Civil Appeal No 305 of 1959
Appeal by special leave from the Decision dated January 10 1957 of the Labour Appellate Tribunal of India Bombay in Appeal No 111 346 of 1955
G section Pathak section P Sinha and K K Sinha for G N Dikshit for the appellants
Maqbool Ahmad Khan General Secretary of the Union for respondent No 1
J P Goyal for respondent No 2 1960
April 7
The Judgment of the Court was delivered by DAS GUPTA J
This appeal by the employer the Muir Mills Co Ltd Kanpur is against the decision of the Labour Appellate Tribunal of India Bombay modifying an award of the Adjudicator Kanpur in a reference made by the Government of U P under the provisions of sections 3 4 and 8 of the 
The matter in dispute referred was originally set out in these terms   Whether the employers have wrongfully andor unjustifiably reduced the wages of their workmen of Carding Department given in the annexure  If so to what relief are the workmen entitled and from what date   By an order dated April 25 1955 the Government amended this issue by substituting therefor the following  Whether the employers have wrongfully andor unjustifiably reduced the wages of their workmen of Carding Department given in the annexure
 by discontinuing the payment of production andor special bonus if so to what relief are the workmen entitled and from what date  490 It will be noticed that the issue as re framed by the amendment indicated the manner in which the reduction in the wages of these workmen had been alleged to be made viz by  discontinuing the payment of production andor special bonus 
To understand how the question of such a reduction arose and also the considerations which arise in deciding the question whether the reduction if any was wrongful andor unjustifiable a few facts need to be mentioned The appellant company is a textile mill employing in its Carding Department workmen known as Inter Tenters Roving Tenters Draw Frame Tenters and Slubbers
All these workmen are paid wages on piece rate basis
Before 1948 the rates in force per hank were 23 for the Inter Tenters 23 for the Slubbers and Draw Frame Tenters and 25 for the Roving Tenters
In addition to this these workmen were entitled to receive further emoluments if their production exceeded a certain norm
The rates for these further emoluments then in force were two annas per rupee of basic earnings of Rs 15 to Rs 25 per month and three annas per rupee for basic earnings above Rs 25 per month
Apart from these emoluments payment was also made at 9 pies per hank if the production on any day was 7 hanks or more
Though both these additional emoluments were related to production the Tribunals below have described the first kind as production bonus and the second kind as incentive bonus and it will be convenient to adhere to that description here
These two kinds of additional payments which the workmen would receive only if their production would reach and surpass certain standards had the result of increasing the total emoluments received by some of the workmen much above what they would be getting under the fixed rate per hank
The right to receive these additional emoluments had become a part of the terms of service of these workmen
With effect from December 1 1948 however the appellant company stopped the system of paying such additional emoluments but instead raised the fixed rate per hank to 39 for Inter Tenters 36 for Slubbers and Draw Frame Tenters and 49 for Roving Tenters
This was done immediately after an order had been made 491 by the Government under the provisions of section 3 of the U P  laying down the standards of basic wages and dearness allowance for different industries in the Province
Clause 2 of this order fixed the minimum basic wage for cotton and woollen textile industries in Kanpur and certain other areas at Rs 30 per month
Clause 3 provided for payment of dear food allowance
Clause 5 provided that persons who are already employed on November 30 1948 in any industrial textile concern shall receive wages at the increased rates mentioned therein
Clause 7 provided that  every employee of an industrial concern or undertaking to which this order applies shall be paid wages including dear food allowance in accordance with the provisions of cls
2 3 5 and 6
 There is a proviso to the clause which says that where the consolidated wage payable to an employee who was on the pay roll of the concern or undertaking on November 30 1948 is more than the consolidated wage payable in accordance with the provisions of the said clauses the difference shall be paid to him as personal wage
Clause 8 defines  basic wages  as  consolidated wages payable to an employee on November 30 1948 minus Dear Food Allowance calculated according to the rates prevalent in the concern on the said date
The workmen s case is that by stopping the additional emoluments which they used to get on the basis of better production by extra efforts the employer had in fact reduced the wages to which they were entitled and the fact that higher piece rate were introduced with effect from December 1 1948 does not affect the question
The employer s contention is that by the Government order it was required to introduce new piece rates after taking into consideration the amounts actually earned by workers including what had been earned by additional emoluments and so the stoppage of these additional emoluments did not amount to any reduction
The Adjudicator held that these additional emoluments payable as production bonus and incentive bonus had not been taken into consideration by the company while arriving at the revised piece rates
He 492 held further that these could not be taken into con sideration in law as the Government order did not contemplate these bonuses to be taken into consideration in arriving at the appropriate figure for basic wages for the purpose of the order
