Appeals Nos 450  451 of 1957
Appeals by special leave from the judgment and order dated July 31 1956 of the Labour Appellate Tribunal of India Calcutta in Appeals Nos
28255 and 656
C K Daphtary Solicitor General of India H N Sanyal Additional Solicitor General of India D N Mukherjee and B N Ghose for the Appellant In CA No 45057
A Roy Mukherjee and H N Hingorani for the respondent In C A No 45057 M C Setalvad Attorney General for India C K Daphtary Solicitor General for India and H N Sanyal Additional Solicitor General of India D N Mukherjee and B N Ghose for the appellants In C A No 45057
Sadhan Chandra Gupta Janardhan Sharma and M K Ramamurthi for the respondents In C A No 45157
Sadhan Chandra Gupta Janardhan Sharma and M K Ramamurthi for the appellant In C A No 45157
1015 M C Setalvad Attorney General for India H N Sanyal Additional Solicitor General of India D N Mukherjee and B N Ghose for the respondent In C A No 51457
G D Ambukar for the Secretary for the Intervener No 1
Sadhan Chandra Gupta and Janardhan Sharma for Intervener No 2 1959
May 5
The Judgment of the Court was delivered by WANCHOO J
These are three appeals by special leave from the same decision of the Labour Appellate Tribunal of India and will be dealt with together
The first two appeals Nos 450  451 are by Messrs Titaghur Paper Mills Co Ltd and the third No 514 by its workmen
Titaghur Paper Mills Co Ltd hereinafter called company own two paper mills one at Titaghur hereinafter called Mill No 1 and the other at Kankinarah hereinafter called Mill No 2
It appears that there had been a dispute between the company and its workmen in 1948 which was referred to the adjudication of a tribunal
That was disposed of by the tribunal on November 5 1949
Among the matters then referred was the question of profit bonus for the years 1945 46 and 1946 47
When that matter was under the consideration of the tribunal the company put forward a scheme of production bonus on the basis of a minimum production of 30000 tons of paper in a year in the two mills together
The basis of the scheme was that the workmen would get 13 days  basic wage this being equivalent to half of one month s basic wage by way of bonus on a production of 30000 tons for both mills
Thereafter the workmen were to get an additional one day s basic wage for every 460 tons produced upto a maximum of 36000 tons when the production bonus would come up to 26 days  basic wage which would be equivalent to one month s basic wage including weekly holidays
The company in putting forward the scheme said that as an admittedly rough basis for such a scheme something on the 1016 following lines might we think be equitable
It then gave the scheme mentioned above
The tribunal dealing with the question of profit bonus for the years 1945 46 and 1946 47 observed that the scheme of production bonus put forward by the company had been accepted by the union as satisfactory and for the purpose of that proceeding it accepted the scheme as a measure for awarding profit bonus for the years 194546 and 1946 47
The actual bonus worked out to 17 days  basic wage for 1945 46 and 19 days  basic wage for 1946 47  see award of Sri M C Banerji in the publication of Government of West Bengal Labour Department I Awards made by the Tribunals for the quarter ending December 1949  pp 130_ 150
It further appears that the detailed scheme was later communicated to the union in July 1950 and as the principle had already been accepted by the union before Sri Banerji the scheme was put in operation from April 1 1949 and production bonus has all along been paid in accordance with it after that date
Disputes however arose between the company and its workmen in 1953
The workmen of Mill No 2 were the first to raise a dispute in August 1953 in which inter alia they demanded profit bonus for the years 1950 51 and 1951 52 and also prayed for certain changes in the production bonus scheme
The workmen of Mill No
I also raised a dispute and presented a charter of demands to the company in October 1953
They also demanded profit bonus for the two years mentioned above and revision of the production bonus scheme
These disputes were referred by the Government of West Bengal to the Fifth Industrial Tribunal West Bengal
There were two references one relating to each mill
They were heard separately by the Industrial Tribunal which gave two separate awards rejecting all the demands made by the workmen
Consequently two appeals were preferred by the workmen before the Labour Appellate Tribunal
There the two appeals were heard together at the request of the parties and disposed of by the Tribunal by the same judgment on July 31 1956
The Fifth Industrial Tribunal rejected the claim of 1017 the workmen for revision of the production bonus scheme and for grant of profit bonus for the years 1950 51 and 1951 52
It was of opinion that the claim for profit bonus for the two years was not maintainable as the workmen had been given production bonus and that met the profit bonus claim of the workmen for the two years and all claims for profit bonus for these two years must be taken to have been fully satisfied
The question of delay in making the profit bonus claim was also raised but the Fifth Industrial Tribunal was of the view that the profit bonus claim could not be defeated merely on the ground of delay
As to the revision of production bonus scheme it held that scheme had been accepted by the union and no reason had been shown why the rate of one day s basic wage as production bonus for every increase of 460 tons over 30000 tons should be disturbed
It was also of the view that increased production was not due to increased efforts on the part of the workmen but was due mainly to increase in labour strength as well as installation of new machinery
On appeal the Labour Appellate Tribunal rejected the claim for profit bonus for the year 1950 51 on the ground that it was made too late
It however disagreed with the view of the Fifth Industrial Tribunal that the production bonus scheme fully satisfied the claim of the workmen for profit bonus and therefore DO profit bonus should be given even for the year 1951 52 with regard to which it  as of opinion that the claim was not belated
It therefore went into the figures of profits and arrived at the available surplus in accordance with the formula known as the Full Bench Formula evolved in The Mill Owners  Association Bombay vs The Rashtriya Mill Mazdoor Sangh Bombay1
Having arrived at the available surplus it granted one month s profit bonus in addition to what
the workmen were entitled to under the production bonus scheme as revised by it
As to the production bonus scheme it was of the view that there were reasons for revising it and therefore revised 1 128 1018 it providing for 112 days  basic wage for each increase of 460 tons over 30000 tons up to the limit of 36000 tons and two days  basic wage for each increase of 460 tons in excess of 36000 tons
It may be mentioned however that the change in the production bonus scheme was not made retrospective and would therefore come into force from after the judgment of the Labour Appellate Tribunal
The appeals of the workmen were therefore allowed in these two respects which have led to the two appeals by the company be fore us
The workmen through their union have also filed an appeal against those portions of the decision of the Labour Appellate Tribunal which rejected their demands
In the two appeals by the company two matters relating to i production bonus and ii profit bonus have been raised before us
We shall first take up these two matters and then come to the appeal by the workmen
The main contentions on behalf of the company with respect to the production bonus scheme are threefold namely 1The Industrial Tribunal has no jurisdiction to go into the question of production bonus scheme at all for such a scheme by its very nature can only be a matter of agreement between the employer and the employees and cannot be imposed by a tribunal 2Even where a production bonus scheme is in force its terms cannot be varied by a tribunal and any variation can only be the outcome of an agreement between the employer and the employees because initiation or introduction of such a scheme is what may be called a I management function  and 3 Even if an industrial tribunal has the power to vary the production bonus scheme no material was placed on the record in this case on the basis of which the tribunal could order a variation in the scheme in force in the company
