Appeal No 496of 1963
Appeal by special leave front the Award dated August 26 1961 of the Industrial Tribunal Maharashtra in Reference IT No 43 of 1961
SV Gupte Additional Solicitor General of India and I N Shroff for the appellant
K R Chaudhuri for the respondents
December 19 1963
The Judgment of the Court was delivered by GAJENDRAGADKAR J
This appeal arises from an Industrial dispute between the appellant Podar Plastics P Ltd and the respondents its workmen and it has reference to the claim made by the respondents for bonus for the year 1959
The respondents claim that for the relevant year they should get bonus equivalent to three months  salary includ ing dearness allowance
On hearing the parties and on con sidering the evidence adduced by them the Tribunal has directed that the appellant shall pay to the respondents bonus at the rate of half month s basic wages excluding allowances and overtime for the said year
It is against this award that the appellant has come to this Court by special leave
The appellant is a private company and its registered office is situated at Podar Chambers Parsee Bazar Street Fort Bombay
It owns a factory at Supari Baug Road where it manufactures plastic products
The appellants case before the Tribunal was that if proper accounts are made in accordance with the Full Bench Formula it would be found that there is no available surplus from which any bonus can be paid to the respondents
On the other hand the respondents urged that the working of the Formula would show a substantial available surplus from which three months  wages as bonus can be easily paid
As usual the controversy between the parties centered round prior charges which the appellant claimed ought to be deducted from the gross profits
One of the points of dispute between the 134 159 SC 2
18 parties was whether depreciation which has to be deducted as a prior charge should be statutory depreciation or notional normal depreciation
The figure of the profit was
admitted at Rs 270 lacs
The Tribunal made alternative calculations one on the basis that statutory depreciation alone should be deducted while the other was prepared on the basis that notional normal depreciation as claimed by the appellant should be deducted
On the first calculation the available
surplus was found to be Rs 0
44 lac
On the alternative calculation it was found to be Rs 033 lac
For the purpose of this appeal we will accept the latter calculation which is made on the basis that the notional normal depreciation has to be deducted
It has been conceded before us by the learned Addl
Solicitor General for the appellant that there are two mis takes in this calculation
The amount of notional normal depreciation which has been shown as Rs 0
78 lac ought to be Rs 0
7 3 lac
Similarly the amount of income tax which is shown as Rs 0
96 lac ought to be Rs 0
95 lac
Thus the two mistakes accounting for nearly Rs 6000 have been made in favour of the appellant by the Tribunal in making this calculation and that would make the available surplus as Rs 039 lac that is one aspect of the matter which has to be borne in mind in dealing with the appeal before us
The main point which has been urged before us by the learned Addl
Solicitor General relates to the claim made by the appellant for the deduction as a prior charge of Rs 60000 by way of notional remuneration for Mr K R Podar one of the Directors of the Company
We have already seen that the appellant is a Private Ltd Co and four of the major shareholders are members of the Podar family they are RA Podar GR Podar KR Podar and BJ Podar the 5th shareholder is M s
Podar Trading Co Private Ltd 6th is Jay Agents Private Ltd 7th is the National Traders Private Ltd and the 8th is Ratilal B Desai
According to the appellant KR Podar devoted the whole of his time to the supervision and management of the appellant concern and so he was entitled to charge remuneration at the rate of Rs 5000 a month
In sup 19 port of this claim Mr Gupta the Manager of the concern made an affidavit and offered himself for cross examination
He stated that Mr Podar attends the factory from 9 AM to 1 Pm and 2 30 Pm to 6 30 Pm
In his cross examination it was brought out that when the previous Director was paid Rs 1000 per month as remuneration a resolution had been passed by the Board of Directors in that behalf but no such resolution has been passed in regard to the remuneration of Mr K R Podar
Besides the appellant itself has urged that Mr Podar did not actually charge any remuneration because it was thought that the financial position of the appellant was not very satisfactory and so Mr Podar wanted to save expenditure on account of his remuneration
It may be conceded that in a concern like the appellant s if one of the Directors spends his time in supervising and managing the affairs of the concern he would be entitled to charge a reasonable remuneration