In that view the Adjudicator held that there had been an Unjustifiable reduction in the wages of the workmen and directed the management to restore with effect from December 1 1948  the system of granting production and incentive bonuses to such of the workmen who are entitled to it 
He also gave directions as to how the calculations should be made for the purpose of incentive bonus and production bonus
The Appellate Tribunal thought it unnecessary to consider the question whether these bonuses had been actually taken into consideration while fixing new piece rates being of opinion that if the Government order did not require or justify the employer s including these bonuses in the calculation of the new rates the company would be bound in law to restore these bonuses even if they had actually taken them into consideration
It held that the Government order did not require or justify the employer including these bonuses in the calculation of the rates of wages for the purposes of the Government order
In the result the appellate tribunal agreed with the first tribunal s decision that this system of granting production and incentive bonuses must be restored
In view of the fact however that for a long time after December 1 1948 the workmen did not raise this question the appellate tribunal was of opinion that the restoration should be only with effect from February 1 1954
As regards the rates at which these bonuses had to be calculated they also modified the directions given by the Tribunal
The main contention raised before us on behalf of the appellant company is that the appellate tribunal was wrong in thinking that the Government order did not require or justify the company in including the additional emoluments being paid by way of production bonus and the incentive bonus in the calculation of the rates of basic wages for the purpose of the order 493 Before we proceed to consider this question it is proper to mention a preliminary contention which was sought to be raised by Mr Pathak on behalf of the appellant
Referring to a note made by the Adjudicator on August 27 1955 he wanted to argue that it was not open to the tribunals below to consider at all the question whether under the Government order the appellant could have included the incentive bonus in the calculation of the basic rate
The note is in these words   The parties are represented
The calculations have been filed by them which were made in the presence of the Adjudicator
There is no difference between the parties that while calculating the rates with effect from 1 12 48 if production and incentive bonus have been considered the question of any relief does not arise and vice versa
The workers say that in the said wages these bonuses have not been included while the employers contend that they have been included
The latter have not filed the required information
Proceedings closed
 At first sight this does seem to give a basis for an argument that the parties agreed before the Tribunal to treat the matter as a question of fact only and that the workmen did not want to raise any question that under the Government order these bonuses could not be included in the calculation of the rates
It is unnecessary however for us to examine the effect of such concession in view of what transpired before the appellate tribunal
From the judgment of that Tribunal we find that on behalf of the workmen it was stated that they had not conceded any such position in the lower tribunal and that their contention was that such bonuses had not and could not be taken into consideration
It is also clear from the judgment that in view of this the parties argued their appeal before the appellate tribunal on both these contentions viz whether the Government order in question allowed the employers to include the bonuses in question in the calculation of the new rates of basic wages in the case of the piece rate workers like those concerned in this and if so whether the employers have in 63 63 494 fact taken these bonuses into account
It is clear that the contention that in view of the concession made on August 27 1955 it was not open to the appellate tribunal to go into the question whether the Government order required or authorised the employer s including the bonuses in the calculation of the new rates was abandoned before the tribunal below
When it was pointed out to Mr Pathak that in view of this he should not be allowed to raise this contention Mr Pathak fairly abandoned this contention here also
The real question therefore is whether the Government order required or authorised the company to include the incentive bonus and the production bonus which they had been so long paying in fixing the new piece rate for the purpose of compliance with the directions given in the Government order as regards the basic wages
In finding the correct answer to this question it is necessary to examine the entire scheme of the Government order
The relevant clauses of the Government order have already been set out
The purpose of the scheme on the face of it is to make it obligatory on the employers in different industries to keep wages of workmen at a certain level
This purpose is sought to be achieved by laying down on the one hand the basic wages Which must be paid and on  the other hand the dearness allowance called in the Government order dear food allowance which must be paid
The concept of basic wage is familiar to employers and workmen and all who have to deal with the problems of labour s remuneration
It may be profitably remembered in this connection that the concept of a  basic  is not peculiar to wages alone
For instance when any rationing system is introduced for any commodity whether it is food or coal or petrol or some other commodity it is usual to fix a quantum as the basic ration
The underlying idea is to fix some amount as what every individual coming under the system will get while additional amounts to be fixed in accordance with further directions will be allowed to some individuals in view of their special claims as supplementary rations
