Case: Employers In Relation To The Management Ofindian Cable Co Vs. Their Workmen

1. This appeal, by special leave, is directed against the Award dated October 26, 1967 of the National Industrial Tribunal, Calcutta in Reference No. NIT-3 of 1967, holding that for the accounting year 1965-66, the quantum of bonus payable by the appellant to its workmen is 20% of the effective salaries or wages with a further direction to set on a sum of Rs. 1, 46, 2523. For the accounting year 1964-65, the Company declared and paid bonus at 20% to all employees in accordance with the provisions ofthe Payment of Bonus Act, 1965 (hereinafter to be referred as the Act). For the year in question 1965-66, it calculated a sum of Rs. 23, 68, 785 as available surplus. This amount was arrived at by the Company after calculating direct tax without deducting the provision for payment of bonus payable to its workmen. A sum of Rs. 14, 21, 271 being 60% of the said available surplus was declared as bonus for the year 1965-66. This amount represented 13-51% of the wage bill. The workmen were dissatisfied with this offer of bonus at 13.51% and demanded payment of bonus at the maximum rate of 20% as provided in the Act. In consequence they raised a dispute with the Company. In view of the agreement dated November 24, 1966 between the parties to refer the claim for additional bonus for adjudication to a Tribunal, the workmen received the bonus at the rate of 13.51% offered by the Company. The Central Government by order dated June 23 1967 referred for adjudication to the National Industrial Tribunal, Calcutta, the following dispute"What should be the quantum of bonus payable to the Workmen of the Indian Cable Company Limited Calcutta for the accounting year 1965-66"4. The Unions contended before the Tribunal that the computation of allocable surplus by the Company has not been properly made in accordance with the Act and that several items shown in the profit and loss account as expenditure have to be added back to arrive at the actual gross profits. The Unions further alleged that the Company has spent large amounts for payment of liability for future years with a view to reduce the available and allocable surplus, which in consequence has resulted in, the reduction of percentage of bonus. The Company on the other hand maintained that it has kept proper accounts which have been audited by a reputed firm of auditors Messrs Lovelock &Lewes and that the computation of allocable surplus has been properly arrived at having due regard to the provisions of the Act. The Company denied the allegations of the Unions that enormous expenditure has been shown with a view to reduce the quantum of bonus. On the other hand, the Company pleaded that all items of expenditure were justified and those items are deductable in considering, the claim for bonus5. At this stage it may be mentioned that the Unions served interrogatories requiring information on various matters and there is no controversy that the Company furnished all the informations that were Called for6. Before the Tribunal the Company required various deductions to be made from the net profits shown in its profit and loss account. On the other hand, the Unions required various items to be added back. The Tribunal accepted the contentions of both the parties with regard to certain items. We will in due course refer to the items which are in dispute before us at the instance of both the Company and the Unions. The Tribunal computed the, available surplus at Rs. 37, 54, 713, 60% of this amount being Rs. 22, 52, 828 was fixed as allocable surplus. The Tribunal held that a sum of Rs. 21, 06, 576 being bonus at 20% of the gross effective salaries and wages was payable for the year in question and it directed the surplus amount of Rs. 1, 46, 252 to be set on. As the bonus at the rate of 13.51% had already been declared and paid by the Company, the Tribunal directed the payment of the balance 6.49% within the period mentioned in the Award. One aspect which has to be acted is that (in calculating the available surplus, the Tribunal before calculating the notional direct tax, deducted the bonus payable for the accounting year in question.

