Summarize the following court judgment. Appeal No. 635 of 1965. Appeal by special leave from the Award dated January 8. 1963 of the First Industrial Tribunal	 West Bengal in Case No. VIH 354 of 1961. B. Sen	 Janardan Sharma	 P.K. Ghosh and S.K. Nandy	 for the appellants. Niren De	 Solicitor General	 M. Mukherjee and Sardar Bahadur. for respondent No. 1. The JUdgment of the Court was delivered by Bhargava	 J. This appeal by special leave has been filed by ' the workmen of Messrs Hindustan Motors Ltd. against the decision of the First Industrial Tribunal	 West Bengal in a dispute relating to payment of bonus for the year 1960 61. The respondent	 M/s Hindustan Motors Ltd.	 (hereinafter referred to as 315 "the Company") was established in the year 1942 and	 initially	 the work taken up by the Company was that of assembling of motor cars from components imported from foreign countries. Later on	 manufacture of components of motor cars was started and gradually the Company developed this work of manufacture of components by increasing the number of components manufactured by it until	 at the present time	 the Company is manufacturing more than 70% of the components utilised in the cars put on the market by the Company. The work of manufacturing components was taken in hand for the first time in the year 1949	 according to the reply of the Company filed on 10th January	 1962	 to the statement filed on behalf of the workmen. before the Tribunal. At the initial stages of its existence	 the Company was running at a loss and even	 as late as the year 1956. the Tariff Commission 's Report on the Automobile Industry mentioned that this Company was making a loss of Rs. 833 per car on the Hindustan Landmaster which was the car put on the market by the Company at that time. Even Subsequently	 for several years. no profit was shown in the profit and loss account and	 consequently	 no bonus was paid to the workmen until the dispute about it was raised for the first time in respect of the year 1959 60. We were informed that the dispute relating to the payment of bonus for the year l 959 60 is still pending before the Industrial Tribunal	 while the dispute with respect to bonus for the next year 1960 61 has been decided and is now before us in this appeal. In this year 1960 61	 the profit and loss account of the Company showed a net profit of Rs. 249.71 lacs. Out of this	 a sum of Rs. 59.53 lacs was allocated for payment of dividend on ordinary shares @ 12% and a sum of Rs. 27.55 lacs for dividend on preference shares @8.57%. The total amount allocated for payment of dividends was thus Rs. 87.08 lacs. In view of the fact that	 in this year	 the Company had earned a net profit of over Rs. 249 lacs. the workmen demanded bonus equivalent to six months ' wages. The monthly wage bill of the workmen is about Rs. 4 lacs	 so that the total amount claimed towards bonus by the workmen came to Rs. 24 lacs. It was also stated on behalf of the workmen that	 if this bonus to the extent of Rs. 24 lacs is awarded	 the actual amount which the Company would have to pay will only be 55% of this amount	 because 45% representing income tax on this amount would be refundable to the Company from the Government. Before the Tribunal	 there was no dispute between the parties that	 in order to find out whether any surplus was available for distribution of bonus	 calculations must be made on the basis of the Full Bench Formula approved by this Court in The Associated Cement Companies Ltd.	 Dwarka Cement Works	 Dwarka vs Its 316 Workmen & Another(1). The Tribunal	 after making all other deductions from the surplus which have to be made in accordance with the Full Bench Formula and without taking into account provision for rehabilitation	 arrived at a figure of Rs. 87.80 lacs as the amount of surplus available. Thereafter	 the Tribunal held that a sum of Rs. 373.62 lacs every year was needed for rehabilitation purposes and	 since this amount very much exceeded the surplus otherwise available	 there was no scope for granting	 any bonus at all. Consequently	 the Tribunal decided the reference against the workmen and held that no bonus was payable for this year. The workmen have come up to this Court against this decision of the Tribunal. In this appeal also	 there is no dispute that the principles to be applied for working out the surplus available for distribution of bonus must be those approved by this Court in the case of Associated Cement Companies Ltd.(1). On behalf of the workmen	 however	 it was urged that the Tribunal committed an error in applying the Formula in respect of five different items involved in the calculation. These are: (1) Rehabilitation	 (2) Return on reserves used as working capital	 (3) Return on paid up capital	 (4) Interest on fixed deposits	 and (5) Home delivery commission. Of these items	 the most controversial is the first item of rehabilitation and that is also the most material one	 because	 if the figure of annual rehabilitation arrived at by the Tribunal is accepted	 it is clear that no surplus can possibly remain out of the profits earned during the year for distribution of bonus. In the calculation of rehabilitation	 various factors are involved which have been indicated by this Court in the case of Associated Cement Companies(1). The factors in calculation of rehabilitation accepted by the Tribunal which have been challenged by the workmen are: (i) the divisor	 which depends upon the life of the plant	 machinery and buildings	 the year of their installation or erection	 and the residuary life which must be taken into account when working out the divisor	 (ii) the calculation of the multiplier for arriving at the replacement cost of the old machinery which requires rehabilitation. and (1) 317 WORKMEN V. HINDUSTAN MOTORS LTD. (Bhargava	 1.) 