This position has not been and cannot be disputed in view of the decisions of this Court in Gujarat Engineering Company vs Ahmedabad Misc
Industrial Workers  Union1 and Kodaneri Estate vs Its Workmen and Another 2 Relying on these decisions it is urged on behalf of the appellant that the Tribunal was in error in not allowing any deduction on account of remuneration to Mr Podar
In our opinion the appellant cannot seriously quarrel with the finding of the Tribunal because it is conceded that Mr Podar in fact has not charged any remuneration
The working of the Formula is no doubt notional in some respects but we think it would not be permissible for the employer to make it still more notional by introducing claims for prior charges on purely hypothetical and almost fictional basis
If Mr Podar had been paid remuneration regularly and it had been duly shown in the books of account a claim in that behalf could have been made by the appellant and subject to the scrutiny by the Industrial Tribunal as to reasonableness of the said payment such a claim would have been allowed but if for any reasons Mr Podar did not charge any remuneration it would be unfair to allow a deduction on that account to be made notionally 1 2 20 because the working of the Formula is sometimes described as notional
The inclusion of such an item solely for the purpose of depressing the available surplus cannot in our opinion be allowed
Besides the Tribunal does not appear to have accepted the evidence for Mr Gupta and it has made a significant comment that Mr K R Podar has himself not stepped into the witness box to make a claim for his remuneration
Mr Gupta was asked whether Mr Podar was going to give evidence and he answered the question in the negative
Therefore if in the circumstances proved in this case the Tribunal did not feel justified in allowing the claim for deduction made by the appellant in regard to the notional remuneration of Mr Podar the appellant cannot make a serious grievance
The other point in controversy is in regard to the direction of the Tribunal that the appellant was not entitled to make any claim for rehabilitation
It appears that the Tribunal was inclined to take the view that since the appellant had begun its business with second hand machinery it was not entitled to make a claim for rehabilitation on the basis of replacement of the said machinery by brand new machinery
In other words the Tribunal seems to be of the opinion that in cases where an employer is carrying on his business with second hand machinery rehabilitation should be calculated on the basis that the said second hand machinery would be replaced by second hand machinery and not by new machinery
This view has been rejected by this Court in the case of South India Millowners  Association and Ors
vs Coimbatore District Textile Workers  Union and Ors1
Therefore the appellant is right in contending that the approach adopted by the Tribunal in dealing with the question of rehabilitation is erroneous
That however does not help the appellant because in the present case the Tribunal has considered the evidence given by Mr Dinshaw on behalf of the appellant In support of its claim that the rehabilitation requirement of the appellant would be of the order of Rs 884629
It is true that one of the reasons given by the Tribunal is that the 1 1962 1LLJ 223
21 appellant is not justified in making a claim for rehabilita tion on the basis that new machinery would be purchased by him for rehabilitating his old one but there are several other reasons which the Tribunal has discussed and these reasons indicate that the Tribunal was not satisfied with the accuracy of the statements made by Mr Dinshaw and their reliability
Incidentally it appears that the appellant made a novel claim for rehabilitating his dead stock as one of the items under rehabilitation and the Tribunal has re jected that claim
In the result the finding of the Tribunal is based on its appreciation of the evidence led by the appellant and that cannot be disturbed having regard to the material which is available on the record
The Tribunal has taken the precaution of adding that if the appellant leads better evidence in future its claim for rehabilitation would have to be judged on the merits and the present decision will not create any bar against it
In our opinion that is all that can be done in the present appeal
The learned Addl
Solicitor General however attempted to argue that the Tribunal should have made some allowance for rehabilitation on an ad hoc basis and in support of this contention he has referred us to some of the observations made in the case of South India Millowners  Association 1
It appears that in that case the appellant Mills had not adduced relevant evidence about the original price and subsequent depreciation of the machinery prior to its purchase by the appellant and so acting on the evidence available on the record the Tribunal adopted some id hoc basis
