Appeals Nos 1291 and 1292 of 1967
Appeals by special leave from the award dated June 30 1967 of the Additional Industrial Tribunal Bangalore in AID Nos6 and 8 of 1966
O P Malhotra and D N Gupta for the appellant
I N Keshava and K Rajendra Chowdhary for respondents Nos2 and 3
Vineet Kumar for respondents Nos 4 to 10
On December 8 1965 the Government of Mysore referred to the Industrial Tribunal for adjudication the following question Is the Management of the Bangalore Woollen Cotton and Silk Mills Company Limited Bangalore justified in announcing payment of one month s basic wages as advance against wages for the half year ending June 1965 instead of declaring this payment as an ad vance against payment of bonus as was being done all these years  If not what other relief the workers are entitled to
This was numbered as Reference No AID 6 of 1966
Civil Appeal No 1291 of 1967 is directed against that part of the order of the Tribunal regarding this Reference
On March 5 1966 the Government of MysorE referred to the same Tribunal for adjudication the following question Whether the demand of the workers of Bangalore Woollen Cotton and Silk Mills Co Ltd Bangalore for additional bonus for the year 1962 and 1963 at the rate of 2 months additional bonus and4 months additional bonus on total wages respectively is justified
If not to what other relief or reliefs are the workmen entitled  This Reference was numbered as AID 8 of 1966
Civil Appeal No 1292 of 1967 is directed against that part of the order of the Tribunal regarding this Reference
Both the appeals are by the Company
We will first take up Civil Appeal No 1291 of 1967
appellant was making two payments of bonus every year one for the half year ending 30th June and half year ending 30th December
The accounting year is the Calendar year
The half yearly payments were unilaterally declared by the appellant and not on the basis of any agreement between the parties
The quantum of bonus that was paid for each half year was also not constant
Half yearly payments were made at the end of the half year when 466 the working result of the said year was known and if there was sufficient profit to pay bonus
The payment of bonus for the half years also depended upon the approximate estimate that the Directors used to make about their prospective future earnings for next half year
According to the appellant the bonus amounts were paid out of profits
As the hereinafter to be referred as the Act had come into force on August 28 1965 the appellant issued a circular to the effect that for the half year ending June 30 1965 payments will be made as advance of wages equivalent to 16th of the basic earnings of the employees
In this circular there is a reference to the Payment of Bonus Ordinance 1965 promulgated on May 29 1965 and that under the terms of the Ordinance bonus is payable only within a period of 8 months from the end of the accounting year
The circular further states that no bonus is payable for the accounting year 1965 until the accounts for the year are closed
It was further mentioned that the amounts are paid as advance wages in view of the representations made by the employees
The circular further mentioned that the amounts paid as advance wages will be set off against the bonus that may be found payable for the ac counting year 1965 and that if no bonus is payable the amount paid will be adjusted against the wages due for any month after March 1966
The issue of the above circular led to the Unions concerned raising a dispute with the Management that the payment of bonus at the end of each half year has become a condition of service of the workmen as the same was being paid for several decades without any relation to profits
The appellant was charged by the Unions of having changed the conditions of service by offering to make payments as advance against wages instead of payment by way of bonus
As conciliation proceedings failed the workmen resorted to a strike in December 1965 which led to the Reference being made by the State Government on December 8 1965 No AID 6 of 1966
The short stand taken by the appellant before the Tribunal was that the payments were being made as bonus at the end of each half year on the basis of the profits earned by the Company
Such payment was a voluntary act of the appellant and related to profit and it had not become a condition of service of the employees
The further case of the appellant is that as the Act had come into force bonus is governed by the provisions of the Act and that bonus is to be paid only within eight months after the close of the year of account ie December 31 1965
The Unions pleaded that the payment of bonus at the end of each half year which was being done for a long number of years 467 has become a condition of service and the amounts paid were not related to the profits earned by the Company
The Unions further contended that the Act has not in any manner affected the right of the employees getting bonus in the manner paid by the appellant namely  at the end of every half year
The Tribunal has recorded the following findings  The pay ment of bonus was not a settled condition of service but is dependent upon the profits earned during the half year
Payments made by the appellant at the close of the half year cannot be considered as customary or festival bonus and that the appellant has made no change in the conditions of service of the workmen by altering the quantum of bonus
Though bonus was paid at the close of each half year the quantum of such bonus varied depending upon the profits earned by the Company
The Company has no doubt been paying for a long time profit bonus in two instalments namely in the month of August for the half year ending 30th June and in the month of March or April of the succeeding year for the half year ending 31st December
The coming into force of the Act has not created any right in the appellant to withhold the payment for each half year as it used to do
The appellant will be entitled to deduct the amount of bonus paid for the first half year from the amount of bonus payable to its employees under the Act in respect of the accounting year and the employees will be entitled to receive only the balance for the second half year
On these findings the Tribunal held that the appellant was not justified in announcing the payment of the amount towards advance wages under the circular dated August 28 1965
In the end the Tribunal gave a direction to the effect that the appellant is liable to pay profit bonus in two instalment as advance against the final declaration of bonus to be paid during the last week of August or first week of September and the balance if any was to be paid in the month of March or first week of April of the succeeding year
It further gave a direction that the first payment that is to be paid is to be as advance against payment of bonus and not as against wages
