not give any specific reason except that 25 years of life has been fixed in some cases
He could not also show any instance where in a similar industry life of machinery was fixed for more than 15 years
The principle that the Tribunal has to bear in mind is that the life of machinery is the period during which it is estimated to work with reasonable efficiency and not the period during which it has actually been operated that is till it becomes too deteriorated for use
Pierce Leslie  Co vs Its Workmen3 Since the Tribunal fixed the period of 15 years after considering the evidence and the nature of industry there is no reason why its determination need be interfered with
1 2 1962 Suppl 2 SCR 926
3  at 200
799 Counsel s next contention was that the Tribunal ought not to have accepted the quotations which were for 1963 64 as the basis for calculating the total rehabilitation cost
But the quotations were never disputed by the Union
Even so argued Mr Ramamurti they contained the cost of spares which at any rate ought to have been excluded
We confess it is difficult to appreciate this part of the argument
The machinery in question is in a large way imported machinery
It is common knowledge that when such machinery is purchased spares are generally included in such purchase and their cost must be included in the purchase price the reason being that in case of breakdown the Company would not have to wait for an indefinite period for ordering and obtaining the spares
It was then said that the new machinery which would replace the old might well contain items of expansion which the Tribunal ought to have reckoned and excluded
While dealing with the Company s appeal we have already dealt with this aspect and for the reasons stated there this argument must be rejected We must also reject the argument that the Tribunal had disregarded the increasing trend of indigenous manufacture of machinery
In fact Confidential Annexs
1 and 2 produced by the Company contain quotations wherever possible of a number of machines of indigenous manufacture
The next contention related to old machinery and the argu ment was that the Company had discarded machinery worth about Rs 18 lacs in respect of which the Company ought not to get any rehabilitation cost
The argument appears at first sight attractive but loses its force when the actual position is ascertained
The balance sheet for the year 1959 60 shows that machinery worth Rs 1762 lacs was discarded during that year
Similarly tools and implements of the value of Rs 857 lacs were also discarded
To that extent deductions were made in the total value of fixed assets
In showing depreciation of plant and machinery Rs 1091 lacs
being the depreciation of these machines were also deducted from the total depreciation so far shown in the previous balance sheets
The result was that the total depreciation including depreciation for machinery added during the year was brought down from Rs  4837 lacs to Rs 4420 lacs
The evidence of Desai shows that the machines  Ledger maintained by the Company shows only the list of machines in actual operation  which means that the discar ded ones are not shown in that list
The machinery discarded during this year was thus taken out from the fixed assets as if it did not exist
The depreciation in respect of it was also deducted from the total depreciation and therefore no rehabilitation was in fact claimed for such machinery
Mr Ramamurti next urged that the Tribunal ought to have allowed only 30 of rehabilitation cost for old machinery as was done in South India Millowners  Associations s Case1
That case 1 1962 Spp
2 SCR 926 800 does not lay down any such rule
30 only was allowed in that case as an ad hoc figure because the Association there had failed to produce materials showing the original price and subsequent depreciation and this Court refused to interfere with that figure as the Tribunal had no other alternative except to adopt an ad hoc basis
The Court however made it clear that in the case of old machinery the cost price of such machinery must be ascertained and this can be done by enquiring for how much the machinery could be originally purchased when new
There is therefore no warrant for saying that only 30 of the rehabilitation cost can be allowed in the case of old machinery
We cannot also agree with Mr Ramamurti s contention that the Tribunal in calculating the rehabilitation requirement for the bonus years was wrong in taking only the notional normal depreciation and not the statutory depreciation including development rebate permissible under the Income tax Act
In Associated Cement Co s Case1 at p 994 in the Chart prepared by this Court only
the notional normal depreciation was deducted while the rehabilitation requirement
It was when the Court calculated the Income tax payable by the Company that it deducted the statutory depreciation from the gross profits see also Bengal Kagazkal Mazdoor Union  Ors
vs Titagarh Paper Mills Co Ltd  Ors2 The last contention was that the Tribunal should not have rejected the bonus claim for 1956 57
The balance sheet for the year 1956 57 was published in December 1957 the Company s accounts were closed and appropriations of profits for that year were made latest by the end of 1957
The claim for bonus was raised for the first time by the Union s resolution of July 24 1959 that is more than 18 months after the closure of accounts
The claim for 1956 57 was thus clearly belated and the Tribunal was right in refusing to compel the Company to reopen its accounts and to readjust appropriations made long before the demand was raised
It has to be remembered that a claim for bonus is not one for deferred wages
