Case: Central Weaving &amp; Manufacturing Company, Bombay Vs. Mill Mazdoor Sabha, Bombay &amp; Another

to be the earnings during the accounting year and therefore that amount could not be deducted from net profit. As regards capital, the Tribunal accepted the workmens contention that it came to Rs. 3, 52, 457 only and a return at 8.5% on that amount only was claimable as a prior charge. The Tribunal accepted the workmens calculations and allowed bonus at the maximum rate of 20% as demanded by them. Aggrieved by the award, the appellant filed the writ petition which the High Court dismissed summarily presumably on the ground that the said award did not contain any error of law apparent on the face of the record. 2. The only question therefore which counsel raised before us was that the Tribunal was in error in not deducting the said amount of customs duty refund from the net profit and in not allowing as a prior charge return at 8.5% on the whole of the said amount of Rs. 8, 30, 460. 3. As regards the amount of customs duty, the profit and loss account produced by the appellant before the Tribunal showed the refund amount of Rs. 2, 06, 060 on the credit side. On the expenditure side, the appellant had debited sundry amounts, such as excise duty, interest, rent, etc. for the appellant admitted that the appellant was maintaining its accounts on mercantile system and therefore amounts would be credited and debited as they accrued due and not when they were actually received or expended. The amounts debited on the expenditure side, therefore, must have been so done as and when they became due and not when they were actually paid. On the credit side also, the amounts would be credited not when they were received but as and when they accrued due. The amount of customs duty refund consequently would have to be credited as earnings when it was allowed or, and became payable and not when it was actually refunded. That being the position, the Tribunal was clearly right in refusing to deduct the amount of customs duty refund from the said amount of net profit. 4. As to the return on capital, the appellant under Section 6(d), read with Schedule III would be entitled to deduct from the gross profits a return at 8.5% either on the paid up equity share capital as at the commencement of the accounting year if it were to be treated as a company, or a like return on the capital invested by its proprietors as evidenced from its books of accounts at the commencement of the accounting year. We do not, however, understand how the appellant claimed return at 8.5% on Rs. 8, 30, 460 as that amount was shown in the balance-sheet as on December 31, 1964 and not at the commencement of the year. Besides, the said amount has been shown in the balance-sheet as consisting of two items, one of Rs. 3, 52, 157 on which the Tribunal allowed return at 8.5% and the other of Rs. 4, 78, 302.62 being the loss carried forward from the pervious year. One fails to understand how under Section 6(d), read with Schedule III the appellant could possibly have treated the loss carried forward from the precious year as capital invested in the establishment and claim a return thereon. Even as regards Rs. 3, 52, 157, Tribunal was clearly in error in permitting return at 8.5% on that amount, as assuming that it treated that amount as capital brought in the establishment, that amount was not the capital at the commencement but at the close of the year. The amount shown at the commencement of the year was Rs. 3, 59, 090 and if at all any return was to be allowed it would have to be on that amount. But it is clear from the balance-sheet that neither the amount of Rs. 3, 59, 090 not the amount of Rs. 3, 52, 157 could be accepted as capital on which a return at 8.5% under Schedule III has to be allowed. The reason for saying so is that the said two amounts were shown in the balance-sheet as balance to the credit of the proprietors in the account headed as "the proprietors account" at the commencement and at the close of the accounting year. Prima facie, the heading of the account would mean that the appellant maintained a current account in the name of the proprietors, macks Hard (P.) Ltd. That account cannot necessarily mean, unless properly proved (which was never done), that the said two amounts represented the capital brought in or invested in the establishment by the proprietors. For ought we know the said amounts might as well represent past profits due to or advances made from time to time by the proprietors. In either case the balance at the foot of the account would not mean capital. Since no attempt was made to show that the said amounts represented either paid up equity share capital or capital invested by the proprietors at the commencement of the year, the Tribunal ought not to have allowed return at 8.5% on the said balance of Rs. 3, 52, 157 and its deduction as a prior charge from the gross profits. It appears that the Tribunal was misled into accepting the said amount of Rs. 3, 52, 157 as capital brought in by the proprietors without the appellant having produced and proof thereof and also because the workmen had shown Rs. 5, 43, 774 in their said calculations as capital on the basis of the Kachha balance-sheet supplied to them. We are, however, not in a position to revise the calculations made by the Tribunal as the workmen have not filed any appeal against that part of the Tribunals award. In our view the appellants contention for the deduction of the customs duty refund and for return on Rs. 8, 30, 460 and its deduction from the gross profits were untenable and were rightly rejected by the Tribunal.