Court's reasoning:
9. We are in entire agreement with this contention of Mr. Mukherjee. In view of the decisions of this Court, to which we will immediately refer, Mr. P. S. Khera, learned counsel for the Unions was unable to support the reasoning of the Tribunal on this aspect10. The question of calculation of direct tax under the Act was considered for the first time b y this Court in Metal Box Co. of India Ltd. v. Their Workmen.([1969] 1 S.C.R. 750.) It was held therein that the national tax liability is to be worked out by first working out the gross-profits and deducting there from the prior charges under s. 6, but not the bonus payable to the employees. Therefore, it is clear from this decision that an employer is entitled to deduct his tax liability without deducting first the amount of bonus he would be liable to pay from and out of the amount computed under ss. 4 and 6 of the Act. The same principle, has been reiterated in The Workmen of William Jacks and Company Ltd. Madras v. Management of William Jacks and Co., Madras, (A.I.R. 1971 S.C. 1821.) Delhi Cloth and General Mills Co. Ltd. v. Workmen([1971] 2 S.C.C. 695) and Indian Oxygen Ltd. etc. v. Their Workmen. (A.I.R. 1972 S.C. 471.) In fact the last decision overruled the decision of the National Industrial Tribunal in Reference No. NIT-1 of 1966, which has been followed by the present Tribunal. We may also state that after the first decision of this Court, referred to above, the Act was amended in 1969. The last three decisions of this Court considered the question whether the amendments effected to the Act had made any change in the principle laid down by this Court in the first decision. It was uniformly held in all the three decisions that the amendment has not effected any change in the principle laid down in the earliest decision that the tax liability under the Act is to be worked out first by working out the gross-profits and deducting there from bonus payable to the employees. Therefore, it follows that the Tribunal committed an error in law in corrupting, direct tax after deducting bonus. Therefore, this point will have to be held in favour of the appellant11. The second item relates to the disallowance of Rs. 2.65 lakhs which represented the ex-gratia payment made by the Company to certain employees drawing, emoluments exceeding Rs. 750 per mensem for the year 1964-65. The Company claimed that this amount should be deducted from the gross profits whereas the Unions contended that the same has to be added back to the gross-profits shown in the profit and loss account. The factual position relating to this claim is as follows: From the letter dated February 4, 1966, Ext. 1, written by the Company to one of its officers Mr. S. N. Banerjee, it is seen that the Company in appreciation of the officers services during the year 1964-65 made an ex-gratia payment of Rs. 90. Mr. Banerjee has given evidence on behalf of the Unions. He has deposed to the fact that he was drawing about Rs. 1, 000 per mensem and that he received the letter Ext. I as well as the sum of Rs. 90 mentioned therein. H e has further stated that over and above this sum of Rs. 90 he has also, received the bonus payable to him under the Act for the year 1964-65. He has also deposed to the effect that the ex-gratia payment of Rs.( 90 was paid to him in lieu of bonus calculated on the difference in emoluments drawn by him and the ceiling of Rs. 750 per mensem fixed by the Act. It was the practice of the Company to pay bonus to all the members of its staff without application of any ceiling. In view of the fact that a ceiling had been fixed under the Act, to make up for the lesser amount that the employees like Mr. Banerjee will get under the Act, this amount of Rs. 2.65 lakhs was paid to all such officers. The Tribunal accepted the evidence of Mr. Banerjee that the ex-gratia amount was paid to keep up the old practice of the Company of paying all the members of the staff without the application of any ceiling. The Tribunal held that such a payment was not an item which could be deducted from the gross-profits under the Act as claimed by the management. Accordingly, it added back the sum of Rs. 2.65 lakhs to the gross-profits shown i n the profit and loss account13. We are not inclined to agree with the contention of Mr. Mukherjee that the Tribunal committed an error when it added back the sum of Rs. 2.65 lakhs. From the evidence of Mr. Banerjee, which has been accepted by the Tribunal, read along with the letter Ext. 1, it is clear that Mr. Banerjee received not only bonus due to him under the Act, but also the extra amount of Rs. 90. Mr. Banerjee was admittedly drawing a salary of Rs. 1000 per mensem. For a person to be an "employee" under s. 2(13), among other things, he is a person drawing a salary or wage not exceeding Rs . 