317 (iii) the deductions which should be made when working out the annual rehabilitation. We shall now proceed to deal with these points. When the dispute was taken up for adjudication by the Tribunal	 the Company	 on 3 l st May	 1962 filed statements showing calculations of rehabilitation provision required for rehabilitating the plant	 machinery and buildings. Amongst these statements was a statement described as Schedule IA (hereinafter referred to as "the first Schedule IA") and in that statement it was claimed on behalf of the Company that the average total life of its machinery was 6 years. On behalf of the workmen	 it was urged that the life of the machinery should be taken to be 30 years and on this basis	 	after the arguments were over a rehabilitation cost calculation was filed on 21st November	 1962. Thereafter	 in the course of arguments on 22nd November	 1962	 some fresh statements were filed by the Company. These statements in respect of the machinery had two new Schedules	 both marked as Schedule IA. In one of these Schedules IA filed on 22nd November. 1962	 the multiplier taken for replacement of the machines installed in various years was higher than the multiplier in the first Schedule 1A. This Schedule shall be referred to. as "the second Schedule 1A". At the same time	 as mentioned earlier	 another Schedule IA was filed and	 in this Schedule IA	 the multipliers were the same as in the first Schedule 1A. This shall be referred to hereinafter as "the third Schedule 1A". In none of these Schedules filed	 either on behalf of the Company or on behalf of the workmen	 was there any classification of plant and machinery into precision or non precision machinery. Some statements for the purpose of calculation of rehabilitation were again filed on behalf of the Company on 28th December	 1962 under the directions of the Tribunal and it appears that	 taking into account the evidence which had been led before the Tribunal	 the Tribunal at this stage asked the Company to give separate Charts for precision machinery and non precision machinery. Consequently	 the statements flied on 28th December. 1962 classified the machinery into precision and non preCision machinery. It seems that the Tribunal	 in making this direction was also influenced by the circumstance that	 under the Income tax Law	 the depreciation allowed in respect of precision and non precision machinery is different	 from which the Tribunal. inferred that precision machinery will have a shorter life than non precision machinery. In fact	 the Tribunal was of the view that the proportion between the life of precision and non precision machinery can be safely taken to be the same as the proportion between the depreciation allowed in respect of the two. Proceeding on this basis	 the Tribunal	 in the statements prepared for and annexed as. part of the LISup. C.I./68 6 318 Award	 classified the machinery into precision and non precision machinery and worked out different life for the two kinds of machinery. In the course of arguments before us	 it was urged on behalf of the workmen that the Company not having claimed that machinery classified as precision had a shorter life than machinery classified as non precision either in the written statements or at the stage of filing the first Schedule 1A or even the second or third Schedule IA	 there was no justification for the Tribunal to. accept this. classification and work out different periods of life for different classes. of machinery. Mr. Niren De	 counsel appearing on behalf o.f the Company	 in his argument before us also urged that the Company at No. stage put forward the Case that the machinery should be classified into precision and non precision machinery and different life should be attributed to the two classes of machinery. According to him	 the Company 'section case throughout has been that all machinery installed m the. factory of the Company has an economic life of 6 years only	 so that the Company is not prepared to justify the decision given by the Tribunal on the basis of this classification. Since both parties before us challenge the adoption of this classification by the Tribunal	 we consider that it will be right to ignore this. classification and to proceed on the basis that the total life of the machinery must be worked out on an average for all the machines installed in the factory of the Company	 without making any distinction between precision machinery and non precision machinery. As we have mentioned earlier	 the contention on behalf of the workmen was that the life of the whole machinery should be taken to be 30 years. Mr. B. Sen	 counsel appearing on behalf of the workmen	 drew our attention to a number of cases	 in which the life of the machinery came up for consideration either before the Labour Appellate Tribunal or before this Court in connection with calculation of rehabilitation provision. first case brought to our notice was Saxby & Farmer Mazdoor Union	 Calcutta vs M/s. Saxby & Farmer (India) Ltd.	 