Appeal No 53 of 1958
Appeal by special leave from the Decision dated February 28 1957 of the Labour Appellate Tribunal Bombay in Appeal No 111 160 of 1956
section P Varma for the appellants
360 L K Jha Janardan Sharma R C Prasad and Maqbool Ahmad Khan for the respondents
November 14
The Judgment of the Court was delivered by GAJENDRAGADKAR J
This appeal by special leave arises from an industrial dispute between the appellant Messrs Swadeshi Cotton Mills and the respondents its employees and the short preliminary question which is raised for our decision is whether an order should not be passed in this appeal in terms of the compromise agreement alleged to have been reached between the appellant and the respondents
It appears that on December 28 1955 an industrial dispute between the parties was referred by the Government of Uttar Pradesh to the Industrial Tribunal U P Allahabad for adjudication under sections 3 4 and 8 of the U P UP Act XXVIII of 1947 and in pursuance of the provisions of cl 11 of G O No U 464LLXXXVI B 257 LL1954 issued on July 14 1954
The dispute thus referred was whether the existing rates of wages of jobbers mentioned in the annexure employed in the weaving department of the appellant need any revision if so with what details and from what date  The Tribunal tried this issue and came to the conclusion that no case for revision had been made out by the respondents
Against this decision of the Tribunal the respondents preferred an appeal before the Labour Appellate Tribunal
Their appeal succeeded and the Appellate Tribunal directed that the award of the original Tribunal should be set aside and that the appellant  shall introduce from the date of reference a uniform rate of two annas in both the old and new sheds irrespective of the number of looms assigned to the line jobbers 
It would be noticed that as a result of this decision the existing rates have been revised and the revision has been ordered to take effect retrospectively from the date of reference
It is against this decision of the Labour Appellate Tribunal that the appellant has preferred the present appeal by special leave
361 Pending this appeal in this Court the appellant purported to enter into a compromise with the respondents and the terms of the compromise were reduced to writing and in pursuance of the said compromise an application was made to this Court on February 261958 signed by Mr Bagla on behalf of the appellant in his capacity as a Director of the appellant and Mr Maqbool Ahmad Khan for the respondents in his capacity as the General Secretary of the Suti Mill Mazdoor Sabha Kanpur
This application set out the material terms of the compromise
One of the terms of the compromise is that the revised rate should take effect not from December 28 1955 which is the date of reference but from July 1 1957
Certain other modifications have also been made in the decision under appeal
Before the appeal could be placed on the Board for passing orders in terms of this compromise an application was made on behalf of some of the respondents alleging that the General Secretary Mr Khan had no authority or power to enter into any compromise as a representative of the respondents and that the compromise alleged to have been entered into by him with the appellant was not acceptable to the respondents
In support of this case the application referred to a resolution passed by the General Council of the Mazdoor Sabha whereby it was declared that no office bearer could conclude an agreement with an employer about an industrial dispute without the consent of the General Council and reliance was also placed on the relevant provisions in the constitution of the Mazdoor Sabha
Thereafter the petition for compromise was placed before this Court for hearing on April 10 1960 and the Court directed that the application for recording compromise as well as the appeal itself should both be placed together for hearing before the Court as soon as the parties file their respective statements of the case
After the statements were filed the appeal and the petition were placed before this Court on May 5 1960 and the Court by an interlocutory judgment 46 362 sent two issues to the Tribunal with a direction that the Tribunal should hear the parties on those issues and make its findings thereon
The two issues were 1 Has the compromise set up by the appellant taken place between the parties 2 If yes is the compromise valid  In pursuance of this order the Tribunal has recorded evidence heard the parties and made its findings
It has found that the compromise in fact has taken place as alleged in the petition made before this Court in that behalf and that the said compromise is valid
In dealing with the first question of fact the Tribunal has considered the evidence exhaustively in the light of the background of the dispute between the parties it has found that negotiations went on between the parties for a fairly long time during which period the parties discussed the pros and cons of the compromise that during these negotiations Mr Khan was watchful of the interests of the respondents that the compromise had been approved by the workmen concerned that on the whole it is to their advantage and does not at all militate against the accepted principles of industrial adjudication and what is more it has been acted upon and has not remained a mere paper transaction
It has explained that the opposition to the compromise proceeded sub stantially from the dispute between Mr Khan the Secretary and Mr Bajpai the President and the Tribunal felt no doubt that the compromise was the result of bona fide attempt on the part of both the parties to settle the dispute amicably in order to create goodwill and co operation amongst the employer and the employees
On the question of law raised by the second issue the Tribunal has held that the compromise is perfectly valid