 Basic  in all such cases is what is normally allowable to all irrespective 495 of special claims
The phrase I basic wages  is also ordinarily understood to mean that part of the price of labour which the employer must pay to all work  men belonging to all categories
The phrase is used ordinarily in marked contra distinction to  dearness allowance  the quantum of which varies from time to time in accordance with the rise or fall in the cost of living
Thus understood  basic wage never includes the additional emoluments which some workmen may earn on the basis of a system of bonuses related to the production
The quantum of earnings in such bonuses varies from individual to individual according to their efficiency and diligence  it will vary sometimes from season to season with the variations of working conditions in the factory or other place where the work is done it will vary also with variations in the rate of supplies of raw material or in the assistance obtainable from machinery
This very element of variation excludes this part of workmen s emoluments from the connotation of  basic wages 
But says the appellant whatever may be ordinarily under
stood by the word  basic wages  hardly matters when the Government order itself contains a definition of  basic wage 
Clause 8 which has already been referred to is in these words  Basic Wages  for the purposes of this order will mean consolidated wages payable to an employee on November 30 1948 minus Dear Food Allowance calculated according to the rates prevalent in the concern on the said date
 On behalf of the appellant Mr Pathak concentrates on the words  consolidated wage  and argues that everything which answers to the description of wage must be included in this process of consolidation
Contending next that the emoluments payable by way of production bonus and incentive bonus are  wages even if not ordinarily understood to be basic wages he argues that the result of the definition in cl 8 is that basic wages for this order is the sum total of all emoluments answering to the description of wages thus including production and incentive bonuses but excluding by reason of the express words used  dearness allowance 64 496 In support of his argument that production or incentive bonuses which used to be paid by the company is also a kind of wage the learned advocate has placed strong reliance on some observations made by this Court in Titaghur Paper Mills Co Ltd vs Their Workmen 1 that a production bonus is in the nature of an incentive wage
We will presently consider how far the fact that these bonuses are in the nature of an incentive wage assists the appellant s contention that it has to be included in the  consolidated wage within the meaning of cl 8 of the order
But before we do that it will be proper to see exactly what this Court said in the above case
A question had been raised as regards the jurisdiction of the Industrial Tribunals to go into the question of any production bonus claim at all that being a matter of agreement between the employer and the employees
In considering this question this Court thought fit to consider first what a production bonus essentially is
In the course of that discussion the Court said  Before we go into the question of jurisdiction of a tribunal under the hereinafter called the Act we should like to consider what production bonus essentially is
The payment of production bonus depends upon production and is in addition to wages
In effect it is an incentive to higher production and is in the nature of an incentive wage
 There is a base or standard above which extra payment is made for extra production in addition to the basic wage
Such a plan typically guarantees time wage up to the time represented by standard performance and gives workers a share in the savings represented by superior performance Therefore generally speaking payment of production bonus is nothing more or less than a payment of further emoluments depending upon production as an incentive to the workmen to put in more than the standard performance
Production 1 1959 SUPP
2 SCR 1012 497 bonus in this case also is of this nature and is nothing more than additional emolument paid as an incentive for higher production
We shall later consider the argument whether in this case the production bonus is anything other than profit bonus
It is enough to say at this stage that the bonus under the scheme in this case also depends essen tially on production and therefore is in the nature of incentive bonus
 It is important to notice that while the learned counsel is undoubtedly right in saying that a bonus related to production was described in this case as in the nature of an incentive wage the Court was equally emphatic in laying down that such bonuses form no part of wages as ordinarily understood and again that these are in addition to basic wages
Can it be reasonably said that even such incentive wage though not forming part of basic wage  as ordinarily understood was intended to be included in the consolidation of wages which cl 8 speaks of The answer must be in the negative
While it is true that the word  consolidated wage  taken away from the context would import the inclusion of every kind of wage we have to remember that here it is basic wage which is being defined
It will be unreasonable to think that in defining basic wage the Government would include something which is always understood to be outside the ordinary concept of basic wage
Remembering as we must that it is basic wage which is being defined here it is reasonable to think that only such emolu ments which are receivable by the workmen generally as a normal feature of their earnings and therefore satisfy the characteristics of  basic wage  are intended to be covered by the consolidation
It is because dear food allowance does not satisfy this characteristic that this has been expressly excluded