Mr Malhotra learned counsel for the appellant has chal lenged the above directions given by the Tribunal
The counsel pointed out that after the coming into force of the Act the rights and liabilities of the parties regarding bonus are governed by its provisions
Under the Act the computations of the available and allocable surplus have to be made on the basis of the gross profits ascertained at the end of the relevant accounting year and the payment of bonus has to be made within eight months of the close of the accounting year
As the Act envisages payment of only one bonus at the end of the accounting year after computation of the amount as per the Act the direction given by the Tribunal 468 regarding payment of half yearly bonus is illegal and contrary to the provisions of the Act
This direction the counsel pointed out given by the Tribunal will apply not only to the year 1965 but also to all succeeding years
On the other hand Mr H K Puri learned counsel for the respondents Nos 2 and 3 whose contentions have been accepted by the counsel for the other respondents urged that the Act does not prohibit an employer from paying bonus at the end of each half year
The appellant has been paying bonus in two installments namely at the end of each half year
It is always open to the appellant both by virtue of the provisions of the Act and the direction given by the Tribunal to deduct when paying final bonus at the end of the accounting year any amounts that may have been paid for the first half year
Therefore according to Mr Puri the directions given by the Tribunal are neither illegal nor contrary to the provisions of the Act
We are not inclined to accept the contention of Mr Puri
We have already referred to the findings of the Tribunal to the effect that the amount that was paid by the appellant as bonus at the end of each half year was on the basis of the profits earned by it The Tribunal has rejected the claim of the Unions that the payment of bonus in the manner claimed by them was not a condition of service and that the payment had nothing to do with any custom or festival
These findings have not been and in fact could not be challenged by the respondents
There is also no controversy that payment of bonus for the accounting year 1965 is governed by the provisions of the Act
If so the question is whether the directions given by the Tribunal and referred to above can be supported by the provisions of the Act
The Act has come into force with effect from August  IS 1965
As provided under sub section 4 of section 1 it applies to all accounting years commencing on any day in the year 1964 and in respect of every subsequent accounting year
Section 2 defines amongst others the expressions accounting year allocable surplus available surplus and gross profits Section 4 deals with the computation of gross profits
So far as the appellant is concerned under section 4 cl
b the gross profits are to be calculated in the manner specified in the Second Schedule
Section 5 provides for computation of available surplus
It is to be ascertained after deducting from the gross profits the various items referred to in section 6
Section 6 deals with the items to be deducted as prior charges from the gross profits
Section 10 makes it obligatory on an employer to pay minimum bonus to the employees in an accounting year of 4 of his salary or wages or Rs 40 whichever is higher
This payment is irrespective of the 469 fact whether a Company has or has not earned profits in an accounting year
But this provision is subject to the provisions of sections 8 and 13
Section 11 provides for payment of bonus subject to a maximum of 20 of the salary or wages if the conditions mentioned therein are satisfied
Section 17 enables an employer who has paid during any accounting year Puja Bonus or other customary bonus or a part of the bonus payable under the Act before the due date to deduct the amount so paid from the amount of bonus payable by him to an employee under the Act in respect of that accounting year
It further provides that under such circumstances the employee will be entitled to receive only the balance
Section 19 fixed the time limit for payment of bonus
If there is a dispute regarding payment of bonus pending before any authority the bonus will have to be paid within a month from the date on which the Award becomes enforceable or the settlement comes into operation
In any other case the bonus will have to be paid within a period of eight months from the close of the accounting year
Under the proviso to section 19 power is given to the appropriate Government to extend the period of eight months in accordance with the provisions contained therein
Section 34 provides that the Act except as otherwise provided in the section shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the terms of any Award agreement settlement or contract of service made before May 29 1965
We have referred to some of the relevant provisions of the Act
From a perusal of the scheme of the Act it is clear that the bonus for a particular accounting year will have to be computed in accordance with the provisions of the Act on the basis of the gross profits which are determined at the close of the accounting year
The Act itself provides as to how the gross profits are to be calculated and the available and allocable surplus arrived at The Act also provides the outer limit the period within which bonus has to be paid
It further gives the employer a right to deduct any amount that any have been paid during the accounting year as part of the bonus payable under the Act
It will be seen from the scheme of the Act that the claim for bonus can be made only after the close of the accounting year and in accordance with the provisions of the Act
The gross profits can be calculated only at the end of the accounting year and the available and allocable surplus can also be worked out only at the end of the accounting year
There is no question of an employer computing the gross profits available and allocable surplus in the middle of an accounting year or at any time before the close of the relevant accounting year
The direction given by the Tribunal really amounts to the employer having to make two 831 Sup CI72 470 computations at the end of each half year
No doubt the Tribunal has given a direction to the effect that any amount paid for the first half year can be deducted when the final bonus is paid at the end of the accounting year
Even without any such consideration being shown by the Tribunalallowing an employer to so deduct section 17gives such a right to an employer
We are not impressed with thecontention of Mr Puri that as there is no prohibition in theAct against an employer making the payment by way of bonus at the end of a half year the direction given by  the Tribunal can be sustained
