Civil Appeal No 217 of 1956
Appeal by special leave from the decision date 880 December 7 1953 of the Labour Appellate Tribunal of India Madras in Misc
Case No 111 C 387 of 1953
A V Vishwanatha Sastri and section Subramanian for the appellants
M section K Sastri for the respondents
November 5
The following Judgment of the Court was delivered by GAJENDRAGADKAR J These three appeals arise out of two industrial disputes Nos 24 and 26 of 1951 between the appellants and their workmen
Dispute No 24 of 1951 had arisen between the management and workers of the Sree Meenakshi Mills Ltd Madurai whereas dispute No 26 of 1951 was between the management and workers of the Thiakesar Alai Manapparai
Both the disputes were in respect of bonus claimed by the workmen for the year 1950 51
The workmen claimed bonus for the year 1950 51 on the allegation that the two mills constituted one unit and had made profits during the relevant year
On the other hand the appellants contended that the two mills were two different units and the claims for bonus made by the workmen against them should not be considered together
According to the appellants during the relevant year there was a trading loss and as such no bonus was payable to the workers
The Industrial Tribunal rejected the pleas raised by the appellants and held that the two mills formed part of the same unit
It also came to the conclusion that for the year in question there was a surplus of Rs 287676 against which the workmen s claim for bonus was justified
That is why the tribunal awarded three months  bonus to the workmen
Against this decision the appellants preferred two appeals Nos 133 and 134 of 1952 to the Labour Appellate Tribunal of India at Madras
In these appeals the appellants challenged the findings made by the tribunal against them and urged that bonus was not payable during the relevant year
The workmen also preferred an appeal No 168 of 1952 and in this appeal they claimed a larger bonus than what had been awarded by the tribunal below
The 881 appellate tribunal confirmed the finding of the tribunal that the two mills formed part of the same unit
According to the appellate tribunal the net surplus available for distribution as bonus came to Rs 257496
The claim made by the appellants in respect of various deductions was examined by the appellate tribunal and deductions were substantially disallowed in respect of three items
In respect of an amount of Rs 843927 claimed by the appellants as depreciation on machinery and buildings the appellate tribunal concurred with the industrial tribunal in holding that the claim only for a sum of Rs 400000 was admissible in other words a claim for deducting the balance of Rs 443927 was disallowed
It is this finding in particular with which we are directly concerned in the present appeals
it may be pointed out at this stage that in determining the amount of net surplus available for distribution as bonus the appellate tribunal agreed with the industrial tribunal that the provision for taxation made by the appellants to the extent of Rs 175000 was adequate
In the result the appeals preferred by the appellants as well as the respondents failed and were dismissed by the appellate tribunal
Against the order dismissing their appeals the appellants have preferred to this Court by special leave the present Civil Appeals Nos 218 and 219 of 1956
The appellants had also preferred an application for review before the Labour Appellate Tribunal Misc
Case No III C 387 of 1953 Review on the ground that the order passed by the Labour Appellate Tribunal was patently erroneous inasmuch as there was a mistake apparent on the face of the record which should be corrected under the appellate tribunal s powers of review
The appellate tribunal hold that it had no power of review and that even if it bad such a power no case had been made out for the exercise of such power because there was no mistake apparent on the face of the record which could not have been discovered whet the order was made in the presence of the parties
Against this decision the appellants have preferred to this Court by special leave the present Civil A peal No 217 of 1956
882 In appeals Nos 218 and 219 of 1956 the main point which has been urged before us on behalf of the appellants is that the appellate tribunal erred in law in disallowing the appellants  claim in respect of depreciation debited by the appellants to the extent of Rs 443927
In the appeal preferred against the order passed by the appellate tribunal refusing to review its decision it has been urged before us by the learned counsel for the appellants that the appellate tribunal was in error in holding that it had no jurisdiction to review its decision under 0
47 of the Code of Civil Procedure
It has also been argued that on the merits it was wrong to have held that the appellants had failed to make out a case for the exercise of the said jurisdiction
It may be relevant at this stage to set out the financial position of the appellants during the relevant year as summed up in the judgment of the appellate tribunal Net Profit as per exhibit M 1 
Rs 240302 Add the sum wrongly debited as cost of repairs etc
Rs 257793 minus Rs 100000 
