iation allowance is only entitled to the actual or probable depreciation of the machinery etc
for the period due to wear and tear
The depreciation cannot be computed on an actuarial basis or on the profit and loss account furnished by the company
In the instant cases the accounting was far the purpose of minimising the profits to deprive are 511 workers their due
Such depreciation cannot be allowed
If the inflated figures are left out of account the industry has the capacity to bear the additional burden
524A B E e Even though the wages were fixed on industry cum region basis it is open to industry to plead that it has not the financial capacity to hear the increased burden
When such a plea is specifically raised it is the duty of the industrial court to determine whether the increased burden could be borne by the particular industry
525 F G  CIVIL APPELLATE JURISDICTION Civil Appeal No 14678
Appeal by Special Leave from the Award dated 22 2 77 of the Industrial Court Gujarat in Ref
IC No 5375
AND CIVIL APPEAL NOS
322 324 OF 1979
Appeals by special leave from the Order dated 18 10 1978 of the Gujarat High Court in SCA No 103677
AND SPECIAL LEAVE PETITION CIVIL NO
293979
From the Judgment and Order dated 30 1 1979 of the Gujarat High Court in SCA No 31178
Dr Anand Prakash Laxmi Anand Prakash Arun B Desai and H K Puri for the Appellant in CA 14678 and 32379
F section Nariman H K Puri Arun B Desai and Mrs Laxmi Anand for the Appellants in CA 32279
A K Sen Arun B Desai V K Behl H K Puri and Mrs Laxmi Anand for the Appellant in CA 32479
M K Ramamurthy and Promod Swarup for the Respondents in CA 14678 and CA 32279
section section Khanduja and Miss Kusum Chowdhry for the Respondent in CA 14678 and 323 32479
J G Shah CA 322 M K Ramamurthi SLP 2939 and CA 322 and A K Srivastava and Vineet Kumar for the Respondents in CA 322 and for the Petitioner in SLP
293979
The Judgment of the Court was delivered by KAILASAM J
All these appeals and special leave petition are by the management of five cooperative sugar factories in Gujarat State
The demand of the workmen of the factories in Gujarat was for pay 512 ment of the UP Government revised scales for sugar factories in UP regarding pay dearness allowance and other benefits
The second Wage Board for the sugar industry gave its report in 1970
The Wage Board s report was due to expire on 31st October 1974
The Government of UP on 31st October 1974 issued the UP Pattern Scales of Wages and Dearness Allowance for workmen employed in all sugar factories working by vacuum Pan Manufacturing Process
The Labour Minister gave the award and as a result of that award an order was passed under section 3 sub clause b of the UP
This order relating to UP Pattern of Pay Graduated Dearness Allowance Variable Dearness Allowance came into force from 31st October 1974 and effect was to be given to these pay scales and dearness allowance from 1st October 1974
As the sugar factories were seasonal factories a retention allowance for unskilled seasonal workmen for off season at the rate of 10 of the basic wage and dearness allowance payable during the crushing year 1974 75 was also provided for
The demand put forward by the workmen in all these appeals is for payment according to the UP Pattern
The Industrial Court Gujarat increased the graduated dearness allowance of the unskilled employees from Rs 21 to Rs 40
But this increase was not given at one stage but was spread over in three stages the first stage being from 1st July 1976 to 30th June 1977 the second stage being from 1st July 1977 to 30th June 1978 and the third stage being from 1st July 1978 to 30th June 1979 and onwards
The increased graduated dearness allowance for the first period would be Rs 32 per month for the second period Rs 36 per month and for the third period Rs 40 per month
The existing basic wage for the unskilled employee is Rs 110
The variable dearness allowance of Rs 151 per month is being paid and the Court found that there was no dispute as raised in demand No 2c
Regarding variable dearness allowance demand Nos 3 4 and 5 the Court revised the rates from 83 paise per point on the rise over 301 points of All India Average Consumer Price Index Number for Industrial Workers Base 1960 100 at Re 100 per point for skilled B operatives and for clerks drawing upto Rs 150 per month as asked for in demand 5i b and from Re 095 to Re 112 for All India Average Consumer Price Index for other employees as per demand No 5id
This increase was also spread over for a period of three years ie 7 paise for the first period from 1st July 1976 to 30th June 1977 5 paise for the second period from 1st July 1977 to 30th June 1978 and 5 paise for the third period from 1st July 1978 to 30th June 1979 and 513 onwards
Regarding demand No 7 relating to retaining allowance to be paid to the unskilled seasonal employees at the rate of 10 per cent of the basic wage and dearness allowance payable during the crushing season 1974 75 and for subsequent years the Court found that the demand was justified
The Court gave a retention allowance of 10 as demanded of the basic wage and dearness allowance payable during the crushing season 1974 75 and also for the three subsequent years
On appeal the High Court passed an order on 18th October 1978 as follows stating that reasons will be given later 1 The impugned award is hereby quashed and set aside
2 There is no justification for the phasing awarded by the Industrial Court and hence the phasing is quashed and set aside