No grievance was made about the ad hoc basis adopted by the Tribunal the only grievance made was against certain observations made by the Tribunal that if the existing machinery is second hand
it should be rehabilitated only by second hand machinery and this Court held that the said observations did not represent the true position in the matter
It would we think be erroneous to assume that this Court approved of or affirmed the ad hoc basis adopted by the Tribunal in that particular case
On what material the said ad hoc basis was adopted is not known and it would we think be unreasonable to suggest that if the employer does not adduce sufficient evidence to i 22 justify his claim for rehabilitation and the Tribunal is in clined to reject the evidence which has been adduced the Tribunal must nevertheless award some rehabilitation on a purely hypothetical and imaginary ad hoc basis
In such a case all that the Tribunal can do is to safeguard the posi tion of the employer by giving him opportunity to adduce better evidence in future and that is what the Tribunal has done in the present case
An attempt was then made by the learned Addl
Solicitor General to make a claim for the deduction of the wealth tax
It has been consistently held by this Court that in bonus calculations the employer is entitled to claim a deduction of the income tax as well as wealth tax but in the present case there is no material to determine what the amount of wealth tax charged or paid is and so no relief can be granted to the appellant on that account
In the result the appeal fails and is dismissed with costs
Appeal dismissed


Summary:
An Industrial Dispute arose between the appellant and its workmen in respect of the claim made by the workmen respondents for bonus for the year 1959
The respondents claimed that they were entitled to get bonus equivalent to three months  salary including dearness allowance The appellant claimed deductions on the basis of the Full Bench 16 Formula
The appellant claimed deduction of Rs 60000 by way of notional remuneration for Mr K R Podar one of the Directors of the company
According to the appellant K R Podar devoted the whole of his time to the supervision and management of the appellant concern and so he was entitled to charge remuneration at the rate of Rs 5000 a month
The appellant also made a claim for rehabilitation
On these facts the Tribunal directed the appellant to pay to the respondents bonus at the rate of half month s basic wages excluding allowances and overtime for the said year
It is against this award that the appellant has come to this Court
Heldi that in a concern like the appellant s if one of the Directors spends his time in supervising and managing the affairs of the concern he would be entitled to charge a reasonable remuneration
But in the present case Mr Podar did not actually charge any remuneration
The working of the Full Bench Formula is no doubt notional in some respects but it would not be permissible for the employer to make it still more notional by introducing claims for prior charges on purely hypothetical and almost fictional basis
The Tribunal did not feel justified in allowing the claim for deduction made by the appellant in regard to the notional remuneration of Mr Podar on the ground that Mr Podar had not been paid remuneration regularly and it had not been duly shown in the books of account
Gujarat Engineering Co vs Ahmedabad Misc
Industrial Workers  Union and Kodaneri Estate vs Its Work men  relied on
iiIt is not the correct legal position that a second hand machinery should be rehabilitated only by second hand machinery
But in the present case the finding of the Tribunal in respect of the claim for rehabilitation is based on its appreciation of the evidence led by the appellant and that cannot be disturbed having regard to the material which is available on the record
SouthIndia MillownersAssociation vs Coimbatore District Textile Workers Union  relied on
iiiIt would be erroneous to assume that this Court approved of or affirmedthe ad hoc basis adopted by the Tribunal in the case of South India Millowners  Association
ivIt would be unreasonable to suggest that if the employer does not adduce sufficient evidence to justify his claim for rehabilitation and the Tribunal is inclined to reject the evidence which has been adduced the Tribunal must nevertheless award some rehabilitation on a purely hypothetical and imaginary ad hoc basis
In the present case the employer adduced evidence for rehabilitation and that was rejected by the Tribunal
vIt has been consistently held by this Court that in bonus calculations the employer is entitled to claim a deduction of the Income tax as well as wealth tax but in the present case there is no material 17 to determine what the amount of wealth tax charged or paid is and so no relief can be granted to the appellant on that account