As to the award of profit bonus for the year 1951 52 the attack was two fold namely 4It was not open to a tribunal to award both production bonus and profit bonus and in any case it 1019 could not be done in the present case as the production bonus here was nothing more than profit bonus and 5 Even if both production bonus and profit bonus could be awarded there was no available surplus in this case out of which profit bonus for that year could be paid
Before we go into the question of jurisdiction of a tribunal under the  hereinafter called the Act we should like to consider what production bonus essentially is
The payment of production bonus depends upon production and is in addition to wages
In effect it is an incentive to higher production and is in the nature of an incentive wage
There are various plans prevalent in other countries for this purpose known as Incentive Wage Plans worked out on various bases for example Halsey Premium Plan Bedaux Point Premium Plan Haynes Manit System and Emerson Efficiency Bonus Plan see Labour Law by Smith Second Edition P 723
The simplest of such plans is the straight piece rate plan where payment is made according to each piece produced subject in some cases to a guaranteed minimum wage for so many hours  work
But the straight piece rate system cannot work where the finished product is the result of the co operative effort of a large number of workers each doing a small part which contributes to the result
In such cases production bonus by tonnage produced as in this case is given
There is a base or standard above which extra payment is made for extra production in addition to the basic wage
Such a plan typically guarantees time wage up to the time represented by standard performance and gives workers a share in the savings represented by superior performance
But whatever may be the nature of the plan the payment in effect is an extra emoluments for extra effort put in by workmen over the standard that may be fixed
That is the reason why all these plans are known as Incentive Wage Plans and generally speaking have little to do with profits
The extra payment depends not on 1020 extra profits but on extra production
This extra payment calculated on the basis of extra production is in a case like the present where the payment is made after the annual production is known in the nature of emoluments paid at the end of the year
Therefore generally speaking payment of production bonus is nothing more nor less than a payment of further emoluments depending upon production as an incentive to the workmen to put in more than the standard performance
Production bonus in this case also is of this nature and is nothing more than additional emoluments paid as an incentive for higher production
We shall later consider the argument whether in this case the production bonus is anything other than profit bonus
It is enough to say at this stage that the bonus under the scheme in this case also depends essentially on production and therefore is in the nature of incentive wage
Let us now turn to the question of jurisdiction of the tribunal under the Act to consider a production bonus scheme at all
The argument is that the introduction of a production bonus scheme is purely discretionary with the employer and no tribunal can impose such a scheme
Whether there should be increased production in a particular concern is a matter to be determined entirely by the employer and depends upon a consideration of so many complex factors namely the state of the market the demand for the product the range of prices and so on
It is therefore entirely for the employer to introduce a production bonus scheme or not
There is good deal of force in the argument up to this point  but the argument goes further and it is said that even after the scheme is introduced it is for the same reasons in the discretion of the employer whether to continue it or not
Therefore it is urged that the tribunal cannot have jurisdiction to consider a production bonus scheme at all for the tribunal would then be doing something which the employer can set at naught by withdrawing the scheme or by nullifying the effect of the tribunal s order by so arranging that the production does not reach the level at which production bonus becomes payable for 1021 example by not providing enough raw material for the purpose
It is further urged that if it is entirely in the discretion of the employer to introduce or not to introduce a production bonus scheme the fact that the employer introduces a scheme will not give jurisdiction to the tribunal to interfere with it in any way for otherwise the tribunal would be compelling the employer in the guise of a revision of the scheme to do something which the tribunal could not initially do
Our attention in this connection was drawn to Shalimar Rope Works Mazdoor Union Howrah vs Messrs Shalimar Rope Works Ltd Shalimar Howrah 1 where it was observed that though a production bonus scheme may be desirable in the interest of harmonious relationship between the employer and employees there is no obligation on the part of the management to give production bonus and no decision had been brought to the notice of the Labour Appellate Tribunal holding that a scheme of production bonus was obligatory on the part of the company  see p 504
We are  however not called upon to decide in this case whether a demand for the introduction of a production bonus scheme where there was none before can be made a subject matter of industrial dispute as defined in section 2 k of the Act or whether a scheme of production bonus can for the first time be imposed on the employer by a tribunal under the Act
The problem that is before us is whether the tribunal tinder the Act will have jurisdiction to deal with a production bonus scheme in a concern where it has been introduced
The answer to this question depends upon the terms of the Act and not on the consideration whether the scheme can be initiated only by the employer in the first instance
In order that the tribunal may have jurisdiction all that is necessary is that an industrial dispute within the meaning of section 2 k of the Act should exist or be apprehended and there should be a reference of such dispute by the appropriate government to the tribunal under section 10
Now  industrial dispute  has been defined in very wide terms in section 2 k and for our purpose it means any 1 1957 LAC 496
1022 dispute or difference between the employers and workmen which is connected with the employment or non employment or the terms of employment or with the conditions of labour of any person
We have already held that the production bonus scheme in this case is an incentive wage plan and what is paid under the scheme over and above the basic wage is supplementary emolument depending upon annual production
A dispute arising about such an emolument clearly comes within the words  terms of employment 
As soon therefore as an employer introduces a production bonus scheme and the same is put in operation and the workmen accept it becomes a term of employment of the workmen working under him and any dispute with respect to such a term of employment is an industrial dispute and if it is referred to a tribunal under section 10 as has been done in this case it has jurisdiction under section 15 to deal with it
The argument therefore on this head must be rejected and it must be held that the tribunal had jurisdiction under the Act to deal with the scheme of production bonus which had been introduced in this company and was in force at all material times
This brings us to the second question namely where a scheme of this kind is in force and there is a dispute with regard to its terms what is the extent of the powers of a tribunal to deal with it
The argument is put in this way
The introduction and continuance of a production bonus scheme is one of the functions of management
Therefore when a question of revision of such a scheme comes up before a tribunal all that the tribunal should look into is whether this matter is an exclusive management function  If it comes to the conclusion that it is an exclusive management function it should not interfere with the details of the scheme unless it also comes to the con clusion that the employer is guilty of mala fides victimization fraud or unfair labour practice through the introduction or continuance of the scheme
It is said that even though the tribunal may have jurisdiction to consider such a scheme it should refuse to interfere 1023 with it as soon as it comes to the conclusion that it is an exclusive management function and there is no question of mala fides etc