3 x x x x 4 x x x x 5 The respective cooperative sugar societies will pay the costs of the other side
Costs quantified at Rs 300 in each matter
Rule is made absolute accordingly in Special Civil Applications Nos 1136 of 1977 1148 of 1977 602 of 1978 and 311 of 1978 Special Civil Applications Nos
1036 of 1977 and 1505 of 1977 are dismissed
 By this order the Court quashed the award and set it aside
It also found that there was no justification for phasing as awarded by the Industrial Court and therefore quashed it and set it aside
It confirmed with retrospective effect the award as given by the Industrial Court
The High Court also directed that UP Pattern will be given full effect with retrospective effect from the date mentioned in the award
The reasons were given by the High Court by its judgment dated 30th January 1979
The judgment of the High Court is assailed on the following grounds 1
The grant of neutralisation of variable dearness allowance at 125 is far in excess of what is permissible under the industrial law
The High Court erred in not taking into account depreciation of the sugar factories in arriving at the 514 financial capacity of the industry for the purpose of fixing the wage structure
In any event it was submitted that as the administration of the sugar factories is governed by the Gujarat Cooperative Societies Act 1961 those provisions will have to be followed in arriving at the net profits and for determining the financial capacity of the factories to pay
It was submitted that the Industrial Court and the High Court erred in following the UP Pattern on the ground that it has been accepted by the other States in the South zone without taking into account the relevant circumstances relating to individual factories
Lastly it was contended that the High Court after quashing the impugned award and setting it aside erred in passing a new award
We ignore the last ground as we feel it is purely technical
Though the High Court may not be right in stating that it quashed and set aside the award the intention is clear from the subsequent clauses of the award
We will now proceed to deal with the other three objections
It is strongly urged on behalf of the appellants that the High Court and the Tribunal were in error in allowing neutralisation of variable dearness allowance of 125 which is beyond the permissible limits of the industrial law
It is common ground that 100 neutralisation would be achieved by granting an increase of 83 paise for rise in one point in the cost of living index
By granting an increase of one rupee for increase of one point the neutralisation is by 125
Dearness Allowance was primarily intended as a protection of persons whose salaries are at the subsistence level to protect them against the adverse effects of the rise in prices
The Commission on Dearness Allowance in May 1967 stated that historically dearness allowance was regarded as applicable to those employees whose salaries are at the subsistence level or at a little above in order to enable them to face the increase in dearness of essential commodities
The National Commission on Labour 1969 observed that unless money wages rise as fast as consumer prices it will result in an erosion of real wages
But the extent of its impact will depend on the margin of erosion available at different levels of income
The Commission recommended that 95 neutralisation 515 should be granted against rise in cost of living to those drawing minimum wage in non scheduled employments
In a series of decisions this Court has expressed the same view
It has been held that cent per cent neutralisation cannot be allowed as it would lead to a vicious circle and add to the inflationary spiral
It was observed that there was no reason why the industrial worker should not make sacrifices like all other citizens
In Clerks of Calcutta Tramways vs Calcutta Tramways Co Ltd1 this Court said We can now take it as settled that in matters of the grant of dearness allowance except to the very lowest class of manual labourers whose income is just sufficient to keep body and soul together it is impolitic and unwise to neutralise the entire rise in the cost of living by dearness allowance
More so in the case of the middle classes
The same view was expressed in the Hindustan Motors 2 case and was reaffirmed in Hindustan Times Ltd New Delhi vs Their Workmen3 where it was observed that the whole purpose of dearness allowance being to neutralise a portion of the increase in the cost of living it should ordinarily be on a sliding scale and provide for an increase on rise in the cost of living and a decrease on a fall in the cost of living
In Kamani Metals and Alloys Ltd vs Their Workmen4 it was held that 100 neutralisation is not advisable as it will lead to inflation and therefore dearness allowance is often a little less than one hundred per cent neutralisation
In Silk  Art Silk Mills Association Ltd vs Mill Mazdoor Sabha6 it was laid down that in considering a claim for dearness allowance or revision of dearness allowance amongst other factors it should be borne in mind 1 Full neutralisation is not normally given except to the very lowest class of employees 2 The purpose of dearness allowance being to neutralise a portion of the increase in the cost of living should ordinarily be on a sliding scale and provide for an increase on the rise in the cost of living and a decrease on a fall in the cost of living