Mr Puri referred us particularly to the provisions contained in section 17 of the Act
He pointed out that though a time limit is fixed by section 19 the Act itself as is evident from section 17 clearly envisages payment of bonus at the end of each half year
We are not inclined to accept this contention of Mr Puri
The direction given by the Tribunal making it obligatory on the Management to make half yearly payment of bonus apart from being opposed to the scheme of the Act also runs counter to the provisions of section 19
Whether it is the minimum bonus of 4 under section 10 or  the maximum bonus of 20  under section 11 they have to be paid as is made clear by s  19 only within the period mentioned therein  It may be that an employer voluntarily pays amount during the accounting year by way of part bonus which he is entitled to take into account and adjust when making final payment at the close of the accounting year
It is one thing to say that an employer can make voluntary payment but it is a different thing for the Tribunal to give a direction to that effect
Section 17 on which reliance is placed by Mr Puri is as follows Where in any accounting year a an employer has paid any paid bonus or other customary bonus to an employee or b an employer has paid a part of the bonus payable under this Act to an employee before the date on which such bonus becomes payable then the employer shall be entitled to deduct amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year and the employee shall be entitled to receive only the balance
Clause ahas no application as the Tribunal has categori cally held that there is question of any payment by way of puja bonus or other customary bonus
Even then if any such bonus 471 has been paid the employer is entitled to deduct the same from the amount of bonus payable under the Act
Clause b is an enabling section in favour of the employer in that it visualizes a situation or contingency where he may have paid during the accounting year a part of bonus payable under the Act before date on which such bonus becomes payable
If an employer has paid any amount during an accounting year by way of part of the bonus he is entitled lo deduct the same from the final amounts that may be payable under the Act
That provision does not give a right to an employee to claim payment of bonus even by way of part payment during the currency of the accounting year
If so the Tribunal has also no jurisdiction to give a direction to an employer to pay bonus at the end of each half year
In this caseit is no doubt seen that the appellant has been paying bonus atthe end of each half year
But the Tribunal has found that suchpayment has not become a condition of service
Therefore by the mere fact that the appellant has been making payments on previous occasions every half yearly does not confer a right on the employee to have such payments by way of bonus in the same manner even after the Act came into force
From the above discussion it follows that the directions given by the Tribunal in AID No 6 of 1966 have to be set aside
Now coming to Civil Appeal No 1292 of 1967 as mentioned earlier it is against that part of the Award of the Tribunal in AID No 8 of 1966
The question that was referred to the Tribunal has also been extracted in the earlier part of the judgment
That relates to a claim for additional bonus for the years 1962 and 1963 There is no controversy that the appellant has already paid for the year 1962 three months basic wages as bonus
Similarly for the year 1963 also four months basic wages as bonus has already been paid
The claim was for two months total wages as additional bonus for the year 1962 and four months  total wages as additional bonus for the year 1963
The findings recorded by the Tribunal in AID No 6 of 1966 regarding the nature of bonus paid to the employees have been adopted for this reference also
The respondents Unions do not challenge those findings
Therefore even in respect of the years 1962 and 1963 what is payable is only profit bonus
There is also no controversy that for these two years the quantum of bonus payable has to be calculated in accordance
with what is known as the Labour Appellate Tribunal Full Bench Formula which has been approved by this Court in The Associated Cement Companies Ltd Dwarka Cement Works Dwarka vs Its Workmen and Another1
Both the parties have filed statements of calculations according to 1 472 the said Formula
The statements Exs
M 1 and M2 filed by the Management represent the computation of available surplus for the years ended December 31 1962 and 1963 respectively
exhibit M 1 is as follows  THE BANGALORE WOOLLEN COTTON  SILK MILLS CO LTD
Statement showing the computation of available surplus for the year ended 31st December 1962 Under LA T Formula Profit as per profit and loss Account6801756 Add Provision for Bonus 1614000 Depreciation on Fixed Assets 1696481 Donations 107362 Additional Bonus for 1961 146000 3563843 10365599 Less Profit on sale of assets 1745426 8620173 Less Normal Depreciation and Shift Allowance1465812 7154361 Less Tax Liability Profit as above 7154361 Less Development Rebate 586415 6567946 Income tax Liability at 50 Y on Rs 65534083276704 Income Tax at 25  on Rs145383635 65679463280339 Super Profits Tax on Rs 6553408409158 3689497 Return on Capital employed Preference Share Capital 78 
on Rs 60000046800 ordinary Share Capital 729000 6 on Rs 12150000 Reserves employed in the business 4 on Rs 469379 471787 3325545336244030 Available Surplus
910331 Subject to claim for rehabilitation
473 We have prepared the above statement from the audited accounts of the Company and is in accordance therewith
The return on Capital and Reserves is as claimed by the Company
SdIllegible Chartered Accountants Similarly exhibit M2 regarding the year 1963 is as follows  THE BANGALORE WOOLLEN COTTON  SILK MILLS CO LTD
Statement showing the computation of available surplus for the year ended 31st December 1963 Under L A T Formula Profit as per Profit and Loss Account 5239220 ADD  Provision for Labour Bonus 2245000 Depreciation on Fixed Assets 1733719 Donations 8804 Provision for Taxation 8110000 12097523 17336743 LESS Profit on Sale of Assets 83093 Excess Provision of Electricity charges and interest written back 675184 758277 16578466 LESS Normal depreciation and Shift Allowance 1647555 14930911 LESS Tax Liability Profit as above 14930911 Less Development Rebate 460548 14470363 Income tax Liability at 50 on Rs 14455825 7227912 25  on Rs 145383635 Dividend tax 164025 Companies Profit Surtax Liability on Rs 1445582 51786212 9181784 Return on Capital Employed Preference Share Capital 7 8  on Rs 600000 46800 Ordinary Share Capital 6 Y on Rs 12150000 729000 Reserves employed in the business 4  on Rs 46937947 1877518265331811835102
