Case: Metal Box Company of India Ltd Vs. Their Workmen

1. By a reference dated September 17, 1965, the Government of West Bengal referred to the Sixth Industrial Tribunal the following question for adjudication:Whether computation of bonus in respect of the accounting year ending 31st March, 1965, payable to the employees is in accordance with the Payment of Bonus Ordinance? If not, what should be the quantum of bonus for the employees?2. The dispute between the appellant company and its employees arose in the following manner. The companys accounting year is from 1st April to 31st March of the following year and its books of account are maintained on the mercantile system of accounting. The company computed the amount of bonus payable to its employees under the Payment of Bonus Ordinance which was promulgated on May 20, 1965 and furnished on July 5, 1965 copies of its computation to the three respondent Unions representing its employees. The available surplus and allocable surplus, according to this computation, were Rs. 49.96 lacs and Rs. 29.98 lacs respectively. On this basis the company declared the bonus at 13,28 per cent of the total wages paid to the employees. According to this computation, the gross profits came to Rs. 2,70,64,234. Out of this the company deducted the following amounts allowed under the Ordinance, namely:Rs. 28,64,000as depreciation admissible under the Income Tax Act 1961Rs. 1,50,000as dividend on preference shares;Rs. 23,37,000as interest at 8.5 p. c. on paid-up capital;Thus the available surplus came to Rs. 49,96,876, sixty per cent of which, namely, Rs. 29,98,125 was the allocable surplus. The employees disputed the computation contending that the company had wrongly reduced the gross profits an the available surplus and that the following amounts should be added back, viz., provision for gratuity Rs. 18,38,605 and provision for doubtful debts Rs. 50,000. They also challenged deduction of interest on the reserves on the ground that the capital reserve of Rs. 57,00,151 was artificially arrived at by a mere revaluation of the companys fixed assets as on April 1, 1956. They also disputed the figures of depreciation, development rebate and direct taxes deducted by the company while working out the available surplus3. Parliament in the meantime passed the Payment of Bonus Act, 1965 which by Section 40 repealed the Ordinance but which saved all things done and action taken under the Ordinance as having been done or taken under the Act. On September 27, 1965 the company paid, subject to the result of the reference, bonus at the rate of 13.28 per cent of the wages including dearness allowance to its employees4. In its award the Tribunal allowed Rs. 23,48,226 instead of Rs. 28,82,261 claimed by the company as depreciation. Similarly it allowed only Rs 7. lacs instead of Rs. 8,87,371 claimed by the company as development rebate. As regards Rs. 18.38 lacs claimed under the head of gratuity, the Tribunal held that that amount was not a reserve but a provision and, therefore, was not liable to be added back. But it held that the company could deduct only Rs. 10 lacs and odd as also Rs. 1.31 lacs and Rs. 87,000 and odd actually paid during the year to employees who retired during that year and added back the balance of Rs. 6 lacs to the gross profits. Except for these amounts, the Tribunal accepted the rest of the companys computation. In the result the Tribunal found the available surplus and the allocable surplus to be 54 lacs and odd and Rs. 32.42 lacs respectively, and directed payment of bonus at 14.55 per cent of the total wages. Both the Unions and the Company obtained special leave and filed appeal challenging the correctness of the Award.

Reasoning:
In our view, an estimated liability under gratuity schemes such as the ones before us, even if it amounts to a contingent liability and is not a debt under the Wealth Tax Act, if properly ascertainable and its present value is fairly discounted is deductible from the gross receipts while preparing the P. and L. account. It is recognised in trading circles and we find no rule or direction in the Bonus Act which prohibits such a practiceWe do not, therefore, see any justification for the apprehension felt by Mr. Chari, for, by trying to reduce the gross profits, the Company would land itself into being assessed on a higher net wealth. The Tribunal was, in our view, right in accepting the figure of Rs. 57 lacs and deducting interest thereon from the gross profitsIn our view it was for that reason that it did not lay down that bonus is to be deducted before computing the amount on which direct taxes are to be calculated under Section 6 (c). If Parliament intended to make a departure from the rule laid down by courts and tribunals that the bonus amount should be calculated after provision for tax was made and not before, we would have expected an express provision to that effect either in the Act or in the Schedules. In our view the contention urged by the Company that the tax liability is to be worked out by first working out the gross profits and deducting therefrom the prior charges under Section 6 but not the bonus payable to the employees is right28. In the result, the appellant Company succeeds on the questions of development rebate and the provision for gratuity amount. Its appeal on those questions is, therefore, allowed and to that extent the award is set aside. As regards the question of depreciation amount, the Tribunal will ascertain the amount afresh after giving the parties opportunity to lead such evidence as they desire and taking that amount and the amounts of development rebate and of the provision for gratuity in the light of this judgment the Tribunal will adjust its award and arrive at the quantum of bonus payable to the workmen.