We think it unnecessary for present purposes to embark on a discussion of what is and what is not an exclusive management function
Basically everything connected with the management of an industrial concern is a management function except the internal affairs of any union which may exist
The Act has made no distinction between what may be called exclusive management functions and others
It is also well settled that the tribunals tinder the Act have power to interfere with management functions falling within their purview in the interest of industrial peace and the Act was enacted with that object
Therefore once it is conceded as is the case here that the tribunal has jurisdiction to entertain such an industrial dispute which comes within the terms of section 2k we see no reason why the power of the tribunal to take into consideration an incentive wage plan like a production bonus scheme already introduced should be limited merely to the consideration of the question whether the employer s action is mala fide etc
Where a production bonus scheme is in force and has become a term of employment there is no reason why the tribunal should not have the power to vary its terms if circumstances justify it
Nor can the power of revision be denied to the tribunal in respect of a scheme actually introduced on the ground that the introduction of such a scheme was an exclusive management function and therefore it should be immune from being touched at all
Therefore even assuming that the initiation of a production bonus scheme is an exclusive management function and the final decision with respect to its introduction rests initially with the manage ment the right of the tribunal to take into consideration such an initiated scheme which has become a term of employment and to revise it cannot for a moment be doubted under the Act
It is true that the tribunal will not lightly interfere with a scheme introduced by the management and accepted by the union
It is also true that the tribunal would only 1024 make a change in the rates for good and sufficient reasons
There can be no doubt however that the tribunal has jurisdiction under the Act to take into consideration a production bonus scheme which has been introduced and is in operation and in proper cases to revise it and if necessary to change the rates and other conditions on which such bonus is payable
Our attention in this connection was drawn to Indian Iron  Steel Co Ltd vs Their Workmen1 where the limits of the power of a tribunal to interfere with an order of dismissal were considered
That case is in our opinion of no help to the appellant
It was laid down there that undoubtedly the management of a concern had power to direct its own internal administration and discipline but the power was not unlimited and when a dispute arose Industrial Tribunals had the power to see whether the termination of services of a workman was justified and to give appropriate relief It was further laid down under what conditions the Industrial Tribunal will interfere with the order of dismissal
On a parity of reasoning the Industrial Tribunal has the power under the Act to revise the production bonus scheme once it has been initiated
It will do so only for good and cogent reasons such as a material change in method product tools material design or production Conditions or a saving in labour cost and the like maintaining as far as possible the established relationship between earnings and effort and avoiding rates which will give results out of all proportion to the basic wage
We are therefore of opinion that the argument under this head must also be rejected
The main contention under this head is that there was no material before the Appellate Tribunal to justify the increase in the rate which it ordered
We have already pointed out that the scheme put forward by the company was to pay a production bonus of 13 days  basic wage on a minimum production of 30000 tons
Thereafter one day s basic wage was to 1 1958 SCR 667 1025 be paid for every 460 tons produced up to the maximum of 36000 tons the rated capacity of the mills being then said to be over 36000 tons
The Appellate Tribunal has kept the minimum production at 30000 tons with a bonus of 13 days  basic wage
Between 30000 and 36000 tons it has raised the rate to 1 12 days  basic wage for each increase of 460 tons over 30000 tons to the limit of 36000 tons and thereafter to two days  basic wage for each increase of 460 tons in excess of 36000 tons
It gave two reasons in support of this increase namely i that the great increase in production since the introduction of the scheme was attributable to a very considerable extent to the increase of efforts on the part of labour and therefore a reasonable proportion of the increased _income on account of increased production should go to labour and ii that one day s wage only as bonus for every 460 tons over 30000 tons is not commensurate with the actual increase of income on that increased block of production
It is not clear to us what exactly the Appellate Tribunal had in mind when it talked of the increase of income as a reason for increase in the rate
The question of increase in the rate has to be considered in two stages namely i the increase between 30000 and 36000 tons and ii the increase when production goes beyond 36000 tons
It appears from what Mr Banerji said in his award of 1949 that the basic principle of the scheme as it was put forward before him was accepted by the union as satisfactory meaning thereby that the union considered that 13 days  basic wage for a minimum production of 30000 tons and one day s basic wage for every 460 tons beyond that upto 36000 was fair to labour
It has been urged that there was no agreement between the workmen and the company in connection with this scheme
It does appear that all the terms which were incorporated in the scheme communicated to labour in July 1950 were not initially evolved with the agreement of the union  but so far as the rate of bonus was concerned that was accepted by the union as satisfactory
In the company s appeals we are 129 1026 concerned only with the rate
The question therefore is whether the Appellate Tribunal was justified in changing this rate which was agreed to as satisfactory by the union up to a production of 36000 tons
We are of opinion that in view of the agreement between the parties up to a production of 36000 tons there was no such material before the Appellate Tribunal as would justify interference with the agreed rate
The intensification of labour must have been taken into account when the union agreed to the rate up to 36000 tons and there is nothing to show that since then there has been any change in the conditions to call for a change in the rate
The order of the Appellate Tribunal so far as it relates to production up to 36000 tons cannot be sustained as no material was placed before it to warrant a change in that agreed rate
Then we come to the rate after 36000 tons
There the considerations in our view are different
The scheme only provided for a production of 36000 tons
It is true that thereafter the production has gone up beyond 36000 and the company has been paying the same flat rate of one day s basic wage for every 460 tons for the extra production and the workmen have been accepting that payment
At the same time there was no collective acceptance by the union on behalf of the workmen of this rate being satisfactory or fair for production above 36000 tons
Production went beyond 36000 tons for the first time in 1951 52 and a dispute was raised in October 1953 by the workmen of Mill No 1 not very long after production for that year was known
There was no dispute as to the general revision of the rate by the workmen of Mill No 2 but it was conceded on behalf of the company that the two mills must be treated on the same footing in this matter
The company therefore cannot say that the Appellate Tribunal should not have interfered with the rate above 36000 tons because there was a collective agreement by the union on behalf of the Workmen and there was no material before it to change the rate even beyond 36000 tons
Two reasons were given by the Appellate Tribunan for the 1027 change it ordered
Of these the second is difficult to understand as it is not clearly or happily expressed though the first reason namely increased effort on the part of labour would certainly apply when we consider production beyond 36000 tons