Available surplus 3095809 Subject to claim for rehabilitation
474 We have prepared the above statement from the audited accounts of the company and certify that it is in accordance therewith
The return on capital and reserves is as claimed by the company
illegible Chartered Accountants
The Tribunal has accepted as correct the gross profits as given by the appellant in these two exhibits for the two years in question
Even though the Unions contested the return on Preference Share Capital at 78 the Tribunal has rejected their objections
it has held that under the Preference Share Regulations Act the Company is bound to pay 78 on Preference Share Capital
Ile Workmen did not raise any controversy regarding the return on Ordinary Share Capital at 6
The Tribunal therefore accepted the figures given in both Exs
M 1 and M 2 and to the return of Ordinary Share Capital
But the controversy arose about the claim made by the appellant regarding return on Reserves employed during the two years
It will be noted that neither in exhibit M 1 nor in exhibit M 2 the appellant has made any claim for rehabilitation excepting adding a note to the statement that they are subject to a claim for rehabilitation
The two points in controversy between the parties regarding these two years were 1 The claim for Return on Reserves and 2 Provision for Rehabilitation
We will first take up the question regarding the claim of the appellant for return on Reserves
In exhibit M 1 the appellant has claimed a sum of Rs 17873300 as 4 return on Rs 4446831500 being the amount employed in business
Similarly in exhibit M2 for the year 1963 it had claimed Rs 187751800 being 4 return on Reserves on Rs 4693794700 employed in the business
The Unions contested the claim of the appellant on the ground that they are not entitled to any return on Reserves
The appellant had filed two statements Exs
Ml a and M2a for the years 1962 and 1963 respectively showing how the amounts claimed as Reserves employed in business have been arrived at exhibit M 1 a
for the year 1962 is as follows THE BANGALORE WOOLLEN COTTON  SILK MILLS CO LTD
Year ended 31st December 1962
Reconciliation of Capital employed in the business during the year ended 31st December
475 As at 31 12 1961 Fixed Assets and Capital Works 43139570 in Progress Investments 595216 Interest accrued on Investments 17477 Stores and Spare parts 6179042 Raw Materials 6886058 Process Stocks 5053558 Finished Stocks 1381082 Sundry Debtors 2473722 Advances 2768233 Balance with Railway and Excise Authorities 292529 Deposits 18993 68806470 LESS Sundry Creditors 7077709 Due to Directors 63744 Unclaimed Dividends 18257 Provision for Taxation 1057850 Proposed Dividends 1481400 Provision for Gratuity 1860431 Officer s Retiring Fund 26764 Fund loss investments 11588155 57218315 LESS Share Capital 12750000 Rs 44468315 Exhibit M2a for the year 1963 is as follows THE BANGALORE WOOLLEN COTTON  SUR MILLS CO LTD
Year ended 31st December 1963
Reconciliation of Capital employed during the year ended 31 12 1963
As at 31 12 1962 45229453 Investments 548575 Interest accrued on Investments 8703 Stores and Spare Parts 6553343 Raw Materials 4701434 Process Stocks 7285534 Finished Stocks 1688931 Sundry Debtors 3429299 Advances 3165324 Balances with Railway and Excise Authorities 346450 Deposits 24234 729811280 476 LESS Sundry Creditors 7686123 Due to Directors 65278 Unclaimed Dividends 22837 Provision for Taxation 2305645 Proposed Dividends 1481400 Provision for Gratuity1 706251 Officers Retiring Fund 25799 Fund less investments 13293333 59687947 Less Share Capital 12750000 Rs 46937947 It will be seen that the last figures shown in both the statements have been claimed by the appellant as Reserves employed in business for each of these two years
The Tribunal after a reference to the evidence of the Char tered Accountant MW1 has held that the amounts which should have been used as Working Capital are those mentioned in Exs
M1a and M2a less the fixed assets and capital works in progress
The Tribunal has further held that the working capital cannot include fixed assets nor the capital works in progress as they represent the funds required for day to day work of the Company
According to the Tribunal these fixed assets have been accumulated over years and they cannot form part of the working capital
However the Tribunal accepted the claim of the appellant that the other items in Exs
M1a and M2a namely investments interest accrued on investments stores and spare parts raw materials process stocks finished stocks sundry debtors advances etc
are the amounts available to be used as working capital
On this reasoning the Tribunal held that in calculating the return on working capital the amounts mentioned in exhibit
M1a and M2a less the amount sunk in fixed assets and working capital in progress have to be deducted
On this basis it deducted from Rs 44468315 a sum of Rs 43139570 and fixed a sum of Rs 1328745 as Reserves employed in business during the year ended December 31 1962
On this amount it allowed a sum of Rs 53150 as return on Reserves at 4 for the year 1962
Similarly for the year 1963 it deducted from Rs 46937947 a sum of Rs 45229423 and fixed a sum of Rs 1708524 as Reserves employed in business during that year
On this amount it allowed Rs 68340 as return on Reserves at 4
Mr Malhotra learned counsel for the appellant while accepting that the principle adopted by the Tribunal in this regard is 477 correct contended that it had made a mistake incalculation
According to the learned counsel the claim musthave been allowed in the manner calculated by the appellant
In this connection the learned counsel pointed out that even in cases where the evidence regarding the utilization of Reserves as Working Capital as claimed by the Company is not very satisfactory this Court on the basis of the balance sheets which indicated that some amount must have been used as working capital has allowed such a claim
In this connection he relied on Workmen of Ms Hindustan Motors Ltd vs Ms Hindustan Motors Ltd and Another1 and Messrs Aluminium Corporation of India vs Their Workmen 2
We may straightaway say that these decisions do not assist the appellant
In the case before us it is not necessary to do any guess work as the appellants wants us to do
The appellant has filed statements showing how it has calculated the amount of Reserves utilized as working capital and we have to find out whether the calculations made by it are correct
In fact Mr Malhotra has not been able to point out from the balance sheets as to what amount according to the appellant can be considerd to have been used as working capital
In the two decisions relied on by him the company concerned was able to refer to the figures in the balance sheets from which this Court was able to draw a conclusion regarding the approximate amount that would have been utilized as working capital