In Silk  Art Silk Mills Association Ltd vs Mill Mazdoor Sabha6 a grant by the Industrial Tribunal of 99 neutralisation of increase in the cost of living was confirmed as the workmen cannot be denied their subsistence wage at its real level because some other comparable concern is paying at a lower rate
In Killick Nixon Ltd vs Killick  516 Allied Companies Employees Union1 this Court after approving the propositions laid down in Bengal Chemical case supra proceeded to state at p 467 There is however one thing which we must point out lest there should be some misconception about it and that is that so far as the lowest paid employees at or just above the subsistence level are concerned they are entitled to 100 or at any rate not less than 95 neutralisation of the rise in the cost of living and hence there should be no ceiling on dearness allowance payable to employees within the slab of first Rs 100 unless it can be shown by the management that the rate of neutralisation in their case is more than 100 per cent
The decision is authority for the proposition that the rate of neutralisation cannot be more than 100 even in the case of lowest paid employees
The proposition laid down in the decision cited above were reiterated and followed in Shivraj Fine Art Litho Works vs State Industrial Court Nagpur  Ors2 The law is thus clear that dearness allowance is intended to neutralise a portion of the increase in the cost of living
Though 100 neutralisation is not advisable as it will lead to inflation full neutralisation may be permissible only in the case of the lowest class of employees
The management is entitled to complain if the neutralisation is more than 100
The purpose of grant of dearness allowance is to neutralise the increase in the cost of living due to rise in prices
Neutralisation may be such as to neutralise fully the increase in cost of living or may be restricted to neutralise only a portion of the increase
Full or cent per cent neutralisation can be achieved if the increase in the cost of living is fully compensated so that the pay of the worker is not adversely affected
But an award of more than 100 of an increase in the cost of living would be more than neutralisation and would in effect gives the worker an increased wage
The result would be the worker would be getting an increased wage packet whenever there is a price rise a result which would not have been envisaged in making provision for grant of dearness allowance
Mr M K Ramamurthi learned counsel for the respondents submitted that the permissible limit of 100 neutralisation is not applicable to cases where persons are seasonally employed
The learned counsel pointed out that the sugar industry does not function for the whole year and for months it is closed and the workers are left without employment during the off season
In order to give some relief to such sea 517 sonal workers he submitted that the award of equalisation of more than 100 is justified
This plea cannot be accepted for the award of equalisation of more than 100 in these cases is not based on seasonal employment
To mitigate the hardship of unemployment during the off season a retention allowance has been provided for the seasonal workers
The plea that the neutralisation of more than 100 is based on seasonal employment was not taken in the pleadings or raised before the courts below
Demand No 7 relates to claim for payment of retaining allowance for the unskilled seasonal employees in the off season at the rate of 10 of their basic wage and dearness allowance payable during the crushing season 1974 75
The Industrial Court as regards demand No7 directed that the unskilled seasonal employees be paid retaining allowance for the season 1975 at the rate of 10 of the basic wage and dearness allowance payable during the crushing season 1974 75
The claim regarding the variable dearness allowance is demand No 2c and 51 a b
There is no reference in the proceedings before the Industrial Court or the High Court that the variable dearness allowance of more than 100 equalisation was awarded due to the seasonal employment of the workers
In the result we accept the contention of the appellants that variable dearness allowance cannot be more than 100 neutralisation
The second contention raised on behalf of the appellants is that in fixing fair wages and dearness allowance financial capacity of the cooperative societies should be arrived after taking into account the depreciation
Mr Nariman the learned counsel submitted that in order to keep an industry running it is necessary to make provision for depreciation as otherwise when the machinery gets worn out the industry would grind to a halt
The learned counsel submitted that though there are certain observations by this Court in Unichem Laboratories Ltd vs The Workmen1 and Indian Link Chain Manufacturers Ltd vs Workmen2 that depreciation could not be taken into account in fixing the gross profits they do not rule out taking into account the depreciation in all cases in determining the financial capacity of the Industry to bear the increased burden
Before considering the decisions which bear on the question we will refer to the plea of the appellants that financial capacity of sugar industry functioning under the Cooperative Societies Act should only be decided according to the provisions of section 66 of the Gujarat Co 518 operative Societies Act 1961 Act X of 1962