It stands to reason that where the labour force is more or less the same production beyond the original target of 36000
tons would mean more intensification of effort by labour for it is not in dispute that the working hours have remained the same
Other things being equal the greater the production by the same labour force in the same space of time there is bound to be more intensification of labour to achieve this result
This is certainly a matter which the Appellate Tribunal could take into account in considering whether the rate after 36000 tons should be raised
A comparison of figures of production and labour force employed between 1948 and 1952 assuming other factors to be the same would show that there must have been intensification of labour effort to got the increased production
In 1948 total labour force in the two mills was 5860 Exs F  H
In 1952 it went up to 6213 an increase of just over 6 per cent
Production on the other hand was 28244 tons in 1948 49 while it was 37738 tons in 1951 52 an increase of slightly above 33 per cent
So it is obvious that the increase in production is much more than the increase in labour force
It is true that in 1950 a new paper making machine was substituted in one of the mills and some bamboo crushers and digesters were also added during this period and other large amounts spent on machinery and that fact certainly accounts for a part of the increase
It is however not possible to ascertain with anything like mathematical accuracy as to how much of the increase in production is attributable to improved machinery and how much of it is referable to intensification of labour of the workmen
It may nevertheless be taken as fairly certain that the increase in production is referable to a great extent to intensification of the efforts of the workmen for there has been no appreciable increase in the labour force
We have not got the figures of labour force in the 1028 later years though production has gone on increasing till it is said it will reach 54000 tons mark in 1958 59
It is apparent therefore that there must have been progressive intensification of labour as the production rose beyond 36000 tons and in the premises that was a circumstance which the Appellate Tribunal was properly entitled to take into account when considering a change in the rate for production over 36000 tons
The second ground given by the Appellate Tribunal as we have said above is not quite clear to us
Learned counsel for the workmen have however explained that what the Tribunal means is that as the production increases more and more the labour cost per ton goes down and thus there is a saving in labour cost to the company and the workmen are entitled to share in this progressive saving of labour cost
The principle which is inherent in this explanation is in fact the basis of progressive increase in production bonus rates as production increases
This will be clear from an illustration which we shall give just now
This illus tration is based as nearly as possible on the conditions in these two mills with this difference that we have taken round figures for facility of multiplication  the result will be more or  less the same if actual figures are taken
For the purposes of this illustration we shall assume that the labour force and other relevant factors remain constant
Let us start with a basic production of 30000 tons with a labour force of 6000 and an average wage of all kinds at Rs 110per menses exhibit E
The total labour cost on this basis for 30000 tons per year comes to 792 lacs giving labour cost per ton as Rs 264 
Now when production increases to 36000 tons and a production bonus of Rs 25 per year exhibit E is added to the wage labour cost for the extra production of 6000 tons comes to Rs 15 lacs
The total labour cost therefore for 36000 tons is 807 lacs which works out to slightly above Rs 224 per ton
When production goes up to 42000 tons the labour cost increases by 3 lacs giving a labour outlay of 822 lacs this works out to just below Rs 196 per ton
When production increases 1029 to 48000 tons the extra labour cost is 45 lacs making a total of 837 lacs for 48000 tons thus the cost per ton is slightly above Rs 174 
When production goes up to 54000 tons labour cost increases by 6 lacs giving a total cost of 852 lacs for 54000 tons which works out to just below Rs 158 per ton
When production reaches 60000 tons which is double the basic production the additional sum paid to labour in bonus is 75 lacs and the total cost 867 lacs for 60000 tons which works out to Rs 1445 per ton
This is on the basis of the production bonus above 36000 tons being kept at the same rate at which it is provided in the scheme in this case
It will be clear therefore that as production increases if other factors are the same namely labour force and machinery there is a progressive increase in the saving of labour cost
This in our opinion makes out a clear case where one is dealing with tonnage production bonus for a progressive increase in the bonus
We know that in this case there has been an increase but of a small order in the labour force during the period of increased production we also know that a new paper making machine has been put in the place of an old one and new bamboo crushers and digesters have been added  and we know that during the period from April 1 1948 to April 1 1959 there has been a total outlay on machinery and plant worth 22394 lacs including the above
There is no doubt therefore that when production is expected to reach the figure of 54000 tons in 195859 this outlay on machinery and plant must also have contributed to it
The increase in labour force if any after April 1 1952 may also have made its contribution
But it appears to us that it is still valid to say that there is saving in labour cost which increases progressively as production goes up and labour can therefore legitimately claim a progressively higher rate
Therefore though the Appellate Tribunal s second reason does not appear to have been clearly expressed something like what we have said above must have been at the back of its mind when it decided to change the rate above 36000 tons
There can be no doubt that the consideration we have 1030 set out above will be valid to support the view taken by the Appellate Tribunal that there should be a change in the rate though it may not necessarily support the actual change ordered by it
We must not forget that there was no collective bargaining resulting in an agreement between the union and the company so far as production above 36000 tons is concerned as was the case so far as production upto 36000 tons went
A case has therefore been made out for a change in the rate when production goes above 36000 tons
The next question is whether the flat rate of two days  basic wage for every 460 tons allowed by the Appellate Tribunal can be supported
Usually when tonnage production bonus is worked out the rates progressively increase
We may in this connection refer to the illustration given in  Payment by Results  published by the International Labour Office Geneva at p 102
We think therefore that though there is a case for increasing the rate when production goes above 36000 tons it should be on a progressively in creasing system
The present scheme as we have pointed out earlier was evolved as an admittedly rough basis which was thought to be equitable
Following the same rough basis and using the same block of 6000 tons with slabs of 460 tons we think that on the data available at present it would be fair to give progressive rates for production from over 36000 tons up to 60000 tons
We need not go beyond this for the present and if production increases beyond 60000 tons the matter can be gone into again
We consider therefore that the rate should be changed as follows for production over 36000 tons 1 14 days  basic wage on the same scale as is provided in the sebeme from 30000 to 36000 tons1 12 days  basic wage on the same conditions as above
1 34 days  basic wage do i From over 36000 tons to 42000 tons
ii From over 42000 tons to 48000 tons
iii From over 48000 tons to 54000 tons
1031 iv From over 54000 tons to 2 days  basic wage do 60000 tons
We therefore modify the change in the rate ordered by the Appellate Tribunal as above
The contention under this head is that though this
scheme is called a production bonus scheme in reality it is no more than a profit bonus scheme and therefore the workmen are not entitled to any profit bonus worked out on the Full Bench formula referred to above in addition to what they get under this production bonus scheme