The position before us is entirely different
On the other hand Mr Puri learned counsel for the respon dents referred us to the balance sheets for the years in question regarding the share capital of the company being shown as Rs 12750000 
The counsel further pointed out that the said share capital must have been sunk in acquiring the fixed assets and for capital works in progress and therefore the Tribunal was justified in deducting the amount of fixed assets and capital works in progress shown in Exs
M 1 a and M2 a from the total shown by the appellant in those statements
The counsel further urged that in considering the claim for return on working capital two questions have to be kept in view 1 Whether the Reserves were available and if they were 2 whether they were used as working capital and if so what is that amount
The Tribunal in our opinion has correctly kept these two principles in view in arriving at the amount of Reserves used as working capital and on which a return is to be allowed
We see no error committed by the Tribunal in the calculation made for arriving at the Reserves which must have been used as working capital especially as the evidence on the side of the appellant was very unsatisfactory
Even the appellant has deducted the amount of share capital before 1  2 478 arriving at the final figures mentioned in Exs
M1a and M2 a
But the appellant was claiming the whole of the final amount shown in these two statements as Reserves used as working capital which it was not certainly entitled to in law
We have already pointed out that the Tribunal has held that the working capital cannot include fixed assets nor the capital works in progress as it represents the funds required for day to day running of the Company
The Tribunal has further held that the appellant is entitled to deduct investments interest accrued on investments etc
which have been shown in Exs
M 1 a and M2a on the ground that they must be considered to be the amounts available to be used as working capital
These findings have not been challenged by the learned counsel for the appellant
The appellant has also filed details of Reserves employed in the business during the years ended 31st December 1962 and 1963 as shown in Exs
M 1 b and M2b respectively
Even there the appellant has deducted the share capital before giving final figures
Therefore the contention of Mr Malhotra that the Tribunal has committed a mistake in calculating the amount of Reserves used as working capital for these two years cannot be accepted
If so it follows that the amount fixed by the Tribunal as return at 4 on Reserves used as working capital for these two years is correct
The second question that arises for consideration is the claim made by the appellant for provision for rehabilitation for the two years and which claim has been rejected by the Tribunal
The claim made by the appellant for provision for rehabilitation for the year 1962 was Rs 1803087100 and for the year 1963 Rs 1806233600
Thus the appellant was claiming for each year provision being made of more than a crore of rupees for rehabilitation
The appellant has filed a chart exhibit M8 giving the calculations for the year 1962 its claim for rehabilitation for Rs 1803087100
If the claim for rehabilitation is accepted then the result will be that there will be no profits at all from and out of which any bonus can be paid for the years in question
The claim of the appellant has been opposed by Mr I N Keshava learned counsel for the first respondent and his contentions have been adopted by the counsel appearing for the other respondents Unions
The claim of the appellant is opposed mainly on two grounds namely 1 that the appellant has no scheme for rehabilitation for the relevant years and 2 in any event there were huge Reserves available from which the claim for rehabilitation can be easily met
The Tribunal has rejected the claim for rehabilitation both on the grounds that the appellant 479 has no scheme for rehabilitation and that the rehabilitation claim can be adequately met with from the huge Reserves of nearly four crores of rupees that the appellant had
It must be noted that Rehabilitation Reserve is a substantial item which goes to reduce the available surplus and as a result affects the right of the employees to receive the bonus
Hence the employer will have to place all relevant materials and the Tribunal will have to scrutinize them carefully and to be satisfied that the claim is justified
It is no doubt true that it is but proper in the larger interest of the industry as well as the employees that proper rehabilitation Reserve should be built up taking into consideration the increase in price in plant and machinery which has to be replaced at a future date and by determination of multiplier and its deviser
It is also clear from the decisions of this Court that if a Company has no scheme for rehabilitation then of course its claim on that head must be rejected
vide Azam Jahi Mills Ltd vs Their Workmen1
Further since it is the employer who seeks replacement costs it is for him to satisfy the Tribunal as to what will be the overall cost of replacement and in doing so it is he who has to discharge this burden by adducing proper evidence and giving other party an opportunity to test the correctness of that evidence by cross examination
vide National Engineering Industries Ltd vs Its Workmen2
It is also now well settled that in determining the claim of the employer for rehabilitation two factors are essential to be ascertained namely 1 the multiplier and that has to be done by reference to the purchase price of the machinery and the price which has to be paid for rehabilitation or replacement and 2 the determination of the deviser and that has to be done by deciding the probable life of the machinery
vide The Honorary Secretary South India Millowners  Association and others v The Secretary Coimbatore District Textile Workers  Union3 and Ms Gannon Dunkerley and Co Ltd and another vs Their Workmen4
Mr Malhotra learned counsel for the appellant very strongly relied on the statement exhibit MS as well as the evidence of MW 2 the Mill Manager and MW 3 the Assistant Officer Efficiency Section of the Mill in support of his contention that the appellant has a scheme for rehabilitation and that the claim made by the appellant for making provision for rehabilitation is proper
The counsel also pointed out that the evidence of these two witnesses clearly establishes that most of the items of machinery have long out lived their normal age of 25 years and 1 2 19681 SCR 779
3 1962 Supp
2 SCR 4 AIR 1971 SC 2567
480 therefore they require replacement in order to ensure proper production