Rs157793 Add bonus for the year 1949 50 wrongly debited to 1950 51 Rs149920
Add bonus paid to clerical staff for 1950 51 
Rs37896 Add depreciation debited by the company 
Rs843927 Add provision for taxation  Rs175000
Add donation to a College  Rs40000 Total 
Rs 1644838 Thus the gross total profit comes to Rs 1644838
From this the following deductions have to be made Depreciation allowed  Rs400000 Bonus for the year 1950 51 paid to clerical staff Rs37896 Provision for taxation Rs175000 883 Return on capital preference and ordinary shares 
Rs 294500 Return on the reserve used as working capital at 4 per cent
 Rs 223946 Provision for rehabilitation Rs 656000 minus Rs 400000 Rs 256000 Total 
Rs 1387342 Thus the net surplus available fordistribution as bonus comes to Rs 1644838 minusRs
1387342
Rs 257496
 Since in the present appeals we areconcerned only with the amount of depreciation debited by the appellants it would be useful to set out the depreciation analysis as explained by the representative of the appellants in the Court of the Industrial Tribunal
The depreciation analysis according to this statement is made thus as per the Income tax Act Normal
Extra
Initial 245 days Madurai
317331 38465 287250 250 days Usil 223206 Including ampatti extra
16077
 It would be noticed that the total of these amounts comes to Rs 882329
The true nature and character of the workmen s claim for bonus against their employers is now well settled
Bonus is not as its etymological meaning would suggest a mere matter of bounty gratuitously made by the employer to his employees  nor is it a matter of deferred wages
It has been held by this Court in Muir Mills Co Ltd vs Suti Mills Mazdoor Union Kanpur 1 that  the term bonus  is applied to a cash payment made in addition to wages
It generally represents the cash incentive given conditionally on certain standards of attendance and efficiency being attained
 This decision is based on the view that both labour and capital contribute to the earnings of the industrial concern and so it is but fair that labour should derive some benefit if there is 1 1955 I SCR 991
112 884 surplus available for that purpose
Even go the claim for bonus cannot be effectively made unless two conditions are satisfied the wages paid to workmen fall short of what can be properly described as living wages and the industry must be shown to have made profits which are partly the result of the contribution made by the workmen in increasing production
In determining the question as to whether the industry has made profit and if so how much is the net surplus in a given year provision has first to be made in respect of prior charges
This principle has been recognized by what is often described as the Full Bench formula as laid down in the matter of The Mill Owners Association Bombay vs The Rashtriya Mill Mazdoor Sangh Bombay 1
According to this formula distributable surplus has to be ascertained after providing from the gross profits for 1 depreciation 2 rehabilitation 3 return at 6 on the paid up capital 4 return on the working capital at a lesser but reasonable rate and 5 for an estimated amount in respect of the payment of income tax
It is common ground before us that the question as to whether the workmen s claim for bonus is justified or not must be decided in the light of this Full Bench Formula
The appellants concede that in determining the question as to whether they have made a trading profit during the relevant year the industrial tribunal is not required to adopt the same basis as under the Income tax Act
It is however urged that in dealing with this question there is no justification for not giving effect to the relevant provisions of the Incometax Act in respect of depreciation
Section 10 of the Income tax Act provides for three kinds of allowances in respect of depreciation
Section 10 vi deals with allowances in respect of depreciation of buildings machinery plant or furniture used for the purposes of the business being the property of the assessee of a sum equivalent to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other cases to such percentage on the written down value thereof as may in 11950 885 any case or class of cases be prescribed
This allowance is in respect of what is described as normal depreciation
Section 10 vi further provides for what is described as initial depreciation in cases where the buildings have been newly erected or the machinery or plant being new not being machinery or plant entitled to the development rebate under el
vi b has been installed after March 31 1945 a further sum which shall however not be deductible in determining the written down value for the purpose of this clause in respect of the year of erection or installation as prescribed by cls
a b and c of section 10 vi
Then section 10 vi a provides for allowances of what is described as additional depreciation
This is in respect of depreciation of buildings newly erected or of machinery or plant being new which has been installed after March 31 1948
Section 10 vi b also provides for allowance in respect of machinery or plant being new which has been installed after the 31st day of March 1954 and which is wholly used for the purposes of the business carried on by the assessee a sum by way of development rebate in respect of the year of installation equivalent to twenty five per cent