In this connection reliance is placed particularly on clauses 14 and 18 of the scheme
Let us therefore determine the true nature of the scheme
The scheme is headed  Tonnage Production Bonus Scheme  and not a scheme for profit bonus based on the Full Bench formula
It is true that this nomenclature is not decisive but is nevertheless a factor which may properly be taken into consideration
The primary and basic object of the scheme as given in el
2 is to stimulate the interests and endeavors of the clerks and workers of the company in increasing the production of saleable paper and to ensure that the workers will get by way of incentive an increased return for their labour contributing to the benefits which would accrue from such increased productivity
This again shows that this is a production bonus scheme and nothing else
Then comes cl
4 which lays down that upto a minimum of 30000 tons the bonus would be 13 days  basic wage thereafter there is increase of one day s basic wage for every 460 tons till the figure of 26 days  basic wage is reached for a total production of 36000 tons
Here again there is no connection between profits and bonus that accrues under this clause
If for example pro duction falls below the minimum of 30000 tons there will be no bonus at all under the scheme whatever may be the profits
This one circumstance clearly brings out the true nature of this scheme namely that it is a scheme of production bonus and not of 1032 profit bonus under the Full Bench formula
That formula had nothing to do with production
Bonus tinder that formula depended entirely on the available surplus of profits worked out in the manner provided therein
Then we come to clause 14
That clause lays down that the scheme will be subject to one most important general exception namely that the profit earning capacity of the company irrespective of the volume of production of saleable paper remains satisfactory during the financial year
Accordingly the clause prescribes that the directors may at their sole discretion either cancel altogether or reduce in scale of monetary payments the bonus in any one or more financial years in which the gross profit earned by the company over the whole financial year is not sufficient to meet fixed dividends and interest depreciation charges and taxation and thereafter pay for the whole year dividend not less than 10 per cent
to the ordinary shareholders of the company
It is said that this makes the scheme a profit bonus scheme
We are unable to agree with this contention
It is true that the scale of payment is likely to go down or there may even be no payment of bonus at all in the circumstances mentioned in cl
But the circumstances mentioned there are admittedly not the same which have to be taken into account in arriving at the available surplus according to the Full Bench Formula
Clause 14 appears to us to be just one condition upon which the payment of production bonus would depend like some other clauses in the scheme
For example cl
5 seems to provide that workers who work for less than half the total number of working days in the financial year for which bonus is being paid shall not get any bonus for it only makes those workers who work for more than half the total number of working days worked out according to other rules entitled to bonus
Clause 6 says that certain kinds of workers will not be entitled to bonus namely Bungalow servants Budli clerks or workers temporary clerks or workers casual workers or clerks
It also provides that any person guilty of any major misdemeanour may at the sole discretion of the Mill Manager or the 1033 Cost Accountant not be given this bonus either in part or in whole as a punishment and that this would be done after taking proceedings in writing for the purpose
Clause 7 provides another condition as to what service will count towards earning bonus and what will not for example leave on full or part pay shall count as bonus service while leave without pay will not count as Qualifying service towards bonus
Again cl
8 lays down that a worker will be entitled to the maximum bonus if he works for all the working days during the financial year for which the bonus is declared
Clause 9 then provides how the maximum bonus can be reduced if a worker does not work for all the working days
Clause 14 therefore is also another clause which may either lead to no payment of bonus or less payment than prescribed under cl
Further the fact that this is not a profit bonus scheme but a production bonus scheme will also be clear from what cl
14 actually provides
It says that if the conditions mentioned in it are not fulfilled the workers would riot be entitled to bonus or may get less
This means that if the conditions are fulfilled workers would be entitled to bonus
Now suppose that the gross profit in a year is sufficient to meet fixed dividends and interest depreciation charges and taxation and 10 percent
dividend to the ordinary shareholders
Theereafter the balance of profit left is Only let us say Rs 5 
But as the conditions of cl
14 are fulfilled the workers would be entitled to production bonus though the amount of Rs 5 which remains cannot possibly meet the claim of bonus
It is clear therefore that this bonus scheme is not the same as the profit bonus worked out under the Full Bench formula and it cannot be called a profit bonus scheme even other wise
This is nothing more nor less than a pure production bonus scheme based on tonnage depending on certain conditions one of which is related to profits also
The nature of this bonus therefore in our opinion is entirely different from the nature of profit bonus under the Fall Bench formula and we do not see why if there is an available surplus of profits 130 1034 according to the Pull Bench formula the workmen should not get profit bonus in accordance with that formula
The two things in our opinion are different
Under the scheme what the workers get is a supplementary emolument worked out on certain basis
Under the Full Bench formula what they get is something out of the profits if there is an available surplus on the ground that both capital and labour contribute to the accrual of profits and it is only fair that labour should get a part of it
In this connection our attention was drawn to Mathuradas Kanji vs Labour Appellate Tribunal 1 where it was observed that  one of the categories of bonus is described as  incentive bonus 
The name indicates that it is given as a cash incentive to greater effort on the part of the labour
But the essential condition for the payment of incentive bonus just like any other kind of bonus is that the industry concerned must earn profits part of which is due to the contribution which the workmen made in increasing production
 That was not a case of production bonus at all
The bonus dealt with there was included in an agreement between the government and its contractors in a contract relating to clearing and transporting of imported foodgrains
It was provided that if the rate of discharge from a ship exceeded 1500 tons per 24 hours and no shed demurrage was incurred the government would pay to the contractors remuneration at the prescribed rates plus a bonus of annas four per ton
The workmen employed by the contractors claimed that this bonus should be given to them
That claim was negatived on the ground that the workers could not claim on the terms of the contract that the bonus of annas four per ton was payable to them
These observations made in a different setting have therefore no relevance in the context of the production bonus scheme with which we are dealing here and which has become a term of employment of the workmen
As for el
18 it provides that if during the currency of three years for which the scheme was to 1
AIR 1035 remain in force in the first instance the government en forced by legislation any scheme or provision for bonus or profit sharing the company may decide to cancel or modify the scheme in its entirety
It is urged that this shows that the scheme was one for profit sharing or profit bonus because it was likely to be cancelled or modified if legislation was introduced with respect to these
It may be that the scheme might have been cancelled or modified if such legislation was passed
But that does not mean that the scheme itself provided for profit sharing or profit bonus
It is one thing to cancel or modify a scheme because the legislature steps in to provide for extra payment for workmen