Calcutta(1)	 in which	 for purposes. of calculation of rehabilitation	 the life of machinery was taken to be 30 years. Another case between the Workmen of M/s. Saxby & Farmer (India) Pvt. Ltd. vs M/s. Saxby & Farmer (India) Private Ltd.(2) in respect of a subsequent year came up before this Court. In that case	 the Tribunal	 in its Award	 fixed the life of the machinery at 20 years and on behalf of the	 workmen it was urged that it should have been 30 years as accepted by the Labour. Appellate Tribunal in respect of the earlier year in the of Saxby & Farmer Mazdoor Union	 Calcutta(1). This Court held that the life of 30 years. had been taken at a time when (1) (2) Civil Appeal No. 152 of 1964 decided on 12 4 1965. 319 the machinery was. being worked in two	 shifts	 while	 in the subsequent case	 it was shown that the machinery was working in three shifts	 so that it could not be said that the Tribunal was wrong in fixing the life in this subsequent case at 20 years. Relying on these cases	 Mr. Sen urged that	 in the present case also	 we should take the life of the machinery to be 30 years. In The Millowners Association	 Bombay vs The Rashtriya Mill Mazdoor Sangh	Bombay(1)	 the Full Bench of the Labour Appellate Tribunal	 when laying down the formula that was later approved by this Court	 appears to. have accepted the life of textile machinery as 25 years	 while this Court	 in the case of the Associated Cement Companies Ltd. (2)	 proceeded on the basis that the life of the machinery was 30 years. In the Honorary Secretary	 South India Millowners Association and Others vs The Secretary	 Coimbatore District Textile Workers ' Union(1)	 this Court confirmed the finding of the Tribunal that the estimated life of the textile machinery of the Company concerned in that case should be taken. to be 25 years. It is on the basis of these decisions that the claim was put forward that the life of the machinery in the present case should also. be taken to be 30 years or at least 25 years. In our opinion.this argument proceeds on an entirely incorrect basis. The life of a machinery of one particular factory need not necessarily be the same as that of another factory. Various factors come in that affect the useful life of a machinery. There is	 first	 the consideration of the quality of machinery installed. If the machinery is purchased from a country producing higher quality of machines	it will naturally have longer life	 than the machinery purchased from another country where the quality of production is lower. Again	 the articles on which the machinery operate.s may very markedly vary the life of a machine. If	 for example	 a machine is utilised for grinding of cement	 the strain on the machine will necessarily not be the same as on a machine which operates on steel o.r iron. We are	 therefore	 unable to accept the suggestion that the: life of the machinery in the present case should have been fixed on the basis of the life accepted in other cases in which decisions were given on bonus disputes either by the Labour Appellate Tribunal or by this Court. The Tribunal	 in its decision	 worked. out the life of the machinery on 'the basis of the percentage of depreciation allowed under the Income tax Act. The application of this principle has been attacked before us by both the parties. It is urged that the artificial rule laid down in the Income tax Act for calculation of notional depreciation can provide no criterion at all for determining the life of the machinery. We think that the parties are (1) (2) (3) [1962] 2 Supp. S.C.R. 926. 320 correct and that the Tribunal committed an error in proceeding on this basis. Though	 in the case of the Honorary Secretary	 South India Millowners ' Association(1)	 this Court	 on the facts of that case	 accepted the life of the textile machinery as 25 years; the Court also laid down the principle for.finding out the life of machinery in the following words : "We are not prepared to accept either argument because	 in our opinion	 the life of the machinery in every case has to be. determined in the light of evidence adduced by the parties." (p. 933) Obviously	 this is the correct principle	 because it is only when the life of machinery is determined in the light of evidence adduced by the parties in a particular case that the authority determining the life can take into account all the factors applicable to the particular machinery in question. As we have indicated earlier	 when determining the life of a machinery	 factors	 such as the quality of the material used in the machines and the nature of the material on which the machines are to operate	 very materially affect their life. Further	 the life of a machine will also depend on