Case: The Employers Of Azam Jahi Mills Ltd Vs. The Workmen

2. The dispute which was referred to the Industrial Tribunal related to the question of payment of bonus for the years 1960-61 and 1961-62 demanded by the workers of Aam Jahi Mills, Warrangal. The Tribunal found that there was an available surplus for the first year but none for the second.It directed payment of bonus of one weeks wages to all the workmen over and above the two weeks bonus which the employers had agreed to pay irrespective of any profits made by the company.

Reasoning:
There is no dispute that the net profit as disclosed by the balance sheet for the year 1960-61 was Rs. 9,03,378. The only difference between the management and the Tribunal with regard to the calculation of gross profits relates to the figures Rs. 5,39,963 for gratuity and retrenchment compensation paid by the company during the year infinding of the Tribunal is erroneous inasmuch as gratuity will have to be paid year after year to workmen who retire or leave the companys services in terms of the scheme of gratuity and retrenchment compensation may have to be paid in any year if there be modernisation of the plant, or for any other reason which renders any workmen superfluous. It seems to us therefore, that the gross profits as calculated by the employers at Rs. 19,05,496 is the correct figure.5. Coming next to the ascertainment of prior charges, the material discrepancy between the figures adopted by the company and those by the Tribunal arises thus - we find that the national normal, depreciation has been taken to be Rs. 6,44,351 in both sets of charts but the Tribunal has deducted therefrom a sum of Rs. 1,50,000 in respect of idle machinery. We are unable to accept this view of the Tribunal. It is well settled that depreciation allowed under of Income-tax Act after 1948 was to consist of the statutory normal depreciation as well as initial depreciation and additional depreciation.We find by referring to Schedule E of the accounts of the Company for the year 1960-61 that depreciation for the year was calculated at Rs. 16,03,149. This is also referred to in the Directors Report. Deducting there form the sum of Rs. 9,58,789 which is referred to in the profit and loss account for the year 30th September 1961 as balance provision for depreciation to comply with S. 205 of the Companies Act 1956, we get the figure of Rs. 6,44,351. Which is to be found in the chart both under the table of figures adopted by the management as also by the Tribunal. The figure being a notional figure for working out the bonus formula, the Tribunal was not justified in deducting therefrom a further sum of Rs. 1,50,000 in respect of machinery which was said to be idle.7. In terms of the agreement between the parties, the prior charges must include the development rebate as well unless the statutory depreciation and development rebate add up to a higher figure than the figure for reserve and rehabilitation. It therefore appears to us that the Tribunal was not justified in excluding the amount of the development rebate reserve. There is no dispute that the figure for income-tax should be Rs. 4,74,020 or that for the return on paid-up capital should be Rs. 4,32,000 The workmen in their chart have calculated the return at 4 per cent on Rs 72 lakhs which is not justified. Both the Tribunal and the company calculated return on reserves used as working capital at Rs. 49,678 This, in our view, is not justified as we find from a reference to schedule E., (fixed assets of the company for the year 1960-61) that a sum of Rs. 14,49,664 was spent for addition of new plant and machinery. On a reference to schedule A, B, C and D for the year in question and the corresponding figure for the previous year, we find that the figure of reserves and surplus in schedule A has gone down by Rs. 1,00,000. The figure for secured loans in schedule C remains the same while the current liabilities as shown in schedule D has gone up by Rs 3,50,000 in the year in question as compared to the previous year and loans secured from banks show a reduction of Rs. 13,22,000. Thus the liability in respect of the loans have been reduced approximately by Rs. 10 lakhs. Setting off the diminution, the overall liability was diminished by 9 lakhs. We also find from a reference to Schedule F. G. H. and I (of investments, current assets and loans by the company) that the total thereof has gone down by Rs. 8 lakhs from the figure of the previous year. The net result seems to be that reduction of liability when set off against the reduction in the value of the assets and investments gives a deficit of Rs. 1.00,000 approximately. As the company has not incurred fresh loans for the purpose of buying plant and machinery, we can proceed on the basis that Rs. 14,49,664 and Rs. 1 lakh have come out of the working capital. Consequently, the reserves used as working capital should be approximately Rs. 24,83,000 as shown by the company less Rs. 15,49,664 i.e. Rs. 8,34,000 and the return thereon at 2 per cent would be approximate1y Rs. 16.000 in place of Rs. 49,678. Further, we find that the Tribunal was not right in including Rs. 1,07,992 as gratuity and retrenchment compensation among its list of prior charges.8. On the basis of the above, it seems to us that deducting the prior charges from the gross profits irrespective of the question of the amount to be deducted for rehabilitation modernisation etc. comes to the figure arrived at is Rs. 80.000 or thereabouts only.In our opinion the figures arrived at by the Tribunal are acceptable but we have to deduct therefrom the amount of the reserves of the company. According to us, as already shown, the reserves which could be used as working capital were no more shall Rs. 8,34,000. Thus the total for rehabilitation comes to Rs. 50 lakhs approximately. The Tribunal accepted the divisor 5 to give effect to the bonus formula on the basis that the cost of rehabilitation should be spread over five years. In our opinion, the Tribunal proceeded on the right basis except on the figure of reserves which has to be deducted. Dividing Rs. 50 lakhs by five, we get a figure of Rs. 10 lakhs. In terms of the bonus formula therefore, there was no available surplus for the year l960-61 but there was a deficit.10. We were not impressed by theargument on behalf of the respondents that as no experts were examined before the Tribunal there was no basis for calculation of the provision forIt appears that in support of its claim in that case the company produced a number of statements prepared by witness who claimed to be experts showing the replacements value of buildings, machinery, furniturethis case, we find that half the machinery was over Rs. 2 lakhs every year for repairs according to the evidence of the Chief Engineer and that its efficiency had dwindled considerably. We also see no reason to reject the evidence adduced before the Tribunal that the company had applied for a loan of Rs. 56 lakhs from the Government for rehabilitation purpose and we accordingly are of the view that the Tribunal proceeded on the correct basis so far as rehabilitation charges are concerned.11. There remains the point about the working capital of the company. No case is here made that the reserves of the company were being used for any purpose other than the business of the company. The accounts of the company show that its secured liability exceeded Rs. 1,16,00,000 and its unsecured loans exceed Rs. 28,00,000. Unless, therefore, there is evidence to show that the reserves were no-existent or they were being utilised for a purpose other than the business of the company, it is reasonable to assume that the reserves were being utilised as working capital of the company.