But the nature of the provision of law which was then expected cannot be imposed on this scheme which must be judged on its own terms these leave no doubt that it is not a profit bonus scheme but an incentive wage plan depending upon production in the main
The contention therefore that the bonus under the scheme is a profit bonus and therefore the workmen are not entitled to the profit bonus under the Full Bench formula must fail
The contention under this head is that even if profit bonus is payable in addition to production bonus there was no available surplus of profits to justify the Appellate Tribunal in granting one month s bonus
The workmen had asked for two month s bonus but the Appellate Tribunal after working out the available surplus on the basis of the Full Bench formula granted them one month s bonus
The Full Bench formula was evolved in 1950 in connection with a case relating to the textile industry and has been since then generally applied to many other industries
The necessity for evolving that formula arose in this way When prices
are stable or falling there is no necessity of making further provision for rehabilitation for the usual depreciation provided for the purposes of the Income tax Act is sufficient to build up a fund for replacement of plant and machinery when they are worn out but when prices are rising the usual depreciation fund is not enough to replace plant and 1036 machinery which become useless
This was particularly so after the end of the last war when the question of replacing machinery purchased before the war ie before 1939 came up before the Full Bench of the Labour Appellate Tribunal in 1950
In order therefore to meet this particular situation arising out of a steep rise in prices the Full Bench formula was evolved to provide for a further sum for rehabilitation out of the profits besides the statutory depreciation
This was on a notional basis and depended upon a multiplier which was used to find out the current prices of machinery to be replaced and a divisor based on the useful life of the machinery to find out what sum should be provided each year for what was called rehabilitation
In order however that this sum nationally provided for rehabilitation each year has a realistic connection with the amount in fact necessary for the purpose it is in our opinion necessary that what is known as the total block of a concern including land buildings plant and machinery should be properly sub divided as otherwise a flat multiplier at the same rate for the total block might not give an accurate amount to be provided for rehabilitation
It is therefore necessary in order to arrive at an approximately realistic figure for rehabilitation that the total block should be divided into three heads namely i land ii buildings railway sidings and things of that nature which have a much longer life and where imports are not needed and iii machinery
In the case of land no replacement is necessary and therefore nothing need be provided for rehabilitation under this head
Even where land is leasehold and the lease is expiring any payment for renewal of lease will be an expense and need not enter into calculations for rehabilitation
Further if there are buildings belonging to the concern on leasehold land their rehabilitation charge be will allowable under the head buildings
In the case of building  railway sidings etc
 the multiplier will be smaller while the divisor will be larger
As for machinery there is again the necessity of further sub division according to when the machinery was purchased
The machinery purchased 1037 before the last war stands on one footing and thus there will be a block of machinery which may be know as pre 1939
The second block of machinery may well be that purchased during the war and the last block that purchased after the war
The last two are not rigid divisions but they indicate that machinery has to be divided into blocks according to years of purchase to arrive at a correct multiplier and a correct divisor
Bearing these principles in mind let us see how the Full Bench formula works in this case
We may mention that there is no dispute in this case as to the components of the formula the only dispute being confined to its actual application
The company claimed a multiplier of 45 and a divisor of 10 and on that basis gave a chart showing a deficit of 112 lacs in the amount required for rehabilitation for 1951 52
Another chart was also filed by the company in which the multiplier was taken as 35 and the divisor as 10 and the deficit was worked out at 65 lacs
What the company did was to take the total block consisting of land buildings railway sidings and machinery valued at 468 lacs and multiply it by 45 or 35 making no distinction between land buildings and railway sidings and machinery
The divisor was also taken as 10 making no distinction again between these three categories and further making no distinction between the machinery purchased before 1939 during the last war and after the last war
This in our opinion was a completely unrealistic way of working out the amount required for rehabilitation and that is why the company was able to show in its charts such a large deficit
The Appellate Tribunal did not accept these charts
It left out of account land altogether and rightly so
As for buildings it applied a different multiplier and a different divisor and so far as that is concerned no dispute has been raised before us
As for machinery consisting of plant machinery bamboo forest block furniture flotilla and vehicles it divided the block for this purpose into two parts namely the block as it existed on April 1 1947 and the additions made 1038 between April 1 1947 to March 31 1951
It applied a multiplier of 3 so far as the block upto April 1 1947 was concerned and took the block of additions after 1 4 1947 at cost price thus using one as multiplier
It is not clear why the Appellate Tribunal did not include the additions made in 1951 52
The Appellate Tribunal also accepted the divisor 10 for all this plant machinery etc and made no difference between the useful life of the machinery purchased at different times
Eventually after making the relevant calculations it came to the conclusion that there was an available surplus of profits amounting to 22 lacs
It therefore awarded one month s profit bonus on basic normal wage
It is contended on behalf of the company that evidence had been produced on its behalf to show that the prices of machinery had appreciated 4 12 times as compared to the prices in 1939 and therefore the multiplier of 45 should have been allowed at least on the block of machinery up to 1939
Thereafter it is claimed that some multiplier above one should be given for the block 1939 1947 and also for the block 1947 51
It is further contended that the additions made in 1951 52 should also have been taken into account
It may be mentioned that the Labour Appellate Tribunal which evolved the Full Bench formula in 1950 had used the multiplier 27 in that case for prewar block and that multiplier has been used since then in many other cases
it is however contended on behalf of the company that multiplier is not sacrosanct and if in fact there has been a greater rise in price there is no reason why a higher multiplier should not be used
It may be accepted that if an employer is able to prove that in fact there has been a greater rise in price he should be given a higher multiplier
But there has to be good proof tendered by the employer for the multiplier which he claims
Let us see therefore what proof the company has tendered in this case for a multipler of 45 for the block upto April 1 1939
In its written statement the company said that it was a known fact that the 1039 price of plant and machinery had increased by 300 per cent
to 400 percent
since before the war
At that stage there was no claim that the price had increased 4 12 times after April 1 1939
The company s claim therefore as put in the written statement was for a maximum multiplier of 4 for the block upto April 1 1939
In the evidence of Mr Taylor who appeared as a witness for the company however claim was made that prices had gone up by 4 12 times
This was based on exhibit D produced by the company which was compiled on the basis of inquiries about certain machinery from certain firms and copies of the correspondence with the firms were also produced
Nineteen items were mentioned in exhibit D and the average multiplier was worked out as 456
Among the items listed in exhibit D were motors beaters machine drive paper making machine turbo alternator couch roll bamboo crushers bamboo digesters boiler circular tanks and three roaster smelter units