the. manner in which it is handled in a particular factory. We	 consequently	 in this case proceed to examine the evidence given by the parties. in this behalf. In order to prove the life of machinery	 one method usually adopted by the Companies is to tender evidence of experts. In the. present case	 the Company tendered in evidence the statement of an expert	 Gerald Waplington	 which was recorded earlier on 5th November	 1961 by the Fifth Industrial Tribunal in a dispute pending before it. That dispute was also between this very Company and its workmen. In giving the life of machinery	 Waplington first classified the machines into two classes general purpose machine tools and special or single purpose machine tools and expressed the opinion that a general purpose machine tool used for one single operation is likely to have a shorter economic life than special or single purpose machine tool. According to him	 a general purpose machine carrying on work of high accuracy will have an economic life of the: order of 2 to 3 years only	 while a special purpose machine doing similar work of high accuracy working 400 hours a month will have an economic life of 5 to 6 years. If the work taken. from the machines is of less accuracy. then	 in his opinion	 a general purpose machine may have an	economic life up to 5 years	 and a special purpose machine an econoevidence available in this case. It may however	 be noted that (1) [1962] 2 Supp. S.C.R. 926. 321 tinction between economic life and useful life. He twice stated that economic life of a machine would be only 1/3rd of the useful life of the machine	 so that if	 on the basis of his evidence	 the useful life of various classes of machines mentioned by him is to be worked out	 the member of years given for each class by him above will have to be multiplied by 3. Thus	 according to his evidence	 the economic life of a machine will vary from 2 to 3 years as a minimum to 7 to 10 years at the maximum	 and working out the useful life on the basis of his statement that economic life is only 1/3rd of the useful life	 the machines would have a minimum of 6 to 9 years and a maximum of 21 to 30 years useful life. We shall consider what inferences can be drawn from his statement at a later stage when we have discussed the other evidence available in tiffs case. It may	 however	 be noted that Waplington is the only expert who can be held to. be entirely disinterested	 because the other two experts examined are employed as Engineers by the Company itself. This independent witness	 Waplington	 was not asked whether he had seen the various machines in the factory of the Company	 nor was he at any tune requested to indicate how many different machines in the factory of the Company would fail in the various classifications mentioned by him for which he has given different periods in respect of economic life. The Other two witnesses examined are Joseph Joyce	 General Master Mechanic	 and Girish Chandra Bansal	 Master Mechanic	 employed by the Company. Both of them have	 in their statements given out their qualifications and experience which they. have in dealing with automobile manufacturing machinery. According to Joyce	 the economic life of the machinery of the Company cannot go beyond 6 years	 and this statement was. made on the basis of the machines working 16 hours a. day in two shifts of 8 hours each. Later on	 he added that	 applying American standard	 the life of the machines can only be 6 to 10 years. In giving the life	 he qualified that word with "economic" or "economic useful"	 so that he equated economic life with economic useful life and gave the figures on this basis. In cross examination	 he	 however	 admitted that useful life of a machine is longer than its economic life. Thus	 if various	 statements of his are taken into account and it is kept in view that he is. an employee. of the Company	 it may be accepted that	 according to him	 the maximum 	economic life of the machinery of the Company will be between 6 to 10 years and the useful life will be longer how much longer	 he has not indicated. If we were to assume that he is using the expressions "economic life" and "useful life" in the same: sense in which they were used by Waplington	 economic life would be 1/3rd of the useful life	 with the result that	 on his evidence	 useful life of the machinery of the Company would work out to be 322 anywhere between 18 to 30 years. The third witness	 Girish Chandra Bansal	 estimated the efficient economic life	 based on 16 hours per day working	 at 6 to 10 years	 which Coincides with the ' estimate by Joyce. In his case	 however	 no questions were put to. elicit from him whether he would make any distinction between efficient economic life and useful life	 so. that his evidence does not appear to carry us any farther than the evidence of Joyce. It may be added that both these witnesses in their evidence stated that the workmen employed by the Company were not very skilled workers and this was a factor that had to be taken into account in considering the life of ' the machines in this company. It is obvious that	 if a machine is handled by a more skilful worker	 it will last longer