Section 661 runs as follows A society earning profit shall calculate its annual net profits by deducting from the gross profits for the year all accrued interest which is overdue for more than six months establishment charges contributions if any towards the provident fund and gratuity fund of its employees interest payable on loan and deposits audit fees working expenses including repairs rents taxes and depreciation and after providing for or writing off bad debts and losses not adjusted against any fund created out of profits
A society may however add to the net profits for the year interest accrued in the preceding years but actually recovered during the year
The net profits thus arrived at together with the amount of profits brought forward from the previous year shall be available for appropriation
 Relying on the provisions of the section which requires that taxes and depreciation should be deducted from gross profits for arriving at net profits it was submitted that in determining the financial capacity of the industry the net profits as prescribed in the section would have to be determined
We do not read the section as meaning that wages and dearness allowance could only be determined after the net profits are arrived at
The sub section itself provides that contributions towards provident fund and gratuity fund of its employees should all be deducted from the gross profits for arriving at the net profits
The provision for deducting depreciation occurs after providing for contribution towards provident fund and gratuity
The determination of the net profits under the section is for a different purpose namely for appropriation of the net profits as provided for in the Act and does not in any way support the contention of the appellants
In deciding the financial capacity of an industry this Court has laid down in Ahmedabad Mills Owners  Association etc
vs The Textile Labour Association1 that Industrial adjudication must take into account the problem of additional burden which such wage structure would impose upon the employer and consider whether the employer can reasonably be called upon to bear such burden
It is a long range plan and in dealing with the problem which is difficult and delicate the financial position of the employer and the future prospects of the industry and the additional burden which may be imposed on the consumer must be carefully examined This Court after referring to the Reserve Bank Bulletin about the financial position of the industry 519 and about cotton textile industry and other authorities on determining the financial capacity of an industry observed that industrial adjudication cannot lean too heavily on such single purpose statements or adopt any one of the tests evolved from such statements whilst it is attempting the task of deciding the financial capacity of the employer in context of the wage problem The financial capacity of the industry will have to be decided in the context of the wage problems and the methods adopted in determining financial capacity of the industry for other purposes need not be followed
While examining the financial capacity in detail we must ultimately base our decision on a broad view which emerges from a consideration of all relevant factors such as financial position of the employer the interests of the consumer etc
The wages due to a worker are in the nature of expenses just like payment for raw materials
In this sense the wages are expenses which have to be met whether the company works makes a profit or not
So far as the minimum wages due to a worker are concerned the law requires that they should be paid first and if the industry cannot pay them it may as well close
The payment of dearness allowance as prescribed under the Minimum Wages Act should also be provided for in any event
It is settled law that in fixing fair wages or dearness allowance or for making contribution to provident fund or providing for gratuity the financial capacity of the industry to bear the additional burden will have to be taken into account
On principle of social justice with the development of industrial law it has now been accepted that when the industry can bear the burden provision should be made for provident fund and gratuity scheme
In determining the financial capacity of an industry all relevant facts will have to be taken into account
The principles followed in arriving at the profit and loss account for income tax and other purposes may not be conclusive
The claim of the employer to a reasonable profit that of the shareholders for a fair dividend and the interest of consumer and other relevant factors and circumstances will have to be taken into account
It is necessary to take into account all the facts and circumstances relating to the industry for determining the financial capacity of the industry to pay
We will now proceed to refer in detail to the three decisions of this Court which are relied on as authority for the proposition that depreciation should not be taken into account in fixing the wage structure
In Gramophone Company Ltd vs Its Workmen1 this Court had to 520 examine the financial capacity of the employer for determining whether the industry could bear the burden of a gratuity scheme
The court found on examination of the financial position of the company that the profits that were made by the company were Rs 76 lakhs in 1956 57 Rs 72 lakhs in 1957 58 Rs 16 lakhs in 1958 59 Rs 149 lakhs in 1959 60 and Rs 604 lakhs in 1960 61
On behalf of the company it was submitted that the introduction of the gratuity scheme would throw a great burden on the industry involving an initial fund of Rs 33 or 34 lakhs and that if provision is made for income tax payable and development rebate it will be seen that the company is running at a loss