The counsel further pointed out that the rejection by the Tribunal of the claim made by the appellant on the basis that the life of the textile machinery is only 25 years is not correct and that the view of the Tribunal that the normal age is more than 25 years is opposed to the decisions of this Court
So far as the age of the machinery is concerned it is no doubt true that in The Honorary Secretary South India Millowners  Association and others vs The Secretary Coimbatore District Textile Workers  Union1 this Court after a reference to the evidence adduced confirmed the findings of the Tribunal that the estimated life of the textile machinery in question should be taken to be 25 years but in the said decision itself it is observed is follows We are not prepared to accept either argument because in our opinion the life of the machinery in every case has to be determined in the light of evidence adduced by the parties
 But it is unnecessary for us to pursue this aspect further as we are disallowing the entire claim for rehabilitation
Mr Malhotra also criticized the view of the Tribunal that in this case the evidence of the witnesses on the side of the appellant clearly shows that the machines are working very efficiently though they have been running for over 50 years
On the other hand the counsel urged that the principle to be borne in mind when considering the claim far rehabilitation is that the life of the machinery is the period during which it is estimated to work with reasonable efficiency and not the period during which it has actually been operated that is till it becomes too deteriorated for use
No doubt the last proposition enunciated by the counsel in the abstract is correct but the question is whether the appellant has discharged its burden of satisfying the Tribunal that it had a scheme for rehabilitation and whether it had placed the necessary mate rials for the purpose of working out the multiplier and the deviser
Mr Keshava learned counsel for the first respondent referred us to the written statement filed by one of the Unions Benny Mills Labour Association wherein it has specifically stated that the plant and machinery owned by the Mills are amongst the most modem machineries and that no provision for rehabilitation is necessary
The appellant it is pointed out in its reply statement did not controvert these averments
EN en in the statements Exs
M 1 and M 2 filed by the appellant no claim for rehabilitation has been made
He also referred to the evidence or 1 1962 Supp 2
SC R 926
481 MWs 2 and 3 and pointed out that their evidence does not show that the Company had any scheme for rehabilitation
On these grounds the counsel pointed out that the appellant has not placed sufficient materials before the Tribunal to sustain its claim for rehabilitation
It must be emphasized that in dealing with the claim of an employer for rehabilitation as pointed out earlier the onus of proof is on the employer
He has to prove the price of the plant and the machinery its age the period during which it requires replacement the cost of replacement the amount standing in the Debentures and Reserve Funds and to what extent the funds at its disposal would meet the cost of replacement
If the employer fails lo lead satisfactory evidence on these points the result will be that the claim for rehabilitation will have to be totally rejected
It is no doubt true that a chart exhibit
M 8 has been filed by the appellant and MW 3 the Assistant Officer Efficiency Section has spoken regarding the same
But he has admitted that the original quotations received from the dealers regarding the price of new machinery for the purpose of replacement have not been produced before the Tribunal
He has further admitted that the appellant has not produced the letters written by it calling for quotations regarding the price of the machinery
He has further admitted that no charts have been produced to show the value of the machineries in 1962
The multipliers according to this witness have been adopted as advised by the appellant s Legal Adviser
It is clear from the above answers of the witness that there is no material placed before the Tribunal by the appellant from which the multiplier and deviser can be properly worked out for the purpose of considering the claim for rehabilitation
In fact the Mill Manager MW 2 has stated that the company has floated a debenture for 1 12 crore for buying new machinery
This clearly shows that the appellant had no scheme for rehabilitation and that explains the reason why it had not made any provision for rehabilitation
Mr Malhotra then urged that at any rate the Tribunal itself has proceeded on the basis that some amount for rehabilitation is necessary to be provided for each year
Based on this observation of The Tribunal the counsel pointed out that the appellant should be allowed at least the amount that it has actually spent for replacement of machineries in the years 1962 and 1963
According to him a sum of Rs 2619608 and Rs 2124102 have been spent in the years 1962 and 1963 respectively for machinery and plant installed in those years
In this connection he referred us to the balance sheet and profit and loss accounts for these two years and stressed that the Tribunal has committed an error in not 482 allowing at least these amounts by way of provision for rehabilitation
it is no doubt true that these amounts are shown in the schedules to the balance sheets for the years concerned
Admittedly there is no such claim made in the written statement filed by the appellant before the Tribunal
When the Unions were contesting the claim of the appellant on the ground that it has no scheme for rehabilitation and that it has not spent any amount by way of replacement of old machinery it was the duty of the appellant to have made a proper claim and it should have adduced evidence regarding that aspect before the Tribunal
Mere production of balance sheet and profit and loss accounts by themselves will riot entitle the appellant to sustain its claim for rehabilitation
For all the reasons given above it is clear that the Tribunal was justified in holding that the appellant has not been able to make out its claim for making provision for rehabilitation
In this view the Tribunal was justified in rejecting this claim of the appellant
We may also state that the Tribunal is also of the view that the appellant has large Reserves with which it can meet rehabilitation expenses of the machinery
In this connection the Tribunal has also referred to the evidence on the side of the appellant that even according to the appellant rehabilitation will have to be completed only within eight years from 1962 and that only a sum of rupees eighty lakhs will be required for each year
On this reasoning the tribunal has held that this amount of rupees eighty lakhs can be easily met with from the large Reserves available with the appellant