Its recognition in industrial adjudication is based on the desirability of a balance of adjustments of the different interests concerned in the industrial structure of a country in order to promote harmony amongst them on an ethical and economic foundation
Industrial adjudication therefore is bound to take into consideration delay and laches before it calls upon the other side to reopen its accounts closed long ago
We do not think that the Tribunal was in any error in rejecting the claim on the ground of laches
The principle that aches are fatal to such a claim has long been accepted in a series of decisions both by the Tribunals and by this Court
1 2 1963 II LLJ 358 801 Calculation of annual requirement for rehabilitation of old machinery 801a Period Cost Cost as Multi Total Less Balance shown by plier Break Co in down exhibit M Value 5 1 2 3 4 5 6 7 1950 51 1337 2005 397 7972 100 7872 1953 54 124 186 785 1157 0091448 1954 55 195 293 350 1025 015 1010 1955 56 030 45 247 111 002 109 1956 57 140 210 475 997 11 996 1957 58 177 265 229 608 13 595 801b Deductions Balance Divisor Annual Require ment 8 9 10 11 i 4883 Depreciation 1167 3 389 ii1822 Available Resourcess 6705 1448 6 241 1010 7 144 109 8 014 986 9 110 095 10 059 Total 957 802 a Period Cost cost as Multi Total Less Balance shown by plier Break Coin down exhibit
M value 5 1 2 3 4 5 6 7 1950 51 1630 1630 336 5477 081 5396 1951 52 143 143 187 267 007 260 1952 53 218 218 147 321 011 310 1953 54 112 112 228 255 006 249 1954 55 371 371 196 690 019 671 195556 693 693 218 1511 035 1476 195657 1311 1311 235 3080 066 3014 1957 58 339 339 1 339 017 322 1958 59 1295 1295 1 1295 065 1230 1959 60 3076 3076 1 3076 154 2922 802b Deductions Balance Divisor Annual Require ment 8 9 10 11 5396 8 675 260 9 029 310 10 031 249 11 023 671 12 056 1476 13 114 3014 14 215 322 15 021 1230 15 082 2922 15 195 802c TOTAL ANNUAL REQUIREMENT FOR OLD AND NEW MACHINERY Old New Total 1957 58 957 1164 2121 1958 59 additional 082 2203 1959 60  additional 195 2398 803a Years Machinery Building Total 1957 58 2121 072 2193 1958 59 2203 077 2280 1959 60 2398 082 2480 803b Figures in lacs National Normal Depre Balance to be provided ciation allowed during out of profits the year to be deducted 910 1283 900 1380 1083 1397 803c Detailed Calculations of available surplus for the three bonus years Figures in lacs 1957 58 1958 59 1959 60 Gross Profits 2834 2536 3492 Less Notional Normlal Depreciation 910 900 1083 1924 1636 2409 Less Income tax 818 748 731 1106 888 1678 Less Wealth Tax 028 029  1078 859 1678 Less return on paid up capital 360 360 435 718 499 1243 Less additional provision for rehabilitation for plant machinery and buildings 128313 801397 vailable Surplus Nil Nil Nil 804 The Chartst showing calculations of available surplus for the A three bonus years show that in all these years no surplus remains available for distribution of bonus after making provision for rehabilitation
As a result the appeal by the Company must be allowed and the direction made by the Tribunal for payment of bonus for these three years has to be set aside
In the circumstances of this case the parties will bear their own costs
The appeal by the Union is dismissed
There will be no order as to costs
GC Appeal dismissed


Summary:
The workmen of the appellant company demanded bonus for the years 1956 57 to 1959 60
The Tribunal disallowed the claim for 1956 57 on the ground that it was belated and allowed the demand for the rest of the years 1957 58 to 1959 60
In working out the available surplus for distribution as bonus the Tribunal in general followed the Full Bench formula evolved by the Labour Appellate Tribunal
Against the Tribunal s award the company as well as the workmen appealed to the Supreme Court by special leave under article 136 of the Constitution
Both sides raised contentions with regard to the rehabilitation allowances in respect of plant and machinery for the three years in question and the method followed by the Tribunal in calculating them
The main question for decision arose out of the company s contention that since it furnished quotations for all machinery including the old machinery the Tribunal ought to have accepted those quotations as equivalent to replacement cost as it did in the case of new machinery instead of adopting the notional method of working out multipliers and then arriving at replacement cost by multiplying that multiplier with the estimated cost to the sellers
HELD i The multiplier is at best an approximation arrived at from the trend of price level during the ascertained intervening period
But when the cost of replacement is ascertained from quotations of prices for the year of replacement such cost s more accurate than a notional one worked out from the multiplier
It is therefore not always necessary to arrive at a multiplier for estimating the probable cost of replacement
789 C D
In the present case since the Tribunal accepted the quotations  and worked out the multiplier in the case of new machinery by dividing the quotations by the original cost it ought to have followed the same method in the case of old machinery as it had before it the cost of the old machinery as new and the cost of replacement both unchallenged by the union
If the rehabilitation cost was calculated in this manner there would be no available surplus with the company and hence no bonus would be payable  787 H 788A 787 A B
ii It is well established that in the case of old machinery the employees cannot insist that such machinery should be replaced by old machinery
For working out the rehabilitation cost of such
machinery it  is the cost of new machinery that is to replace the old which has to be taken into consideration
787 F G
iii