The total price of these items was 19 lacs we have converted pounds into rupees for this purpose
Besides these there are other items like steam piping
 steam tee galvanized bend and steam bends which are probably required in large quantities and the price per foot or per piece has been mentioned
The correspondence which was attached to exhibit D consists of four letters one of September 1954 and three of June 1955 relating to one paper making machine similar to one installed in Mill No 2 a turbo alternator similar to one installed in Mill No 1 a machine drive similar to one installed in Mill No I and a boiler similar to one installed in Mill No 1
Now the cost of machinery block as at April 1 1939 was of the order of 153 lacs while exhibit D only deals with machinery of the value of 19 lacs as mentioned above
Mr Taylor did not say in his evidence that exhibit D was a sample and that other machines were of the same type as mentioned in exhibit D or that the prices of other machinery bad gone up similarly or to the same extent
D 1 to D 4 indicate that the price of one out of ten paper making machines was ascertained and nothing was ascertained about nine others
Similarly prices of one 1040 turbo alternator one machine drive and one boiler of Mill No
I were ascertained
We do not know how many more such machines are in the two mills nor do we know that the increase in prices of these types of machines is also four and a half times
In the circumstances we feel that the company has failed to provide sufficient material on the basis of which it can claim 45 as the multiplier
It is the company which is claiming that a certain multiplier be used for calculating rehabilitation reserve and it was its duty to produce good and sufficient evidence as to the correct multiplier if it wants that multiplier to be used
We cannot also forget that in its written statement the company only claimed a rise of 300 per cent
to 400 per cent
on prewar price
In the circumstances the tribunal was not unjustified in not giving the multiplier of 45
We also feel that in these circumstances we shall not be justified in giving the company a multiplier higher than 4 for that was the maximum claim it had put forward in its written statement
We should however like to make it clear that though we are using the multiplier 4 for the block as at April 1 1939 this should not be taken to be a precedent for future years even for this company and it will be open to either party to adduce proper evidence to show what the exact multiplier should be for this block whether more than 4 or less
Then we come to the block from April 1 1939 to March 31 1947
The Tribunal gave the multiplier 3 for this block also
But that was because it gave the same multiplier for the entire block as at 1947 including the prewar block
As however we are giving a multiplier of 4 for the prewar block the multiplier 3 for the block April 1 1939 to March 31 1947 can only be justified if the company has proved that was the rise in the prices after 1939
So far as that is concerned the company did not produce any evidence before the Industrial Tribunal
It seems however that certain documents were produced before the Appellate Tribunal on June 12 1956 when the appeals were ready for argument
The order sheet of June 12 1956 shows that the 1041 Appellate Tribunal allowed four statements regarding certain machines given by different firms to be admitted into evidence
Learned counsel for the workmen object to our looking into these statements on the ground that they never knew that any such statements had been filed at the last moment before the Appellate Tribunal and nobody seems to have relied on these statements before the Appellate Tribunal and the judgment also makes no mention of them
There seems to be a good deal of force in these contentions
However looking at these statements which have been taken on record we find that they relate to ten items
Four of them are of the years 1945 48 and the increase of price varies from 60 per cent
to 75 per cent
Two are of 1950 and the increase varies from 15 per cent
to 50 per cent
 three are of 1951 and the increase varies from 995 per cent
to 116 per cent
 and one is of 1954 and the increase is 60 per cent
The increased price is as of 1956
Even taking these documents into account we feel that the company cannot ask for a multiplier higher than 2 for the block between 1939 1947
But even this will not be taken as a precedent for future and it will be open to either party to give better evidence in order to vary this multiplier one way or the other
As for the block after 1947 it appears that the company added machinery to the tune of 87 lacs between April 1 1949 and March 31 1952 while the prices quoted for the years 1950 and 1951 in these documents were only of machines worth 5 lacs
We do not know whether this machinery is of the same kind as that mentioned in these documents
They cannot therefore be a guide for arriving at any multiplier higher than one for this period relating to this block of 87 lacs
Here again we should like to make it clear that if in future years better evidence is produced the question of giving a multiplier higher than I for this block can be considered
This disposes of the multipliers on the blocks of machines divided into three periods
We now come to the divisor
Both the Tribunals have accepted 10 131 1042 as the divisor on the evidence of Mr Taylor
We must say that it looks odd to us that there should be the same divisor for pre 1939 machinery and post 1939 but pre 1947 machinery and post 1947 but pre1952 machinery
It stands to reason that newer the machinery the larger must be the divisor for the newer machinery would have a longer useful life
However as both the Tribunals have accepted to as the divisor for the entire machinery in this case we shall also have to accept it but we should like to make it clear that this should also not be taken as a precedent for future years and it will be open to either party to show that the divisor should be different whether more or less than 10 for various blocks of machinery relating to the three periods
Let us now work out the figures on the basis of the above considerations
We have taken the basic figures as supplied to us by the learned counsel for the company  REHABILITATIONCOST In lacsIn lacs of
Rsof Rs a Plant  machinery as15343 x4  61372 at 1 4 1939 Machinery added between2241 x2  4482 1 4 1939 and 31 3 1947 Additions between 8727 x 1  8727 1 4 1947 and 31 3 1952 Total74581 Less 5 breakdown value 1315 Balance73266 Less depreciation upto 31 3 195117603 Balance55663 Less Reserves General Reserve2549 Plant Replacement67989347 Balance46316 Dividing by 104631 1043 b Buildings Value of building 4285 x 259641 as at 31 3 47 Additions between 21192119 1 4 47 and 31 3 52 Total 11760 Less 5 breakdown 320 Balance 11440 Less depreciation upto 4721 31 3 1951 Balance 6719 Dividing by 27 248 Rehabilitation for a Plant  Machinery 4631 bBuilding 248 Total 4879 Less depreciation for 1951 52
1650 Balance 3229 Rehabilitation Amount for 1951 523229 Rehabilitation amount for 1951 52 thus comes to 3229 lacs
In the charts supplied by the company the net profits after deducting prior charges other than rehabilitation cost were worked out air 3609 lacs
We find however that there is one mistake in this calculation inasmuch as 763 lacs have been included in working capital though this was merely a book entry and there was no cash corresponding to it
4 per cent
interest was allowed on working capital and this would mean that the net profits should increase by 305 lacs as that interest was allowed extra in the company s chart before the Appellate Tribunal
Thus the amount of net profits available before the allowance of rehabilitation charges comes to 3914 lacs 3609  305
Deducting 3229 lacs we arrive at the available surplus of profits amounting to 685 lacs 3914 3229 which is to be distributed equitably between the three sharers mentioned in the 1044 very decision of the Labour Appellate Tribunal which evolved the formula
The total cost of one month s bonus on basic wages allowed by the Appellate Tribunal is about 3 lacs
Taking all the circumstances of this case into consideration we do not think that any case has been made out for interference with this order of the Appellate Tribunal
We may point out that we have not taken into account bamboo mills and grass block for reasons given by the Appellate Tribunal which commend themselves to us
This brings us to the appeal by the workmen