It has considered the relevant provisions of the constitution of this Sabha the practice prevailing in regard to such compromises and to several agreements of compromise entered into consistently with the said practice
It was urged before the Tribunal that the compromise is invalid under section 6 B of the UP  as well as section 2vi
c of the Act 4 of 1936
363 These contentions have been rejected by the Tribunal
In the result the findings recorded on both the issues are in favour of the compromise
After these findings were received in this Court the  appeal and the compromise petition have now come before us for final disposal
The finding of fact recorded by the Tribunal on the first issue has not been and cannot be challenged before us
It must therefore be taken to have been established that at the relevant time Mr Khan was the General Secretary of the respondents Sabha and as such was entitled to represent them and did represent them during the course of the present adjudication proceedings and that the compromise reached between him and the appellant is the result of mutual discussions carried on for some time and its terms on the whole are beneficial to the respondents
The practice prevailing in this Sabha and a large number of precedents which are consistent with the said practice indicate clearly that the Secretary of the Union who represents the workmen in industrial disputes has always been authorised and has exercised his authority to settle such disputes when it was thought reasonable and proper to do so
As we have often indicated it is always desirable that industrial disputes should be amicably settled because such settlement conduces to happy industrial relationship and encourages co operation between the parties
That is why when industrial disputes are brought before this Court under article 136 of the Constitution this Court generally appreciates attempts made to settle disputes amicably and in proper cases encourages such settlements
Mr Jha for the respondents however contends that though amicable settlement of industrial disputes may otherwise be desirable in law such settlement or compromise is illegal
If we come to the conclusion that compromise of industrial disputes pending an appeal is prohibited by law or is otherwise inconsistent with such provisions it may be necessary to hold that the present compromise is bad in law however much amicable settlement of industrial disputes may otherwise be desirable
Therefore the question which arises for our 364 decision on the present compromise petition is Is the contention raised by Mr Jha correct that the compromise is invalid in law  The first point urged by Mr Jha in support of this argument is that the present compromise is prohibited by a 23 of the 
This Act has been passed to regulate the payment of wages to certain classes of persons employed in industry and there is no doubt that the wages as revised by the Labour Appellate Tribunal in the present case would constitute wages under section 2 vi of this Act
Section 23 provides that any contract or agreement whether made before or after the commencement of this Act whereby an employed person relinquishes any right conferred by this Act shall be null and void in so far as it purports to deprive him of such right
The relevant provisions of this Act require the fixation of wage periods provide for the time of payment of wages authorises certain deductions and permits the imposition of fines only subject to the conditions specified in that behalf
Section 15 of the Act provides for the determination of claims arising out of deduction of wages or delay in payment of wages and penalty for malicious or vexatious claims
Section 16 prescribes for the making of an application in which such claims can be set up and a 18 provides for the powers for the authorities appointed under the Act
Mr Jha contends that the revised wage structure directed by the Labour Appellate Tribunal entitles the respondents to claim the respective amounts there indicated as their wages and the effect of the impugned compromise is that the respondents are relinquishing a part of their right in that behalf
Mr Jha con
tends that in giving up their claim for the retrospec tive operation of the decision of the Labour Appellate Tribunal for a substantial part of the period the res pondents are required to contract themselves out of their legal rights conferred by the award and there
fore referable to this Act and that makes the compromise invalid
This argument is misconceived because it fallaciously assumes that the decision under appeal has become final and that the rights accruing under 365 the said decision would not be and cannot be affected by any compromise
The most significant fact to remember in this connection is that the decision on which the alleged rights are based is itself subject to an appeal before this Court and in that sense it is not a final decision at all it is liable to be reversed or modified and that being so the rights claimable under the said decision are also liable to be defeated or materially affected
In such a case the industrial  dispute would undoubtedly be pending before this Court and it would be idle for Mr Jha to contend that an attempt to settle such a dispute and not to invite a decision of this Court contravenes the provisions of a 23 of this Act
Just as an industrial dispute could have been settled between the parties either before it was referred for adjudication to the Industrial Tribunal or after it was referred and before the award was pronounced by the Tribunal so would it be open to the parties to settle the dispute so long as it was pending either before the Labour Appellate Tribunal or before this Court
The provisions of section 23 of this Act postulate certain definite rights which are not likely or liable to be modified or reversed in any pending judicial proceedings and since this factor is absent in cases where an appeal is pending before this Court it would not be reasonable to rely on the said provisions and contend that they in substance prevent or prohibit amicable settlement of disputes