It is not necessary for us to consider this aspect further because we have already agreed with the findings of the Tribunal that the appellant has no scheme for rehabilitation and that it has not placed any satisfactory evidence before the Tribunal in support of its claim
The last point that arises for consideration is regarding the available surplus for the years 1962 and 1963 as calculated by the Tribunal and the award by it of 13rd of the amount as additional bonus for the two years after deducting the bonus already paid by the appellant
The Tribunal after rejecting the appellant s claim for rehabilitation and also allowing return on Reserves used as working capital in the manner already referred to had arrived at the available surplus for the year 1962 in the sum of Rs 2635914 and for the year 1963 at Rs 4904987
The appellant filed a statement exhibit M 4 showing the Amount of bonus already paid for the years 1962 and 1963 to all employees drawing a total of Rs 500 and less per mensem
From that statement it is seen that for the year 1962 it had paid a sum of Rs 1441455 and for the year 1963 a sum of Rs 1960795
On the basis of the available surplus worked out for the years 1962 and 1963 the balance 483 available surplus after deducting bonus already paid will be as follows 1962 Rs Available surplus as worked out by the Tribunal2635914 Amount already paid as bonus by the appellant1441455 Balance  
1194459 1963 Available surplus as worked out by the Tribunal4904987 Amount already paid as bonus by the appellant1960795 Balance 
 2944192 What the Tribunal has done is to distribute 13rd of the amount shown as balance above for each of the years as additional bonus
That results in the workmen getting Rs 398153 representing 25 days basic wages as additional bonus for the year1962
Similarly the workmen get Rs 981397 representing two months basic wages as additional bonus for the year 1963
Therefore it will be seen that the total bonus thatthe workmen will get for each of the years will be as follows 1962 Rs 1
Amount already paid by the appellant 1441455 2
Additional amount awarded by the Tribunal 398153 TOTAL  
1839608 From the available surplus of Rs 2635914 in 1962 the work men will get a total sum of Rs 1839608 as bonus for that year which works out to more than 60 of the available surplus
Similarly for the year 1963 the figures are as follows 1963 Rs 1
Amount already paid by the appellant 1960795 2
Additional amount awarded by the Tribunal981397 TOTAL 
2942192 From the available surplus of Rs 4904987 in1963 the workmen will get a sum of Rs 2942192 for that year which works out more or less about 60 of the available surplus falling short by a sum of Rs 800 
484 Mr Malhotra learned counsel for the appellant attacked the method of calculation adopted by the Tribunal
According to him the Tribunal should not have fixed more than 60 of the available surplus as bonus payable for a year
On the other hand the amounts of bonus now awarded by the Tribunal and already paid by the appellant exceed 60
In our opinion there is considerable force in the contention of the learned counsel
The available surplus as found by the Tribunal for the year 1962 is Rs 2635914
Working out roughly 60 of this surplus to be distributed as bonus to the workmen the amount of bonus will be about Rs 1581600
The appellant has admittedly paid a sum of Rs 1441455
The balance that the workmen will be entitled to will be Rs 14014500 whereas the Tribunal has directed the appellant to pay for this year by its Award a sum of Rs 398153
The award of this amount is not justified
So far as 1963 is concerned the available surplus as found by the Tribunal is Rs 4904987
60 of this available surplus to which the workmen will be entitled to will be Rs 2942992
On the other hand the total amount that the workmen will get as per the award including the amount already paid by the appellant as bonus is Rs 2942192
The appellant will have to pay only an additional sum of Rs 800 to make up 60
There is no appeal by the Unions and therefore the bonus awarded for the year 1963 does not require any interference
In allocating the available surplus between the company and the workmen it has been held by this Court that it will be equitable if roughly 60 of the surplus is distributed as bonus to the workmen and the Company is left with the remaining 40
The Company will get in addition to this 40 the benefit of the Income tax rebate on the 60 bonus payable to the workmen
vide Ms Gannon Dunkerley and Co Ltd and another vs Their workmen1
We have adopted the same principle in the case on hand
To conclude the Award of the Industrial Tribunal in AID No 6 of 1966 is set aside and Civil Appeal No 1291 of 1967 is allowed
There will be no order as to costs
The Award of the Industrial Tribunal in AID No 8 of 1966 is modified to the following extent For the year 1962 the appellant will be liable to pay as additional bonus only a sum of Rs 140145 instead of a sum of Rs 398153 as directed by the Tribunal in the Award
To this extent Civil Appeal No 1292 of 1967 is allowed in part
In other respects it is dismissed
There will be no order as to costs


Summary:
The appellant company was making two payments of bonus every year one for the half year ending 30th June and the other for the half year ending 31st December
The payment was on the basis of profits earned by it and the payment was not a condition of service and had nothing to do with any custom or festival
When the came into force the appellant issued a circular that as bonus was payable under law only within a period of 8 months from the end of the accounting year the appellant s accounting year was the calendar year no bonus was payable for the accounting year 1965 until the accounts for the year are closed and the announced payment of one month s basic wages as advance against wages for the half year ending 30th June 1965
The questions 1 whether the appellant was justified in announcing the payment as advance against wages instead of as advance bonus and 2 whether the respondents were justified in claiming bonus for the years 1962 and 1963 in addition to what had already been paid by the appellant were referred to the Industrial Tribunal
On the first question the Tribunal held
that the appellant was not justified in announcing the payment towards advance wages and directed the appellant to pay profit bonus in two installments one as advance against the final declaration of bonus and the balance if any as the second instalment
On the second question the Tribunal held that the question of bonus payable was to be calculated in accordance with the Labour Appellate Tribunal Full Bench Formula approved in Associated Cement Companies Ltd vs Workmen r 19591 SCR25 that in calculating the return on Reserves the claim of the appellant to include in the working capital the amounts sunk in a fixed assets and b capital work in progress should be disallowed and that the claim of the appellant for a provision for rehabilitation should be rejected
