Case: Britannia Engineering Company, Limited, West Bengal Vs. Their Workmen

such dispute. The balance sheet and profit and loss account were certified and must be presumed to be correct unless they are challenged and demonstrated to be wrong. In our judgment this addition was also improper. The next two items give no trouble at all. The sum of Rs. 6, 533, representing interest paid for the previous year is accepted on behalf of the company and must be added. The sum of Rs. 12, 983, it is accepted by the unions, must be deducted. The latter represents income from other sources or, in other words, income which was earned without the assistance of labour. The adjusted gross profits, therefore, stand thus : Rs. Net profits . . 6, 63, 065 Add-back depreciation . . 5, 48, 717 Add-back provision for tax . . 5, 32, 000 Add-back interest for previous year . . 6, 533 ------------- 17, 40, 315 Deduct extraneous income . . 12, 983 -------------- Adjusted gross profits . . 17, 27, 332From the adjusted gross income the prior charges may now be deducted according to the formula. The first item to go out is the normal notional depreciation which in this case is Rs. 5, 22, 289. The next item to deduct is income tax on the balance at 45 per cent. It will be recalled that the development rebate reserve of Rs. 1, 00, 000 was not added back. The amount on which tax is to be calculated must be reduced by Rs. 1, 00, 000 as that amount will not bear tax. The return on the capital accounting to Rs. 3, 03, 226 is not challenged and that amount will also be deducted. Return on the working capital has been calculated at 2 per cent instead of the usual 4 per cent. This is strongly supported on behalf of the unions. The tribunal reduced the percentage on the ground that the working capital was not utilized. On the other hand, it is pointed out that the company had to borrow from the bank. The tribunal has again made a surmise that the whole of the amount was not used as working capital though there was no evidence that it was kept apart. In our judgment, there was no justification for reducing the amount to half. The proper reduction to make is thus Rs. 1, 65, 056. The amount of rehabilitation charges, which the tribunal placed at Rs. 1, 96, 067, is not challenged by Sri Niren De who submitted that in view of the resulting figure it was hardly necessary to do so. The account, therefore, stands thus : Rs. Adjusted gross profits . . 17, 27, 332 Deduct normal notional depreciation . . 5, 22, 289 ---------- 12, 05, 043 Deduct - Income tax (tax on Rs. 11, 05, 043 : (12, 05, 03 minus Rs. 1, 00, 000 development rebate reserve) . . 4, 97, 270 7, 07, 773 Returns on paid-up capital . . 3, 03, 226 4, 04, 547 Return on working capital . . 1, 65, 066 2, 39, 481 Rehabilitation charge . . 1, 96, 05743, 424 --------------- 8. It was contented that the rehabilitation charges should not be allowed because rehabilitation amount of previous year is still available and further that the old machines are being still used or kept to claim rehabilitation. The evidence on the latter part is interested and cannot be believed. It was contented that as the accumulated depreciation reserve not having been taken into account rehabilitation may not be admissible and reliance is placed on Associated Cement Companies, Ltd. v. Their workmen [1959 - I L.L.J. 644]. The company pointed out that the total rehabilitation charges for the year amounted to Rs. 5, 94, 943 for machinery (annexure E.1) and Rs. 1, 53, 471 on buildings (annexure E. 2). From these amounts the company, in its claim, deducted (as per annexure E. 3) Rs. 4, 03, 919 and 65, 350 as representing depreciation on the block leaving a net rehabilitation requirement of Rs. 2, 79, 145 for the year. The amount of depreciation totalling Rs. 5, 22, 289 has been deducted in arriving at the net rehabilitation charges and that amount (Rs. 2, 79, 145) has been further reduced to Rs. 1, 96, 067. The point raised by the unions does not survive. 9. The amount of available surplus to Rs. 43, 424. In view, however, of the fact that one months wages have already been distributed and the wage-bill is Rs. 1, 63, 859 per month, there is no further surplus available. The point referred for the decision of the tribunal was whether the workmen were entitled to bonus in addition to the one months basic wages already distributed. The answer to this question clearly is in the negative view of the fact that no more surplus is available. 10. A further questions raised by the unions was that in the previous award delivered by Sri P. K. Sarkar on 22 May, 1961, the question of puja bonus was gone into and the payment of one months bonus for the year 1959 should not be treated as profit bonus. Reference to made to the observation of the tribunal :"The company already paid one months basic wages to the workmen as bonus for the year under reference. That was an unconditional payment. The unions stated about payments of puja bonus as of right in their written statement. That is not the issue before me and I refrain from making any observation in regard to the question of puja bonus." 11. The unions apprehend a break in the continuity of payments of customary bonus and think that above remarks likely to be construed as meaning that what was paid was profit bonus. In this connexion it is only necessary to point out that payment of one months bonus was unconditional and the apprehensions are perhaps not real. Beyond this it is not proper for us to say what was the nature of the payment.