The Court found that the financial position of the industry showed that the burden of payment of gratuity and provident fund can be made without undue strain on the financial position of the employer
The court observed that the introduction of a gratuity scheme will not require an initial fund of Rs 33 or 34 lakhs but only involve an additional burden of Rs 15 lakhs at the most
Though the introduction of the gratuity scheme may involve an expenditure of Rs 150 lakhs a year the actual burden will be Rs 60000 as there will be a reduction of the income tax payable by about 63
Regarding the plea of the company that if the amounts due to income tax and development rebate are taken out it would show that the company has suffered a loss the Court observed that the provisions for income tax and reserves must take a second place as compared to provisions for a wage structure
In declining to accept the contention that provision for taxation and reserves should have precedence the Court proceeded to base its decision on the finding that the financial capacity of the industry was such that it could bear the burden
This Court held that if the industry is in a stable condition and the burden of provident fund and gratuity does not result in loss to the employer that burden will have to be borne by the employer like the burden of wage structure in the interest of social justice
The statement that provision for income tax and development rebate taking only a second place may not be understood as holding that they should on no account be taken into consideration or that a wage increase would be permissible if it would result in reduction of income tax
The decision is based on the finding that the company is in a position to bear the burden and the observations were incidental and made on the facts of the case
It may be noted that there is no reference about taking into account of depreciation allowance
The judgment should be understood as negativing the plea that the income tax and development rebate should be taken into account to the extent of showing that the industry is running at a loss
521 The second decision is Indian Link Chain Manufacturers Ltd vs Their Workmen1 The question arose whether in the matter of determining surplus the Tribunal was justified in taking the figures of depreciation allowance and development rebate from the balance sheet and not from the income tax assessment orders in which the figures were higher and whether for determining the return on reserves the figures at the end of the year or the beginning of the year had to be taken
It was held by this Court that there was no justification for the rejection of the company s claim for depreciation and development rebate and the same be allowed as per income tax assessment
The Court allowed depreciation allowance and development rebate
In determining the financial position of the company the court observed that it would not be appropriate to approach its capacity to bear the burden from an investors point of view
The over all picture of the soundness of the undertaking and its future prospects must be taken into account
 The Court adopted the principles laid down in the Bharatkhand Textile Mfg Co Ltd  Ors
vs The Textile Labour Association Ahmedabad2 which are as follows It is not disputed that the benefit of gratuity is in the nature of retiral benefit and there can be no doubt that before framing a scheme for gratuity industrial adjudication has to take into account several relevant facts the financial condition of the employer his profit making capacity the profits earned by him in the past the extent of his reserves and the chances of his replenishing them as well as the claim for capital invested by him these and other material considerations may have to be borne in mind in determining the terms of the gratuity scheme Emphasis supplied
Thus the facts that have to be taken into account in determining an overall picture of the financial capacity are the financial condition of the employer his profit making capacity the profits earned by him in the past the extent of his reserves and the chances of his replenishing them as well as the claim for capital invested by him
After referring to the decision in the Hindustan Antibiotics Ltd vs The Workmen  Ors 3 at p 809 the Court made the following observations It is pertinent to notice that gratuity and wages in industrial adjudication are placed on the same footing and have priority over Income tax and other reserves as such in consi 522 dering the financial soudness of an undertaking for the purposes of introduction of a gratuity scheme the profits that must be taken into account are those computed prior to the deduction of depreciation and other reserves
 As already pointed out in Gramophone Company s case there is no reference to deduction of depreciation
In the case under consideration ie Indian Link Chain Ltd the Court at p 807 allowed the claim of the company for a deduction on account of depreciation and development rebate at Rs 161054 and Rs 5822 instead of Rs 80190 and Rs 3970
On the facts of the case it is found that the industry was in a position to bear the burden
In Unichem Laboratories Ltd vs The Workmen1 it was found that the average gross profits of the company exceeded Rs 40 lakhs and the additional financial burden by the revision of the wage structure was Rs 555 lakhs
On the facts the court held that the Tribunal was justified in computing gross profits without deducting tax depreciation and development rebate