of the actual cost of such machinery or plant to the assessee Pro vided that no allowance under this clause shall be made unless the particulars prescribed for the purpose of clause vi have been furnished by the assessee in respect of such machinery or plant The question which arises for decision is whether in determining the question as to whether net surplus is available for distribution by way of bonus or not it is obligatory on the industrial tribunals to allow the whole of the depreciation admissible under the said provisions of the Income tax Act
Before dealing with this question it may be relevant to mention one fact on which both the tribunals below have placed emphasis in the present case
It appears that when the proceedings were pending before the industrial tribunal an application was made by the workmen requesting the tribunal to direct the appellants to allow the workmen inspection of accounts
The Tribunal passed an order for inspection and inspection 886 was allowed
Thereupon an application was made on behalf of the workmen on February 28 1952 for particulars relating to the amount of Rs 844000 claimed by the appellants by way of depreciation
The appellants promised to supply the information on March 8 1952  but ultimately on behalf of the appellants it was stated to the tribunal that the appellants were not able to give the details called for
The industrial tribunal and the appellate tribunal have both adversely commented on this conduct of the appellants and they were presumably disposed to draw an adverse inference against the appellants in respect of the amount of depreciation in question
Mr Viswanatha Sastri for the appellants however contended before us that though the tribunals below may have been justified in commenting on the default of the appellants to supply the particulars that itself would not justify a drastic reduction in the amount of depreciation claimed by the appellants
He argues that the balancesheet of the appellants has been duly audited and it was not reasonable for the tribunals to have disallowed such a large amount as Rs 443927 under the claim of depreciation
It is fairly conceded by him that if the tribunals below were not bouns to grant claims for depreciation on what is described as initial and additional depreciations then he could not challenge the propriety or correctness of the decision of the tribunals in disallowing the items appearing in the depreciation account in respect of these depreciations
It is in the light of these facts that the question raised by the appellants must be considered
This question has been decided by a Full Bench of the Labour Appellate Tribunal in UP Electric Supply Co Ltd vs Their Workmen 1
It is true that the question of bonus had to be considered in this case in the light of the provisions of the U P
Nevertheless the Full Bench has dealt with this matter on general considerations and has set at rest the divergence of views expressed by different Benches of the tribunal on this point
According to this decision the initial depreciation and additional depreciation 1 887 are in a sense abnormal additions to the income tax depreciation and they are designed to meet particular contingencies and for a limited period
It would therefore not be fair to the workmen that these two depreciations are rated as prior charges before the available surplus is ascertained
It is likely that in many cases if these two depreciations are allowed as prior charges no surplus would be left even though workmen may have laboured during the year to the best of their ability and the concern was for all purposes prosperous
In other words according to this decision considerations on which the grant of additional depreciation may be justified under the Income tax Act are different from considerations of social justice and fair apportionment on which the original Full Bench formula in regard to the payment of bonus to the workmen is based
That is why in the result this subsequent Full Bench held that only normal depreciation including multiple shift depreciation but not initial or additional depreciation should rank as prior charge in applying the Full Bench formula as to the payment of bonus
If it cannot be disputed that in industrial adjudication it is not obligatory to adopt the very same procedure as prescribed by the Income tax Act for ascertaining gross profits and then determining the amount of net surplus available it is not easy to accept the appellants  argument that in respect of depreciation alone industrial tribunals must necessarily and in every case follow the relevant provisions of the Income tax Act
If that be the true position then we see no reason why in respect of one item of debit only the technical provisions of the Income tax Act must be followed in industrial adjudications in respect of workmen s claim for bonus
On the whole the reasons given by the appellate tribunal in the case of The UP Electric Supply Co Ltd 1 appear to us to be satisfactory  and so we are not prepared to accept the appellant s argument that the appellate tribunal in the present case has erred in law in not allowing the appellant s claim for initial and additional depreciations