Mr Pathak s argument that when in the case of dearness allowance an express exclusion has been made everything else in the nature of wages has to be included would have been of great force but for the fact that when basic wage is being defined the presumption must be that anything which is essentially 498 different and distinct from basic wage was not intended to be included
It is worth mentioning also that the notification does not in terms refer to piece rate system of payment
That itself is a reason for thinking that production bonuses which are an essential feature of piece rate system but not of time rate system were not in the contemplation of those who drafted the order
Equally pertinent is the consideration that when the Government is evolving a scheme to improve the wage structure of workmen it would not knowingly do anything which would have the effect of removing incentives to production
Such removal would harm labour by preventing workmen from earning more by extra efforts harm capital by diminishing the return therefrom and harm the country as a whole at a time when higher production is the crying need of every branch of industry
An interpretation which would impute to Government such an unthinkable intention to harm all concerned cannot be lightly accepted but that would be the necessary result if  consolidated wages  in the definition of basic wages is interpreted to include even an incentive wage like bonus related to production
On every consideration it is therefore abundantly clear that production bonus and incentive bonus were not within basic wages as defined in the Government order
It was faintly argued by Mr Pathak that the fact that the workmen did not for a number of years raise any objection to the stoppage of the old system of production bonus and incentive bonus shows that they themselves understood the Government order to mean that these bonuses would be included in fixing the basic wages for the purpose of the order
Whether that was so or not it is unnecessary for us to consider for when the only reasonable interpretation of the words used in the order is that these are not to be included it matters little how the employer or the workmen understood these words to mean
We have therefore come to the conclusion that the Labour Appellate Tribunal was right in holding that the Government order did not require or justify th 499 employer including the production and incentive bonuses in the calculation of the rates of the basic wage of the workers and consequently that the Government order did not have the effect of absolving the company from the duty of continuing to pay the production and incentive bonuses to workmen as before
No objection has been raised before us as regards the directions given by the appellate tribunal for the calculation of these bonuses
The appeal is accordingly dismissed with costs
Apppeal dismissed


Summary:
By an order of the Ruler of the erstwhile State of Hyderabad an institution was formed for the development of industries on behalf of the Government called the Industrial Trust Fund to be managed by a committee called Trustees
In 1934 the Trustees entered into agreements with two cotton mills situated in the State by virtue of which they were appointed secretaries treasurers and agents of the said mills
They were given the general management of the mills including the power to appoint employees and were also appointed selling agents of the mills
By separate agreements the Trustees were given power to delegate to other persons all or any of the powers under the agreements subject to the approval of the Board of Directors of the respective mills
On December 6 1938 the Trustees entered into an agreement with the appellant whereby they delegated their powers in his favour and appointed him as the managing agent of their business as secretaries treasurers and agents as also selling agent of the two mills subject to their general control
The appellant was to hold the office of managing agent and selling agent for the remaining period of the original managing agency and selling agency agreements
The remuneration of the appellant for the managing agency was fixed at Rs 2000 per month and a commission of 2 12 per cent
out of the commission of 12 12 per cent
per annum on the annual profits payable to the Trustees
For the selling agency a separate commission was payable on the sale of different kinds of goods
Clause 9 of the agreement provided 547 that the managing agent shall not assign the benefit of the agreement the same being personal to himself
For the accounting years 1941 42 and 1942 43 the appellant was assessed to excess profits tax but he contended that the Trustees of the Industrial Trust Fund were the managing agents as also the selling agents of the two mills that the Trustees employed him on certain terms and gave him certain powers and that he was not carrying on an independent business of his own but was just carrying out the duties of an employee of the Trustees
He claimed that his remuneration under the agreement dated December 6 1938 was merely salary and not income derived from business and therefore not liable to excess profits tax  Held 1 that under the agreements of 1934 the Trustees as agents had express authority to name the appellant to act for the principal in the business of agency and that therefore the appellant was neither a servant nor a mere sub agent but an agent of the principal for such part of the business of agency as was entrusted to him within the meaning of section 194 of the Indian Con tract Act 1872
2that on the true construction of the agreement dated December 6 1938 the appellant was undertaking a business of his own in accepting the duties and responsibilities of a managing agent of the two mills under the general control of the Trustees and that therefore the income derived by him as remuneration and commission was liable to excess profits tax
Lakshminarayan Ram Gopal and Son Ltd vs The Government of Hyderabad  and 1
K Trust Bombay vs The Commissioner of Income tax excess Profits Tax Bombay 1958 SCR 65 relied on