The court accepted the plea on behalf of the company that the decision in Gramophone Company Ltd had no occasion to consider whether depreciation reserve can be deducted or not
Scrutinising the figures given at p 581 of the Reports the Court found that the average net profit worked out to Rs 138469100
The depreciation that was claimed was Rs 544918 for 1965 66 Rs 555035 for 1966 67 Rs 784824 for 1967 68 Rs 1111775 for 1968 69 and Rs 916719 for 1969 70
On the facts the Court found that the company had the financial capacity
The inclusion or exclusion of the depreciation allowance would not have made any difference to the capacity of the industry to bear the additional burden
The decision may not be understood as laying down a principle of law that in no case the depreciation could be taken into account
It may be remembered that in Bharatkhand Textile Mfg Co Ltd supra the guidelines that were indicated were that in determining the capacity to pay by the industry the financial condition of the employer his profit making capacity the profits earned by him in the past the extent of his reserves and the chances of his replenishing them as well as the claim for capital invested by him
these and other material considerations may have to be borne in mind
Thus the extent of the reserves the chances of replenishing them as well as the claim for capital 523 invested by him and as observed in Ahmedabad Millowners  Association vs Textile Workers1 will have to be taken into account
The position of the industry should be examined in detail and the decision should be based on a broad view which emerges from a consideration of all relevant factors such as whether the employer can reasonably be called upon to bear the burden and whether the additional burden imposed on the consumer is justified would also have to be carefully examined
As pointed out in the Ahmedabad Millowners Association case supra It is a long range plan and in dealing with the problem which is difficult and delicate the financial position of the employer and the future prospects of the industry and the additional burden which may be imposed on the consumer must be carefully examined
 It may be that for prudent management of an industry it will be desirable to take into account to some extent the depreciation of the machinery for otherwise after lapse of years the machinery may get worn out and without provision for replacement the industry itself will come to a stop
Whether provision for such depreciation should be made and if so to what extent will depend upon the facts of the case
Depreciation allowance to the extent of making out a loss need not be accepted but reasonable provision should be made
The three decisions of this Court referred to were given on the particular facts of the case and may not be understood as laying down that under no circumstances deduction for depreciation reserves etc
could be made
It is of utmost importance that the industry must be kept going as long as it could pay the minimum wages
It may sometimes be necessary for the workers to make some sacrifice to keep the industry going
It is not wise to kill the goose that lays the golden eggs
The capacity of the industry to bear the burden will have to be taken into account in determining whether provision could be made for fixing a wage structure including provision for contribution to provident fund gratuity etc
In determining the capacity of the industry to bear the burden all relevant facts will have to be taken into account and actual state of affairs determined
The procedure adopted by the industry to determine the financial capacity for other purposes may not be relevant
It cannot be taken as a hard and fast rule that provision for depreciation provision for development rebate tax liabilities should never be allowed
While the preservation of the industry is paramount the attempts of the management to show that the company is running at a loss by boosting the depreciation allowance etc
should not be permitted
In short the real capacity of the industry to bear the extra burden will have to be determined
524 An employer claiming depreciation allowance is only entitled to the actual or probable depreciation of the machinery tools etc
for the period due to wear and tear
The depreciation cannot be computed on any notional basis or on the profit and loss account furnished by the company
In the cases before use the management has claimed by way of depreciation the cost of purchase of machinery for expansion of the manufacturing plant
In the matter relating to Chalthan Sugar Mills in the profit and loss account for the year ending June 30 1975 Rs 10756523 is claimed by way of depreciation at the end of the year
The balance brought forward on this account from the previous year is Rs 7911066
During the year an amount of Rs 2845457 is added
In the profit and loss account for the year ending June 30 1977 the depreciation fund increased from Rs 10756523 to Rs 13024742
In the profit and loss account for the year ending June 30 1977 an amount of Rs 2297553 is added to the depreciation fund
The figures furnished by the other sugar factories follow the same pattern
During the course of arguments the appellants admitted that the amount shown as depreciation actually represented the cost of purchase of new machinery and balance for expansion of the manufacturing units
These amounts relate to expansion of the industry and should be shown in the capital account and cannot be claimed as deduction due to depreciation