In our opinion therefore the main point urged by the appellants in Appeals Nos 218 and 219 of 1956 1 888 cannot succeed
That takes us to the two other points raised by the appellants in Appeal No 217 of 1956
The first point which has been raised in this appeal by the appellants about the jurisdiction of the appellate tribunal to review its own orders in appropriate cases under O 47 of the Code of Civil Procedure
This Court has recently had occasion to consider the question about the applicability of the Code of Civil Procedure to the proceedings before the Labour Appellate Tribunal in Mills
Martin Burn Ltd vs R A Banerjee Civil Appeal No 92 of 1957
Section 91 and section 10 of the Industrial Disputes Appellate Tribunal Act 1950 as well as the relevant rules and orders framed under the Act were considered and it was held that the Code of Civil Procedure applies to the proceedings before the appellate tribunal with the result that the appellate tribunal can exercise its powers under O 41 r 21 as well as under section 151 of the Code
It is true that in this case there was no occasion to consider the applicability of the provisions of O 47 of the Code but that does not make any difference
If the Code of Civil Procedure applies to the proceedings before the Labour Appellate Tribunal it is clear that the provisions of O 47 would apply to these proceedings as much as s151 of the Code or the provisions of O 41
We must accordingly hold that the appellate tribunal erred in law in coming to the conclusion that it bad no jurisdiction to review its own order under the provisions of O 47 of the Code
As we have already pointed out the appellate tribunal has also held that even if it had jurisdiction to review its decision or judgment in the present case it would not grant the appellants  request because it had not been shown that the order or decision suffered from any mistake which could not have been known when the order was pronounced in open court in the presence of both the parties in the present proceedings
Mr Viswanatha Sastri for the appellants argues that this view is obviously wrong and should be reversed
In support of his argument the learned counsel has invited our attention to the fact that when the appeal 889 was pending before the appellate tribunal a statement had been filed by the appellants showing that the provision for income tax had to be revised in view of the findings recorded by the industrial tribunal
According to this statement no surplus was available for payment of bonus to workmen even on the assumption that the findings recorded by the tribunal were correct
The appellants pointed out in this statement that if an amount of Rs 443927 was disallowed by way of depreciation that would necessarily add to the amount of gross profits and in consequence the provision for income tax would have to be proportionately increased
The appellants case was that instead of Rs175000 which had been allowed by the industrial tribunal by way of provision for income tax it would be necessary to allow an amount of Rs 475582 in that behalf
The appellants  grievance is that though this statement was filed before the appellate tribunal the appellate tribunal has not considered it at all
On the other hand it appears from the judgment of the appellate tribunal that this point was not raised by the appellants before it in their arguments
No grievance was made and no higher amount was claimed by them to be reserved for taxation
The appellate tribunal has also observed that the point raised by the appellants in their review petition did not show that any new and important matter had been discovered which after the exercise of due diligence would not have been discovered by the parties at the time of the hearing of the appeal
Besides the appellate tribunal also held that there was no mistake apparent on the face of the record
Technically there may be some force in the observations made by the appellate tribunal but we cannot overlook the fact that a written statement had been filed before the appellate tribunal expressly and specifically raising this point
That is why we propose to deal with the merits of the argument and not to reject it on the ground that this argument had not been urged at the proper stage
On the merits the argument is that if out of the total amount of Rs 843927 debited by the appellants to depreciation an amount of Rs 443927 is disallowed 890 that must inevitably add to the total amount of gross profits and if the total amount of  gross profits is increased logically provision for a higher amount of income tax must be made
Thus presented the argument is simple and at first blush appears to be attractive but the difficulty in accepting the argument is that the total amount of gross profits determined by Industrial Tribunals in these proceedings is not and cannot necessarily be the taxable gross profits of the employer
We have already observed that in determining the trading profits of the employer in such disputes the method adopted by the industrial tribunals does not conform to all the requirements and provisions of the Income tax Act and so it would be fallacious to assume that the gross profits determined by the industrial tribunal should be taken to be gross profits that would be necessarily taxable under the Income tax Act