The other argument urged against the validity of the compromise is based on the provisions of section 6 C of the U P
This section corresponds substantially to section 19 of the XIV of 1947
It provides inter alia that an award shall in the first instance remain in operation for the period of one year or such shorter period as may be specified therein and gives the State Government power to extend the period of operation from time to time if it thinks fit
It also provides that the State Government either on its own motion or on the application of any party bound by the award shorten the period of its operation if it is shown that there has been a material change in the circumstances 366 on which the award was based
The argument is that any modification in the award can only be made by adopting the procedure prescribed by section 6 C
In our opinion there is no substance in this argument
Section 6 C undoubtedly confers upon the State Government certain powers to fix the duration of the operation of the award but there can be no doubt that the section can have no bearing on the powers of this Court in dealing with an industrial dispute brought before it under article 136 of the Constitution
The award to which section 6 C refers is an award which has become final in the sense that it is no longer subject to consideration by any Tribunal or Court
So long as an award is pending before a Tribunal or a Court the jurisdiction of the Tribunal or the Court to deal with it in accordance with law is not affected by section 6 C and the competence of the parties to settle their dispute pending before the Tribunal or the Court is also not affected or impaired by the said section
In other words what we have said about the argument based on the provisions of section 23 of the applies with equal force to the present argument as well
Then it is contended that the impugned compromise is a settlement within the meaning of section 2t of the U P Act and as such it can be executed only in the manner prescribed by the Act
Section 2t defines a settlement as one which is arrived at in the course of conciliation proceedings and as including a written agreement between the employer and the workmen arrived at otherwise than in the course of conciliation proceedings when such an agreement has been signed between the parties thereto in such manner as may be prescribed and a copy thereof has been sent to the State Government and the conciliation officer
Rule 51 of the U P Industrial Disputes Rules 1957 prescribes the procedure for recording a settlement as defined by section 2t
It is true that this procedure has not been followed but it is difficult to understand how section 2t or the procedure prescribed by r 51 can have any application to a compromise agreement which has been entered into between the parties pending the 367 appeal in this Court
The compromise in question is intended to be filed in this Court for the purpose of enabling the parties to request this Court to pass an order in terms of the said compromise
The procedure for obtaining such an order which has to be followed is the procedure prescribed by the rules of this Court just as if a compromise was reached before the Tribunal the procedure to be followed before it would be the procedure prescribed by its rules
Therefore we have no doubt that the compromise in question cannot attract the procedure prescribed by r 51
The result is that the finding recorded by the Tribunal that the compromise in question is valid is obviously right and must be confirmed
Since it is found that the compromise in fact has taken place and is otherwise valid we have no hesitation in directing that an order should be drawn in terms of the said compromise in the present appeal
Order accordingly


Summary:
The respondent company purchased certain machinery for Rs 89000 and sold it for the same value but in the books of account the written down value of the machinery was shown in the year of account as Rs 73392
The Income Tax Officer in computing the assessable income of the company added the difference ie Rs 15608 between the actual value and the written down value to the profit of the company
The Income Tax Officer also passed an order under section 23A of the Income Tax Act and directed that the undistributed portion of the assessable income shall be deemed to have been distributed amongst the shareholders as dividend
Appeals against the order of the Income tax Officer proved unsuccessful and the Appellate Tribunal referred the following question to the High Court under section 661 Whether the sum of Rs 15608 should have been included in the assessee company s profit for the purpose of deter mining whether the payment of a larger dividend than that declared by it would be unreasonable
 The High Court answered the question in the negative
On appeal by special leave Held that the view taken by the High Court was correct
494 By the fiction in section 102Vii second proviso read with s26C what is really not income is for the purpose of computation of assessable income made taxable income but on that account it does not become commercial profit and if it is not commercial profit it is not liable to be taken into account in assessing whether in view of the smallness of profits a larger dividend would be unreasonable
Smallness of profit should not be equated with smallness of assessable income but should be determined in accordance with commercial principles
Sir Kasturchand Ltd vs Commissioner of Income tax Bombay City 1949 XVII ITR 493 Ezra Proprietary Estates Ltd vs Commissioner of Income tax West Bengal 1950 XVIII ITR 762 and Commissioner of Income tax Bombay City vs F L Smith  Co Bombay Ltd 1959 XXXV ITR 183 referred to