1600 per mensem. Under s. 8, it is provided that every employee is entitled to be paid in an accounting year bonus as per the Act provided he has worked in the establishment for not less than thirty working days in that year. Section 10, provides for payment of minimum bonus to every employee. Similarly s. 11 provides for payment of bonus to every employee subject to a maximum of 20% of his salary or wage. According to Mr. Mukherjee there is no prohibition in the Act from paying bonus to officers like Mr. Banerjee, up to a maximum of 20%. Therefore, when the payment as in Ext. 1, has been made to officers like Mr. Banerjee and others, such amounts have to be computed as an item of expenditure, under the Second Schedule of t he Act. It is no doubt true that an officer drawing a salary not exceeding, Rs. 1600 per mensem is an employee under s. 2(13) and he will also be eligible for payment of bonus under s. 8 read with ss. 10 and 11 of the Act. But , the point that is missed by the learned counsel is the limitation contained in s. 12. Though officers drawing salary up to Rs. 1600 per mensem are employees under s. 2 (13) and eligible for bonus, still for purposes of calculation of bonus payable under ss . 10 and 11, such officers, whose salary exceeds Rs. 750 per mensem, for calculating bonus, the, salary or wages per month will be taken at the maximum of Rs. 750 per mensem. That is, if an officer is getting, Rs. 1500, per mensem. he will be eligible for onus; nevertheless for calculating bonus payable to him he will be treated as drawing a salary of only Rs. 750 per mensem. Therefore, Mr. Banerjee, in the case before., us, has admittedly to be paid bonus, which is due to him under the Act f or the year 1964- 65 on the, basis that his salary is only Rs. 750 per mensem. What the Company has done was to pay him not only the bonus as calculated under the Act, but also an additional amount. Such additional amount paid to all such officers tot alling Rs. 2.65 lakhs cannot be considered to be an expenditure debited directly to Reserves. The Tribunal was justified in adding back this amount to the gross-profits16. The right of parties like the respondents before us even in labour adjudication to support the decision of the Tribunal on grounds which were not accepted by the Tribunal o r on other grounds which may not have been taken note of by the Tribunal, has been recognised by this Court in Management of Northern Railway Co-operative Society Ltd. v. Industrial Tribunal, Rajasthan etc.([1967] 2 S.C.R. 476.) In fact this decision had to deal with an appeal filed a Co-operative Society against the Award of the Tribunal setting aside the order passed by the Society removing from its service an employee. This Court permitted the Union concerned, which was respondent in the appeal, to support the Award of the Tribunal, directing reinstatement of the employee on grounds which had not been accepted by the Tribunal and also on ground which had not been taken notice of by the Tribunal. Similarly, in J. K. Synthetics Limited v. J. K. Synthetics Mazdoor Union ([1971] 2 L.L.J 552), this Court permitted the Union, which was the respondent in the appeal, to support the decision of the Industrial Tribunal on a method of computation regarding bonus which was not adopted by the Tribunal. Though t he management appellant therein challenged the right of the Union to support the award on other grounds without filing an appeal, that contention was rejected by this Court17. In the said decision this Court also found support for the above view in the decision of Ramanbhai Ashabhai Patel v. Dabhi Ajitkumar Fulsinji and others([1965]1 S.C.R. 712.), though the latter decision related to an election appeal18. We will now deal with the items, which, according to the Unions should not have been allowed to be deducted from the gross-profits. The first item r elates to a sum of Rs. 18, 24, 047 paid by the Company to retired workmen at Jamshedpur Workshop under a Voluntary Retirement Scheme. This Scheme is Ex. G. and it was framed on August 9, 1965. The Scheme states that the Company has been suffering, from an acute shortage of imported raw materials in view of the difficulty in getting foreign exchange and as such production could not be maintained for some, considerable time. In view of these difficulties it is stated that the Company has found it necessary substantially to reduce the number of workers in the Workshop. The Scheme offered substantial benefits to workmen who choose to retire voluntarily, namely, ex-gratia payment equal to retrenchment compensation under s. 25 of the Industrial Disputes Act, and gratuity admissible to the workmen. There is evidence on the side of the Company that about 450 workmen availed themselves of the Voluntary Retirement Scheme and a sum of Rs. 18, 24, 047 was paid . This item has been included in the profit and loss account under the heading "Salary, Wages, Bonus and Retirement gratuities." The Company gave a break- , up of these items in answer to the interrogatories furnished to it by the workmen.