Only three points have been urged before us out of the many taken in the grounds of appeal and we shall deal only with these three
They are i
The minimum basic wage should have been raised from Rs 30 to Rs 35 iiClerical staff as well as Buidl and temporary workers should have been included in the attendance bonus scheme and iii Profit bonus should have been allowed at two months  basic wages for 1951 52 instead of one month section Re
Both the Tribunals have rejected the claim for raising the basic wage on the principle of  Industrycum Region Rate of Basic Wages 
The workmen relied on the wages paid in the Bengal Paper Mills Ltd at Raniganj which is also a paper making concern
The minimum basic wage there is Rs 38 3 dearness allowance Rs 35 and the incentive wage is said to work out to Rs 7 5 6 per mensem making the total Rs 80 8 6
In the present company minimum basic wave is Rs 30 dearness allowance is Rs 35 house allowance is Rs 2 attendance bonus works out to Rs 8 and production bonus is about Rs 3 making a total of Rs 78
It will thus be seen that the difference is not great
Further if the production bonus and incentive wage are not taken into account the present company pays Rs 75 per mensem while the Raniganj company pays Rs 73 3
In the circumstances we see no reason for interfering with the concurrent order of the two Tribunals
1045 Re
The Tribunals rejected the claim for extending the attendance bonus scheme to clerical staff budli workers and temporary workers
They were of the view that these workmen stand on a different footing
For the clerical staff the reason given was that they enjoyed the advantage of the incremental scales which were till then denied to other categories of mill hands for whose benefit the attendance bonus scheme was introduced
As for the budli and temporary workers the Tribunals said that the scheme could not be applied to them on account of uncertainty of the tenure of their service
So far as the budli and temporary workers are concerned the reason given by the Tribunals for treating them differently appears to us to justify their being excluded
As to clerical staff it appears from the correspondence which ensued between the union and the company on the introduction of attendance bonus scheme that the scheme was introduced primarily in connection with the installation of a time keeping office
The clerks are obviously in a different category from the workmen engaged in actual production
In the circumstances apart from the considerations which were considered by the two Tribunals there is in our opinion justification for treating clerks in a different way from other workmen
The company also told the union that so far as they knew no scheme of attendance bonus had ever been applied to clerks probably because absenteeism among clerks is not so great as among other workmen
We see no reason therefore to disturb the concurrent finding of the two Tribunals in this matter
iii
We have already worked out above the available surplus of profits from which profit bonus can be given The amount of available surplus comes to 685 lacs and one month s basic wages which have been allowed as profit bonus come to about 3 lacs
The percentage therefore is already sufficiently high and if profit bonus is allowed at the rate of two months  basic wages it will come to about 6 lacs and 1046 would be more or less equal to the entire available surplus
It is well settled that the available surplus has to be divided in a fair manner between the industry the shareholders and the workmen
We cannot forget that the workmen have also got production bonus for this Year
In the circumstances there is no scope for grant of any further profit bonus beyond that allowed by the Appellate Tribunal
We therefore partly allow the appeals of the company and vary the production bonus rate in the Manner indicated above
We dismiss the appeals of the company with respect to profit bonus
We also dismiss the appeal of the workmen
In view of the fact that the parties have partly succeeded and partly failed we order them to bear their own costs of this court in all the appeals
Appeals Nos 450 and 451 allowed in part
Appeal No 514 dismissed


Summary:
The Income tax Officer found that the assessee an unregis tered firm had made a profit in the assessment year 1940 41
He treated it as registered under section 235b of the Act assessed the partners and carried the profit to their individual returns making no demand on the firm
For the next two assessment years however the firm was assessed as unregistered firm
For all the three assessment years the Income tax Officer treated the firm as  resident and ordinarily resident 
The firm appealed against all these assessments
The appeals were all consolidated and heard together by the Appellate Assistant Commissioner
He found that the firm was non resident the computation of income made by the Income tax Officer was erroneous that in the assessment year 1940 41 there was a loss and during the subsequent years the firm had made profits
He therefore directed the Income tax Officer to modify the assessments accordingly
Thereupon the Income tax Officer gave relief to the partners for the year 1940 41 and directed certain refunds to be made to them
The firm was not satisfied and moved both the Income tax Officer and the Appellate Assistant Commissioner 987 found to have incurred a loss in the first of the three assessment years it could not for that year be treated as a registered firm and was entitled to carry forward the loss to the subsequent years
They declined to interfere on the ground that the direction of the Income tax Officer under section 235b not being appealable had become final and the time within which the original order of the Income tax Officer could be rectified had also run out
The firm went up to the Commissioner and the Central Board of Revenue but to no effect
Thereafter it moved the High Court under article 226 of the Constitution
The single Judge who heard the matter declined to interfere
The Division Bench on appeal agreed with the single judge
The firm appealed to this Court
The question for decision was whether after the finding of profit made by the Income tax Officer had been turned to one of loss by the Appellate Assistant Commissioner on appeal the original decision of the Income tax Officer to treat the firm as a registered one under section 235b could remain intact
Held that since the Income tax Officer could treat an un registered firm as a registered one under section 235b of the Indian Income tax Act only if there was a profit the reversal of the finding of profit made by him by the Appellate Assistant Commissioner must automatically take away the jurisdiction of the Income tax Officer to act under that section and his order made thereunder must fall through
It made no difference in the instant case whether the Appellate Assistant Commissioner s order was one under cl
a Of section 313 or under cl
b of that section for the effect of the order in law in either case would be the same namely the annulment of the assessment resulting in the restoration of the case back to its original position
It was not correct to suggest that under proviso d to section 242 Of the Act the losses of an unregistered firm could be carried to the partners  account as if the firm was registered
That proviso was not intended to enable the Income tax Officer to forego the obligation laid on him by cl
b Of section 235 ie to find out the interest of the Revenue and thus to render the words during any year in proviso redundant
The effect of the provisions of section 235b and the proviso d to section 242 which must be read together was that the proviso was to be invoked subject to the conditions under section 235b to obtain more revenue for the State by applying section 235a
Although the Appellate Assistant Commissioner could not have interfered with the order made by the Income tax Officer under section 235b of the Act in an appeal against that order the position must be different when the assessment itself was subject to appeal under section 31 Of the Act and the Appellate Assistant Commissioner under section 314 authorised the Income tax Officer to modify the assessment in the light of his direction
It would therefore be the duty of the Income tax Officer to consider de 988 novo whether in the altered circumstances the provisions of section 235b of the Act could at all be applied
Commissioner of Income tax vs Tribune Trust Lahore  Commissioner of Income tax vs McMillan  Co  and Commissioner of Income tax vs Amritlal Bhogilal  CO  considered