Whenever it is possible to estimate itemwise the probable cost of machinery in the year of replacement such a method is not only permissible but is more desirable
The blockwise estimate has
780 to be resorted to when itemwise estimate is not possible as when the industry owns several factories and the number of plant and machinery is so large that it becomes difficult to make an estimate of replacement cost itemwise
789 B C 788 G H
iv The contention on behalf of the workmen that the replacement cost should be worked out on the basis of the price level during the bonus year could not be accepted
The test is the probable cost of replacement when rehabilitation becomes due
If the bonus year and the year of rehabilitation coincide the price level during the bonus year would no doubt be the relevant basis
But when they do not coincide and the due year of rehabilitation is the year beyond the bonus year that which is relevant is the probable cost of replacement during that year
790 H 791 A B
v Ordinarily the Tribunal has to satisfy itself that no cost of expansion is injected in the rehabilitation cost
In the present case however it did not appear from the record that any question of expansion arose as the Union accepted the quotations as equivalent to the replacement cost 791 F G
vi The Tribunal was justified in taking the price rise in respect of the machinery installed in the bonus years as zero
Though the prices for such machinery in 1963 64 were available considering that its life was 15 years it was too early to find out with any precision the probable trend of prices during the intervening years
793 EG
vii The Tribunal was wrong in giving a uniform remainder life of 7 years to old machinery irrespective of the year of its installation
Taking the life of old machinery to be 10 years the old machinery purchased in 1950 51 would require replacement in 1960 61 and so on
In that case the remainder life in the bonus year 1957 58 of old machinery installed in 1950 51 would clearly be 3 years of old machinery installed in 1955 56 8 years of machinery installed in 1956 57 9 years and that installed in 1957 58 10 years
The divisor therefore could not be the uniform 7 for all the three years but a graduated one on the basis that the estimated life of the old machinery was 10 years
793 H 794 B viii The Tribunal was justified in view of the decision of this Court in the South India Millowners  Association s case in taking the whole cost of the old machinery as depreciation but it made a mistake in deducting it twice over
795 B C
ix The company not being an investment company its investments in shares of other joint state companies prima facie represented extra capital not required as working  capital for otherwise the company could not have spared this amount for investment in the stocks of other companies
The Tribunal was right in treating this Investment as a capital asset and in refusing to treat the loss therefrom as trading expenditure
The Tribunal at the same time could deduct this amount from the rehabilitation cost because that amount was avilable to meet the rehabilitation cost
797 H 798 A
x Though the Full Bench formula provided for payment of net interest at 6 per cent annum on paid up capital
that rate is not to be regarded as something inflexible
While awarding interest if 781 the Tribunal were to find that if it were to grant 6 per cent interest on paid up capital
nothing or no appreciable amount would be left for bonus it can adjust the rate of interest so as to accommodate reasonably the claim for bonus and thus must meet the demands of both as reasonably as possible
798 G 799 B
xi In fixing the life of machinery the principle that the Tribunal has to bear in mind is that the life of machinery is the period during which it is estimated to work with reasonable efficiency and not the period during which it has actually been operated that is till it becomes too deteriorated for use
In the present case the Tribunal fixed the period of 15 years after considering the evidence and the nature of the industry
There was no reason why its determination should be interfered with
799 G H
xii The Tribunal was right in not excluding the cost of spares from the price of machinery for the purpose of calculating rehabilitation cost
In the case of imported machinery spares are generally included in the purchase and their cost must be included in the purchase price the reason being that in case of breakdown the company would not have to wait for an indefinite period for ordering and obtaining the spares
800 B
xiii The statutory depreciation and development rebate allowable under the Income tax Act are not relevant for the purpose of calculating rehabilitation requirement
Only the notional normal depreciation need be deducted
801 C D
xiv The claim for bonus in respect of 1956 57 was made more than 18 months after the closure of accounts
Industrial adjudication
Is bound to take into consideration delay and laches before it calls upon the other side to reopen its accounts closed long ago
The Tribunal was therefore right in rejecting the claim on the ground of laches
801 F G
Millowners  Association
Bombay vs Rashtriya Mill Mazdoor Sangh Bombay  Associated Cement Co Ltd vs Its Workmen  Management of Rajendra Mills Ltd vs Their Workmen  The Workmen vs The National Tobacco Co  South India Millowners  Association  Ors
vs Coimbatore District Textile Workers  Union and Others 1962 1 LLL 223 G F Mills vs Its Workmen AIR 1958 SC 382
South India Millowners  Association and Ors
vs Coimbatore District Textile Workers  Union and Or 1962 Supp 2 SCR 926 Pierce Leslie  Co vs Its Workmen  and Bengai
Kagazkar Mazdoor Union  Ors
vs Titagarh Paper Mills Co and Ors  referred to