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

Explanation:
0[ds]3. As regards the amount of customs duty, the profit and loss account produced by the appellant before the Tribunal showed the refund amount of Rs. 2, 06, 060 on the credit side. On the expenditure side, the appellant had debited sundry amounts, such as excise duty, interest, rent, etc. for the appellant admitted that the appellant was maintaining its accounts on mercantile system and therefore amounts would be credited and debited as they accrued due and not when they were actually received or expended. The amounts debited on the expenditure side, therefore, must have been so done as and when they became due and not when they were actually paid. On the credit side also, the amounts would be credited not when they were received but as and when they accrued due. The amount of customs duty refund consequently would have to be credited as earnings when it was allowed or, and became payable and not when it was actually refunded. That being the position, the Tribunal was clearly right in refusing to deduct the amount of customs duty refund from the said amount of net profit4. As to the return on capital, the appellant under Section 6(d), read with Schedule III would be entitled to deduct from the gross profits a return at 8.5% either on the paid up equity share capital as at the commencement of the accounting year if it were to be treated as a company, or a like return on the capital invested by its proprietors as evidenced from its books of accounts at the commencement of the accounting year. We do not, however, understand how the appellant claimed return at 8.5% on Rs. 8, 30, 460 as that amount was shown in the balance-sheet as on December 31, 1964 and not at the commencement of the year. Besides, the said amount has been shown in the balance-sheet as consisting of two items, one of Rs. 3, 52, 157 on which the Tribunal allowed return at 8.5% and the other of Rs. 4, 78, 302.62 being the loss carried forward from the pervious year. One fails to understand how under Section 6(d), read with Schedule III the appellant could possibly have treated the loss carried forward from the precious year as capital invested in the establishment and claim a return thereon. Even as regards Rs. 3, 52, 157, Tribunal was clearly in error in permitting return at 8.5% on that amount, as assuming that it treated that amount as capital brought in the establishment, that amount was not the capital at the commencement but at the close of the year. The amount shown at the commencement of the year was Rs. 3, 59, 090 and if at all any return was to be allowed it would have to be on that amount. But it is clear from the balance-sheet that neither the amount of Rs. 3, 59, 090 not the amount of Rs. 3, 52, 157 could be accepted as capital on which a return at 8.5% under Schedule III has to be allowed. The reason for saying so is that the said two amounts were shown in the balance-sheet as balance to the credit of the proprietors in the account headed as "the proprietors account" at the commencement and at the close of the accounting year. Prima facie, the heading of the account would mean that the appellant maintained a current account in the name of the proprietors, macks Hard (P.) Ltd. That account cannot necessarily mean, unless properly proved (which was never done), that the said two amounts represented the capital brought in or invested in the establishment by the proprietors. For ought we know the said amounts might as well represent past profits due to or advances made from time to time by the proprietors. In either case the balance at the foot of the account would not mean capital. Since no attempt was made to show that the said amounts represented either paid up equity share capital or capital invested by the proprietors at the commencement of the year, the Tribunal ought not to have allowed return at 8.5% on the said balance of Rs. 3, 52, 157 and its deduction as a prior charge from the gross profits. It appears that the Tribunal was misled into accepting the said amount of Rs. 3, 52, 157 as capital brought in by the proprietors without the appellant having produced and proof thereof and also because the workmen had shown Rs. 5, 43, 774 in their said calculations as capital on the basis of the Kachha balance-sheet supplied to them. We are, however, not in a position to revise the calculations made by the Tribunal as the workmen have not filed any appeal against that part of the Tribunals award. In our view the appellants contention for the deduction of the customs duty refund and for return on Rs. 8, 30, 460 and its deduction from the gross profits were untenable and were rightly rejected by the Tribunal.