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]The main dispute centres round the calculation of the available surplus by the tribunal from which the bonus is payable. Both sides have fairly conceded that the approach to the problem by the tribunal was full of errors. This appears be due to a misunderstanding of the balance sheet and the profit and loss account of the company. It is not necessary for us to enter too elaborately into the dispute, for our decision can be stated in very short and simple terms. It is agreed on both sides that the not profits same to Rs. 6, 23, 065 and to it must be added Rs. 5, 48, 717 for depreciation and Rs. 5, 32, 000 provision for taxation. This addition gives a figure of Rs. 17, 33, 782 and so far there is no dispute. The dispute arises over some of the other" and the deduction of "prior charges" as laid down in what is popularly known as the Full Bench formulas.The tribunal added back to the sum of Rs. 17, 33, 782 certain sums to arrive at the adjusted gross profits before making deductions for prior charges and we shall review these additions separately. The first sum added back is Rs. 29, 884 which was claimed as a part of expenditure on account of canteen. In Ex. G. 8 which is a part of the accounts dealing with miscellaneous expenses, a sum of Rs. 59, 768 is shown as made up of two items. Rs. 18, 838 (medical expenses) and Rs. 40, 930 for welfare (including subsidy to works, canteen, pantry expenses and tiffin expenses, etc.). The workmen asked that the whole of this amount should be added back. Evidence led on behalf of the workmen was that they were not given any tiffin allowance and that the canteen served only the manual and clerical staff or visitors. The management, in its evidence, established that the workmen get a cup of tea at the concessional rate of 3 paise. All this is not much to the purpose. The fact is that the canteen was subsidised and the amount was actually spent. The tribunal attempted some kind of justice by adding back half of the amount, overlooking in the first instance that a part of the sum medical expenses) was in a different category altogether and in the next that no suchk was possible when the next amount was proved to be spent. In our opinion thek of Rs. 29, 884 must be cancelledThe general items of wages and consumption of stores in the profit and loss account, of course, did not include the items (a) and (b) above5. The tribunal held that some person should have come forward on behalf of the company to deny that the sum of Rs. 1, 51, 302 was not spent on capital account, and the tribunal added back, excusing, as it said,d in the companys favour. This was quite erroneous. There was nothing to show that the profit and loss account was wrong and no error in it was pointed out by the tribunal. The balance sheet and the profit and loss account were not held by any authority (such as thex Department) to be wrong. Ordinarily the balance sheet and the profit and loss account are accepted as correct and more was this the case here because no objection was raised and no inquiry was made. The tribunal was surmising when it attributed a part of the expenditure on repairs to the capital account. In our judgment, the whole of thisk must be cancelled.The tribunal next added back a sum of Rs. 1, 00, 000 which was transferred to the development rebate reserve. There is no reason given by the tribunal for this action. The balance of profits which was carried down to the appropriation account consisted of this sum and a further sum Rs. 78, 052 which was the balance brought forward from the previous year. In this way the company had Rs. 7, 31, 117 in the appropriation account. Additions to machinery as shown in the "fixed assets" were Rs. 4, 96, 464 (roundly Rs. 5 lakhs). The company could earn rebate in income tax if it transferred a minimum of 75 per cent of 20 per cent of that sum. It transferred Rs. 1, 00, 000 which was 100 per cent of 20 per cent of Rs. 5 lakhs. The company next distributed Rs. 4, 48, 636 as dividends and carried to the balance sheet the sum of Rs. 1, 82, 4816. As the transfer was made after the net profits were calculated the amount could not be added back. It would have been different if it had been transferred before the calculation of net profits. However, in the calculation of income tax the company would get a deduction of Rs. 45, 000 arising from the transfer of the sum to the development rebate reserve. That we shall adjust later when we set down the calculations. The" must be excluded in adjusting the gross profits. The tribunal thought that a small portion of it (5 per cent) could be added back as expense on capital account. In doing so the tribunal was perhaps influenced by Burn & Co. case [1964I L.L.J. 370] (vide supra). But in that case an issue was joined and the case cannot be followed where there was no such dispute. The balance sheet and profit and loss account were certified and must be presumed to be correct unless they are challenged and demonstrated to be wrong. In our judgment this addition was also improper. In our judgment, there was no justification for reducing the amount to half. The proper reduction to make is thus Rs. 1, 65, 056. The amount of rehabilitation charges, which the tribunal placed at Rs. 1, 96, 067, is not challenged by Sri Niren De who submitted that in view of the resulting figure it was hardly necessary to do so.9. The amount of available surplus to Rs. 43, 424. In view, however, of the fact that one months wages have already been distributed and thel is Rs. 1, 63, 859 per month, there is no further surplus available. The point referred for the decision of the tribunal was whether the workmen were entitled to bonus in addition to the one months basic wages already distributed. The answer to this question clearly is in the negative view of the fact that no more surplus is available10. A further questions raised by the unions was that in the previous award delivered by Sri P. K. Sarkar on 22 May, 1961, the question of puja bonus was gone into and the payment of one months bonus for the year 1959 should not be treated as profit bonus. Reference to made to the observation of the tribunal :"The company already paid one months basic wages to the workmen as bonus for the year under reference. That was an unconditional payment. The unions stated about payments of puja bonus as of right in their written statement. That is not the issue before me and I refrain from making any observation in regard to the question of puja bonus."11. The unions apprehend a break in the continuity of payments of customary bonus and think that above remarks likely to be construed as meaning that what was paid was profit bonus. In this connexion it is only necessary to point out that payment of one months bonus was unconditional and the apprehensions are perhaps not real. Beyond this it is not proper for us to say what was the nature of the payment.