Case: Kirloskar Oil Engines Ltd Vs. Their Workmen

claim for the deduction of income-tax payable by it on the profits of the bonus year according to the formula. There is no dispute about the material facts in respect of this claim. If the income-tax payable by the appellant on the amount of profits ascertained after deducting from the gross profits the admissible depreciation claimed is allowed to the appellant, it would amount to Rs. 2.25 lakhs. This was and is conceded by the respondents. They, however, urged before the tribunal that for the previous year ending on 31-3-1953, the appellant had sustained a loss of Rs. 9 lakhs and under S. 24 (2) of the Income-tax Act the appellant would be entitled to absorb the said loss in the profits of this year and as a consequence it would in fact not be liable to pay any tax for the relevant year. The respondents case was that in such a case the appellant was not entitled to claim any deduction on account of income-tax. This argument has been accepted by the tribunal and it has disallowed the whole of the claim made by the appellant in respect of the whole of the item of income-tax. 5. In Associated Cement Companies Ltd., Bombay v. Their Workmen, Civil Appeals Nos. 459 and 460 of 1957, D/-5-5-l959: (AIR 1959 SC 967 ),we have considered this point and we have held that in working out the Full Bench formula the employer is entitled to claim the appropriate amount of income-tax payable on the profits determined under the formula even though under the provisions of the aforesaid section of the Income-tax Act he may not be required to pay the said tax.In view of the said decision we must hold that the tribunal was in error in not allowing the appellants claim for deduction of Rs. 2.25 lakhs as a prior charge under the item of income-tax payable for the relevant year. It has been fairly conceded by Mr. Phadke, for the respondents, and we think rightly, that if this item is allowed to the appellant the conclusion of the tribunal that there was available surplus from which bonus could be paid to the respondents cannot be sustained. The award shows that the available surplus from which bonus has been ordered to be paid is Rs. 2.26 lakhs. If Rs. 2.25 lakhs is deducted from the surplus we are left with a figure of only .01 lakhs whereas the amount ordered to be paid by way of bonus is 0.37 lakhs. 6. There is another point on which the appellant has attacked the award under appeal. The appellant had made a claim for interest it 4 per cent. on depreciation fund used as working capital. This claim amounts to 0.32 lakhs. The tribunal has disallowed this claim on the ground that the employer cannot claim any allowance on depreciation fund.This point also has been considered by us in the case of A. C. C. Ltd., (AIR 1959 SC 967 ) (supra), and we have held that if it is shown that the amount in the depreciation fund was in fact available to the employer and has been used by him as working capital he would be entitled to claim a return on it. At what rate of interest the return should be allowed is a question of fact to be determined in each case in the light of relevant circumstances.It is true that in this case the appellant has not filed any statement on oath showing that the amount from the depreciation fund on which it claims a return at 4 per cent. was available to it and has in fact been used as working capital. On the other hand a claim for .32 lakhs was made by way of return on the said fund and it was not disputed by the respondents on the ground that the fund had not been used as working capital or was in fact not available to the appellant. It appears that it was known to the parties that the tribunal had for some time past been taking the view that depreciation fund cannot earn any return even though it is used as working capital. That explains for the state of the pleadings in the present case. However, it is unnecessary to decide whether the appellant is entitled to any return on the depreciation fund in this case because, as we have just indicated, if only the amount of income-tax claimed by it is allowed that itself would entitle the appellant to succeed in this appeal. 7. Mr. Naunit Lal who appeared for respondent 2, however, attempted to argue that the tribunal was not justified in awarding to the appellant Rs. 1.39 lakhs by way of provision for rehabilitation. His contention was that a claim for rehabilitation had not been established by the appellant by proper evidence. We do not think there is any substance in this argument. Mr. Mandke, the appellants Works Manager, has made an affidavit in the proceedings before the tribunal that he had prepared Ex. C. 15 from his personal knowledge and that the said statement correctly showed the life of the machinery employed by the appellant and the period after which it would require to be replaced. The said witness had also filed other statements in support of the appellants claim including Ex. C. 8 which explain the method adopted by the witness for arriving at the amount of rehabilitation claimed by the appellant. It appears that the appellant offered this witness for examination before the tribunal but the respondents did not desire to cross-examine him and so he did not step into the witness-box.That is why the tribunal held that the estimate given by the appellant for rehabilitation, replacement and modernisation should be accepted and the quota asked for by the appellant should be allowed from out of profits. On these facts it is impossible to accept the argument that the claim for rehabilitation has not been proved by the appellant.

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

Explanation:
1[ds]If the income-tax payable by the appellant on the amount of profits ascertained after deducting from the gross profits the admissible depreciation claimed is allowed to the appellant, it would amount to Rs. 2.25 lakhs5. In Associated Cement Companies Ltd., Bombay v. Their Workmen, Civil Appeals Nos. 459 and 460 of 1957, D/-5-5-l959: (AIR 1959 SC 967 ),we have considered this point and we have held that in working out the Full Bench formula the employer is entitled to claim the appropriate amount of income-tax payable on the profits determined under the formula even though under the provisions of the aforesaid section of the Income-tax Act he may not be required to pay the said tax.In view of the said decision we must hold that the tribunal was in error in not allowing the appellants claim for deduction of Rs. 2.25 lakhs as a prior charge under the item of income-tax payable for the relevant yearIt is true that in this case the appellant has not filed any statement on oath showing that the amount from the depreciation fund on which it claims a return at 4 per cent. was available to it and has in fact been used as working capital. On the other hand a claim for .32 lakhs was made by way of return on the said fund and it was not disputed by the respondents on the ground that the fund had not been used as working capital or was in fact not available to the appellant. It appears that it was known to the parties that the tribunal had for some time past been taking the view that depreciation fund cannot earn any return even though it is used as working capital. That explains for the state of the pleadings in the present case. However, it is unnecessary to decide whether the appellant is entitled to any return on the depreciation fund in this case because, as we have just indicated, if only the amount of income-tax claimed by it is allowed that itself would entitle the appellant to succeed in this appealMr. Mandke, the appellants Works Manager, has made an affidavit in the proceedings before the tribunal that he had prepared Ex. C. 15 from his personal knowledge and that the said statement correctly showed the life of the machinery employed by the appellant and the period after which it would require to be replaced. The said witness had also filed other statements in support of the appellants claim including Ex. C. 8 which explain the method adopted by the witness for arriving at the amount of rehabilitation claimed by the appellant. It appears that the appellant offered this witness for examination before the tribunal but the respondents did not desire to cross-examine him and so he did not step into the witness-box.That is why the tribunal held that the estimate given by the appellant for rehabilitation, replacement and modernisation should be accepted and the quota asked for by the appellant should be allowed from out of profits. On these facts it is impossible to accept the argument that the claim for rehabilitation has not been proved by the appellant.