The accounting of the sugar factories concerned is for the purpose of minimising the profits and showing loss for the purpose of depriving the workers their due
Such depreciation cannot be allowed
But as pointed out by us the actual depreciation which should be deducted in the interest of the industry can be taken into account
In the cases before us if the inflated figures should be left out of account we feel that the industry has the capacity to bear the additional burden
The High Court after referring to the decisions of this Court in Gramophone Co and Indian Link Chain Manufacturers and the Shivraj Litho Works supra came to the conclusion that gross profits before allowance is made for depreciation has to be taken into account for the purpose of considering the paying capacity of the industry
The High Court added the amount of depreciation to the net profits as shown in the balance sheet and found that large profits were available as gross profits
The High Court was of the view that the position of the three factories in South Gujarat namely Gandevi Bardoli and Madhi is not at all gloomy so far as their financial prospects are concerned
The High Court found that though the price of sugarcane was fixed for delivery at the factory it has paid the price to the growers ex sugarcane field thus bearing the charges for cutting sugarcane and for carrying it to the factory premises from the field
This payment was unjustified 525 and was intended for the benefit of the members of the cooperative society and resulted in showing of a Paper Loss 
We are unable to agree with the conclusion of the High Court that this payment is unjustified and is for the purpose of benefiting its own members
It is submitted on behalf of the factories that the sugar factories pay an extra amount to the growers to induce them to cultivate sugarcane for a profit and thereby preventing them from cultivating other crops and reducing the area under sugarcane cultivation
The finding of the High Court that this extra payment is to benefit the members of the society itself is also not borne out as there are members who are not growers of sugarcane
The benefits by way of giving fertilizers at a discount etc
will not profit members who are not growers
The High Court has not estimated the likely increase in profits due to increase in the price of sugar levy along with the increase in expenditure due to the revision of the wage structure which it has estimated at about Rs 5 lakhs
Further as pointed out by us earlier the High Court erred in adding back the depreciation and other reserves without determining as to what extent such allowances are permissible on the facts of the case
For the reasons stated we feel that the financial capacity of the industry has not been determined in the manner in which it ought to have been done
The wages are normally fixed on the basis of industry cum region
The UP Pattern was fixed by the Uttar Pradesh Government on an agreement between the parties under section 3b of the UP Industrial Disputes Act 1947UP Act No 18 of 1947
The order under sec
3 b is provisional in character
Section 3 d provides for fixing the wages after proper adjudication
No such adjudication took place in UP after the passing of the order under sec 3b
Even though normally the wages are fixed on the industry cum region basis it is open to the industry to plead that it has not the financial capacity to bear the increased burden
When such a plea is specifically raised it is the duty of the Industrial Court to determine whether the increased burden could be borne by the particular industry
The reason given by the Industrial Court and the High Court for following the UP Pattern is that it has been accepted by various sugar factories in the southern region and a neighbouring factory Kodinar Sugar Factory and hence there is no reason for not applying the same rates to the appellant factories
On behalf of the appellant it was pleaded that it is not admitted that all the sugar factories in the southern region have accepted the UP Pattern
It was submitted that the case of the Kodinar is different because it was established long time ago and is a flourishing concern
526 In view of the order we propose to make we do not feel called upon to examine in detail the financial capacity of the various factories or to remit it to the Industrial Court for that purpose
We have found that the order of the Industrial Court and the High Court relating to the provision for variable dearness allowance of more than 100 neutralisation is not sustainable in law and will have to be set aside
Regarding the award relating to the retention allowance of the unskilled workers at 10 of the basic wage and the dearness allowance payable during the crushing season it was not challenged before the High Court
The only question therefore which is in dispute is the increase of graded dearness allowance from Rs 21 to Rs 40 with effect from the date of the award
We do not think that the increase in burden under this head would be beyond the financial capacity of the factories especially as we are satisfied that the claim for depreciation is highly exaggerated
Taking all the circumstances relating to the financial capacity of the factories we are satisfied that the increase in the burden due to the increase in the graduated dearness allowance will be within the capacity of the industry
We therefore find no reason for remitting the matter back to the Industrial Court