In appeal to this Court
HELD  1 a Under the Act bonus for a particular accounting year will have to be computed in accordance with the provisions of the Act on the basis of the gross profits determined at the close of the accounting year
The Act makes provision as to how the gross profits available and allocable surplus are to be calculated and section 19 prescribes 8 months from the close of the accounting year as the period within which the bonus was to be normally paid
The scheme of the Act shows that a claim for bonus can be made only after the close of the accounting year because gross profits and the available and allocable surplus can be worked out only at the end of the accounting year and not earlier whereas the direction given by the Tribunal requires the employer to make two computations at the end of each half year
469 E H 470 A B 463 b The direction given by the Tribunal making it obligatory on the management to make half yearly payments of bonus apart from being opposed to the scheme of the Act runs counter to section 19
Under the section whether it is the minimum bonus of 4 under section 10 or the maximum bonus of 20 under section 11 they have to be paid only within a period of 8 months from the closing of the accounting year
470 C E c Section 17b is an enabling section in favour of the employer in that it visualizes a situation when he may have paid during the accounting year a part of the bonus payable under the Act before the date on which such bonus becomes payable
If the payment was by way of profit bonus he is entitled to deduct it from the final amount that may be payable under the Act
But that provision does not give a right to an employee to claim payment of bonus by way of part payment during the currency of the accounting year
Therefore the mere fact that the appellant has been making payments on previous occasions half yearly does not confer a right on the employee to have such payments by way of bonus in the same manner after the Act has come into force
Hence the Tribunal had no jurisdiction to give a direction to the appellant to pay bonus at the end of each half year
471 A C 2 a In considering the claim for return on working capital two questions have to be kept in view  i whether Reserves were available and ii whether they were used as working capital and if so what was the amount used
1477 GI In the present case the Tribunal has correctly kept the two principles in view in arriving at the amount of Reserves used as working capital and on which a return is to be allowed
The balance sheets of the appellant do not have any figures from which the Tribunal would be able to draw a conclusion
The Tribunal therefore while accepting the statements
of account filed by the appellant for the two years for showing how it had calculated the amount of Reserves utilized as working capital held that the two items should be deducted because working capital represents the funds required for day to day Work of the company and cannot include fixed assets and the capital works in progress
477 G H 478 A C Workmen of Ms Hindustan Motors Ltd vs Ms Hindustan Motors Ltd  Anr  and Ms Aluminium Corpn
of India vs Workmen  referred to
Therefore the contention that the Tribunal had committed a mistake in calculating the amount of Reserves used as working capital cannot be accepted
478 D E b A company should build up rehabilitation reserve taking into consideration the increase in price in plant and machinery which has to be replaced at a future date
But since it is a substantial item which goes to reduce the available surplus and as a result affects the right of the employees to bonus the employer will have to place all relevant material before the Tribunal for its scrutiny
The burden of proof is on the employer to prove the price of the plant and machinery its age the period during which it requires replacements the cost of replacement the amount standing in the Debenture and Reserve Funds and to what extent the funds at its disposal would meet the cost of replacement
If the employer fails to lead satisfactory evidence on these points his claim for rehabilitation will be rejected
Also if a company has no scheme for rehabilitation then its claim on that bead must be rejected
479 A E 481 B C 464 Azam Jahi Mills Ltd vs Workmen and National Engineering Industries Ltd vs Workmen   referred to
in the present case the averment in the written statement of the respondents that the appellant s machinery was among the most modern and no provision for rehabilitation was necessary was not controverted by the appellant
The balance sheets for the two years showed that some amounts were spent on machinery
But when the respondents were contesting the claim of the appellant on the ground that it had no scheme of rehabilitation and that it had not spent any amount by way of replacement it was the duty of the appellant to have made a proper claim and to adduce evidence regarding that aspect
Mere production of balance sheets and profit and loss accounts and adding a note in the statements of account filed that the figure is subject to claim for rehabilitation  will not entitle the appellant to sustain its claim for rehabilitation
Moreover the appellant had large Reserves to meet rehabilitation expenses
It had also Boated a debenture for buying new machinery
481 G H 482AC D Further in determining the claim of an employer far rehabilitation two factors are essential to be ascertained namely i the multiplier which has to be done by reference to the purchase price of the machinery and the price which has to be paid for replacement and ii the divisor which has to be done by deciding the probable life of the machinery
479 E F Honorary Secretary South India Millowners  Assn
vs Secretary Coimbatore District Textile Workers  Union 1962 Supp 2 SCR 926 and Ms Gannon Dunkerley  Co vs Their Workmen AIR 1971 SC 2567 referred to
In the present case no material was placed before the Tribunal by the appellant from which the multiplier and divisor can be properly worked out
481 E F Therefore the Tribunal was justified in holding that the appellant had not made out its claim for making provision for rehabilitation
482 C D c The equitable method of allocating the available surplus between the company and its workmen is to distribute 60 as bonus to the workmen leaving the remaining 40 to the company
In the present case the method of calculation adopted for 1962 by the Tribunal shows that the amount of bonus awarded by the Tribunal together with the amount already paid by the appellant exceeded 60 and the award of the excess was not justified
484 A C Ms Gannon Dunkerley  Co vs Their Workmen AIR 1971 SC 2567
referred to