Besides it would be relevant to remember that the provision for taxation in question has been made by the appellants themselves and presumably it is based on the appellants anticipation as to how much approximately they will have to pay by way of income tax
But apart from this consideration there can be no doubt that the appellants would get exemption from the payment of income tax in respect of the amounts of initial and additional depreciation also as shown in their books of accounts
That is a right which has been conferred on the appellants by the relevant provisions of section 10 of the Income tax Act and the benefit which the appellants are entitled to get under the said section cannot be ignored in deciding whether or not the provision of the sum of Rs 175000 for taxation purposes is adequate or not
We think it is not open to the appellants to contend that though for the amounts covered by the normal and additional depreciations they would not be required to pay income tax nevertheless they should be allowed to provide for the payment of income tax in respect of these two items merely on the ground that they are disallowed by the industrial tribunal and have thus added to the total of gross profits as determined by the tribunal
The adequacy 891 or otherwise of the provision for income tax must necessarily be judged in the light of the income tax Act since it is under the said Act that the liability to pay tax would ultimately be determined
Besides if the appellants  argument is accepted and an amount notionally payable by way of income tax in respect of disallowed items of depreciation is added to the estimated amount of income tax provided by the appellants the very object of disallowing the two items of depreciation would be substantially defeated
On the other hand the rejection of the appellants  argument would not mean any hardship because the additional amount sought to be added by them in the provision for income tax would definitely not have to be paid by them
We are therefore satisfied that the grievance made by the appellants against the order passed by the appellate tribunal on the ground that it suffers from a mistake apparent on the face of the record is not well founded
It would now be necessary to refer briefly to the decisions of industrial courts to which our attention has been drawn by the learned counsel for the appellants
In Model Mills etc
Textile Mills Nagpur vs Rashtriya Mill Mazdoor Sangh 1 the implications of the Full Bench formula for ascertainment of bonus have been explained
It is observed that  the formula did not purport to direct what a concern should do or should not do with its own moneys
In evolving the formula the rights and liabilities of the parties inter se in notional satisfaction of their legitimate claims as two co operating units in the venture were tried to be equated
Opinions might differ as to the weightage to be attached to the various components constituting the formula
But the formula has to be taken as a whole in order that an equitable balance between the rights of capital and labour might be achieved for the ascertainment of bonus
 It may incidentally be pointed out that this decision recognizes that income tax calculated on the trading I 1955 I L L J 534 113 892 profits for the year must be deducted as a prior charge from the profits even though exemption under the Income tax Act is granted for the year in question taking into consideration the past year s losses
The same view has been expressed by the appellate tribunal in Mahalaxmi Wollen Mills Ltd vs Their Work Workmen1 In this case it has been held that even if a concern is allowed exemption from the levy of incometax because of prior losses or unabsorbed depreciation etc that by itself is no ground for preventing the concern from claiming the amount of income tax it would have been liable to pay if the profits made in the relevant year alone had been taken into account
Hence in calculating the amount of available surplus the amount of income tax payable for that trading year is to be deducted irrespective of the fact whether the company in fact pays tax for the year or not 
Similarly in Bennett Coleman and Company Ltd vs Their Workmen2 the Labour Appellate Tribunal has held that  unabsorbed depreciation and loss incurred during prior years are allowed under section 24 2 of the Income tax Act to be adjusted against the profits of a future year
Where the company claim  either to adjust this amount against gross profits or to deduct such amount of income tax as would be payable on the profits if the said two items are not to be adjusted labour cannot be permitted to refuse relief resting on unabsorbed loss and depreciation and at the same time try to get benefit for itself by refusing provision for tax resting on those very items which are permitted to be adjusted by the income tax authorities which will result in reduced income tax or no tax at all