We set aside the award relating to the grant of graduated dearness allowance at more than 100 but direct that it will be confined to 83 paise for increase of one point ie limited to cent per cent neutralisation
So far as the increment of the graduated dearness allowance from Rs 21 to Rs 40 from the date of the award and the retention allowance at 10 of the basic wage and dearness allowance payable during the crushing season to the unskilled workers is concerned it is confirmed
The appeals are disposed of accordingly
The Appellant will pay costs of the respondents one set of Rs 2000 which will be divided amongst the respondents
NKA Appeals allowed partly


Summary:
The respondent workmen who were employees of Sugar mills in the State of Gujarat demanded grant of dearness allowance among certain other benefits on the basis of revised scales for sugar factories in Uttar Pradesh
The Industrial Court Gujarat increased the dearness allowance on a graded scale spread over three years
On appeal the High Court set aside the award by the Industrial Court in respect of phasing but confirmed the award in regard to dearness allowance and directed that the UP pattern should be given full effect with retrospective effect from The date mentioned in the award
The employers questioned the correctness of the High Court s judgment on the ground that I grant of neutralization of variable dearness allowance at 125 is far in excess of what is permissible under the industrial law and 2 the High Court failed to take into account depreciation in arriving at the financial capacity of the industries while fixing the wage structure  HELD 1 a Variable dearness allowance cannot be more than 100 neutralization
517D b The purpose of dearness allowance is to neutralise a portion of the increase in the cost of living due to rise in prices
Neutralization may be such as to neutralize fully the increase in the cost of living or may be restricted to only a portion of the increase
Cent percent neutralization can be achieved if the increase in the cost of living is fully compensated so that the pay of the workers is not adversely affected
But an award of more than 100 of increase in the cost of living would be more than neutralization and would in effect give the worker an increased wage
The result would be that the worker would be getting an increased wage packet whenever there is a price rise a result which would not have been envisaged in making provision for grant of dearness allowance
516D G Clerks of Calcutta Tramways vs Calcutta Tramways Co Ltd   Kamani Metals and Alloys Ltd vs Their Workmen   Bengal Chemical and Pharmaceutical Works Ltd vs Its Workmen AIR 1969 SC 360 Silk  Art Silk Mills Association Ltd vs Mill Mazdoor Sabha  and Killick Nixon Ltd vs Killick followed
510 c It is not correct to say that neutralization of more than 100 dearness allowance is based on the seasonal nature of employment in the industry
The retention allowance provided to seasonal workers in sugar industry is to mitigate the hardship of unemployment during the off season
517A B 2
a Section 661 of the Gujarat Cooperative Societies Act 1961 requires that taxes and depreciation should be deducted from gross profits for arriving at net profit
That does not mean that wages and dearness allowance could only be determined after the net profits are arrived at
The sub section itself provides that contributions towards provident fund and gratuity even of its employees should all be deducted from the gross profits for arriving at the net profits
The provision for deducting depreciation occurs after providing for contribution towards provident fund and gratuity
The determination of the net profits under the section is for different purpose namely for appropriation of the net profit as provided for in tie Act and does not in any way support the contention of the appellant
518E F b It is settle law that in fixing far wages or dearness allowance or making contribution to provident fund or providing for gratuity the financial capacity of the industry to bear the additional burden will have to be taken into account
On principle of social justice with the development of industrial law it has now been accepted that when the industry can bear the burden pro vision should be made for provident fund and gratuity schemes
In determining the financial capacity of an industry all relevant facts will have to be taken into account
The principles followed in arriving at the profit and loss account for income tax and other purposes may not be conclusive
The claim of he employer to a reasonable profit that of the shareholders for a fair dividend the interest of consumer and other relevant factors and circumstances will have to be taken into account
It is necessary to take into account all the facts and circumstances relating to the industry for determining the financial capacity of the industry to pay
519 G Ahmedabad Mills owners  Association etc
vs The Textile Labour association   Gramophone Company Ltd vs Its Workmen  Indian Link Chain Manufacturers Ltd vs Their Workmen  and Bharatkhand Textile Mfg Co Ltd and ors
vs The Textile Labour Association Ahmedabad   followed
c The facts that have to be taken into account in determining an overall picture of the financial capacity are the financial condition of the employer his profit making capacity the profits earned by him in the past extent of the reserves and the chances of his replenishing them as well as the claim for capital invested by him
521F G Hindustan Antibiotics Ltd vs The Workmen and ors
  referred to