 It would thus appear from the decisions cited before us that industrial tribunals have consistently taken the view that income tax calculated on the trading profits for the relevant year must be deducted as a prior charge from the gross profits even though the employer may be entitled to claim exemption under the Income tax Act in view of the fact that he had suffered losses during the previous year
Prima 11956 I L L J 305
21955 893 facie it may be said that if the essential basis for deciding the workmen s claim for bonus in a given year is the existence of the net surplus available for that year it may not be permissible to question the propriety for the provision for income tax made by the employer solely on the ground that in view of his previous year s losses he may not be called upon to pay income tax during the year in question
After all in this connection the calculations are made by reference to the financial position of the employer during the particular year only and in these calculations considerations relevant under the Income tax Act in regard to the financial losses of the employer in the previous year would not be allowed to enter
However in the present appeals we are not called upon to consider the correctness of the view taken by the Appellate Tribunal in these oases and so we need not pursue the matter any further
Mr Viswanatha Sastri has strongly relied on two labour decisions reported in B E section T Workers  Union vs Bombay Suburban Electric Supply Ltd 1 and Greaves Cotton and Crompton Parkinson Ltd vs Its Workmen 2
These two decisions no doubt support the appellants  arguments before us but for the reasons which we have already given we must hold that these decisions are not sound or correct
The last case to which our attention has been drawn by Mr Viswanatha Sastri is the decision of the Labour Appellate Tribunal in Bengal Chemical  Pharmaceutical Works Ltd vs Their Workmen 3
This case decides that  in providing for income tax the tax payable by the concern on its income earned in the year for which bonus is claimed must be ascertained
The amount of income tax actually paid during the year which is the tax of the income of the previous year should not be taken into account
 In this case the tribunal has observed that for the purpose of ascertaining the income tax which may be payable by the employer for the year in question the figures 1 1957 2L J II 2 3 2 894 appearing on the expenditure side of the profit and loss account of that year have to be marshalled and examined
 This case is not of much help in deciding the point with which we are concerned
In the result the appeals fail on the merits and must be dismissed with costs
There will however be one set of costs in all these appeals
Appeals dismissed


Summary:
The workmen demanded bonus for the year 1950 5 on the allegation that the employers had made profits during the relevant year
The employers resisted the demand on the ground that 879 there was a trading loss in the year and as such no bonus was payable
To determine the available surplus out of which bonus was to be paid the employers deducted out of their gross profits an amount for depreciation admissible under the Income tax Act
The industrial tribunal disallowed a portion of the depreciation and found that there were profits in the relevant year and awarded three months bonus to the workmen
The employers preferred appeals to the Labour Appellate Tribunal but they were dismissed
The employers then applied to the Appellate Tribunal for a review and the Tribunal dismissed the application holding that it had no power to review its own decision and that even if it had the power it would not grant the review as no case for review had been made out
Held that the whole of the depreciation admissible under the Income tax Act is not allowable in determining the available surplus
The initial depreciation and the additional depreciation are abnormal additions to the income tax depreciation and it would not be fair to the workmen if these depreciations are rated as prior charges before the available surplus is ascertained
Considerations on which the grant of additional depreciation may be justified under the Income tax Act are different from considerations of social justice and fair apportionment on which the original Full Bench formila in regard to the payment of bonus to the workmen is based
That is why only normal depreciation including multiple shift depreciation should rank as prior charges
UP Electric Supply Co Ltd vs Their Workmen  approved
The Labour Appellate Tribunal had the power to review its own orders
Ms Martin Burn Ltd vs R N Banerjee 1958 SCR 5I4 followed
The method adopted by the industrial tribunals in deter mining the trading profits of the employer is an industrial dispute does not conform to the requirements and provisions of the Income tax Act and it would therefore be fallacious to assume that gross profits determined by the industrial tribunal can be taken to be gross profits that would necessarily be taxable under the Income tax Act
In determining the available surplus for payment of bonus provision for a higher amount of incometax cannot be made merely because the claim to initial and additional depreciation has been disallowed which increase the amount of gross profits