and have a longer life. A Statement was also made by Joyce that machine.s running at high speed will have shorter life than those running at lower speeds; but this general statement made by him offers no assistance to us in this case	 because he has not indicated in his evidence how many and which of the machines of the Company run at high speed and which at lower speed. Apart from this evidence of experts	 the Company has attempted to provide some other data which can be of assistance in assessing the life ' of the machinery. In this connection	 Mr. Niren De	 arguing the case on behalf of the Company; drew our attention to the history of this Company which showed that	 initially	 this Company started the work of assembly of cars from parts imported from foreign countries. some time in the year 1942 43	 but	 later	 the policy was. altered and manufacture of components was taken up and progressively increased so as to minimise foreign. import. He also pointed out that this policy of progressive production of indigenous parts was pressed Upon the Company by the Government and	 for this purpose	 drew our attention to the: first and the Second reports of the Tariff Commission in the years 1953 and 1956	 as well as the report of the lid Hoc Committee on Automobile Industry known as the Report of the Jha Committee	 because Sri L.K. Jha was its Chairman. This report came out in the year 1960. It was Urged by Mr. De that	 due to. this policy of progressive increase in manufacture of new components	 it was not possible for the Company to find money to rehabilitate old machinery and	 consequently	 the fact that the Company continued to use old machinery for a number of years should not be taken as indicating that machinery 'still had economic or useful life. It was argued. that the Company per force had to continue use of these 'old machines	 because it was under pressure to expand its activities. by taking up manufacture of components and the Company was running at a loss. It has already been mentioned earlier ' that in the second report of the Tariff Commission in 1956 it was clearly stated that this Company was selling cars at a loss of 323 Rs. 833 per car. It is in this background that the evidence given by the Company should be judged to find out what is the life of the machinery possessed by the Company. He also drew our attention to the principles laid down in this connection by the Full Bench of the Labour Appellate Tribunal in the Millowners ' Association 's case (1)	 and by this Court in the Associated Cement Companies ' case(2). In the former case	 when laying down the principle that provision should be ' made for rehabilitation replacement and modernization of the machinery	 the Tribunal held that: "It is essential that the plant and machinery should be kept continuously in good working Order for the purpose of ensuring good return. and such maintenance of plant and machinery would also be to the advantage of labour	 for. the better the machinery the larger the earnings	 and the better the chance of securing a good bonus. " In the latter case	 this Court	 when examining the scope of claim for rehabilitation. held that: "this claim covers not only cases of replacement pure and Simple but of rehabilitation and modernisation. In the context	 rehabilitation is distinguished from ordinary repairs which go into the working expenses of the industry. It is also distinguished from replacement. It is quite/conceivable that certain parts of machines which constitute a block may need rehabilitation though the block itself can carry on for a number of years; and this process of rehabilitation is in a sense a continual process. Unlike replacement	 its date cannot always be fixed or anticipated. So with modernisation and all these three items are included in the claim for rehabilitation. That is why we think it is necessary that the Tribunals should exercise their discretion in admitting all relevant evidence which would enable them to ' determine this vexed question satisfactorily." Proceeding further to. distinguish between cases of replacement. modernisation and expansion	 the Court held: "If it appears fairly 'on the evidence that the introduction of the modern plant or machine is in substance an item of expansion of the industry	 expenses incurred in that behalf have to be excluded. On the other hand	 if the employer had to introduce the. new plant essentially because the use of the old plant. though capable (1) (2) 324 of giving service was uneconomic and otherwise wholly inexpedient	 it may be a case of modernisation. Similarly; if by the introduction of a modern plant or machine the production capacity of the industry has. appreciably increased	 it would be relevant for the Tribunal to consider in an appropriate case whether it would be possible to apportion expenses on the basis that it is a case of partial modernisation and partial expansion. " It will thus. be seen that	 when considering the question of rehabilitation	 what is essentially to be taken into. account is that the old plant	 though capable of giving service	 was uneconomic and otherwise wholly inexpedient when provision for its replacement and rehabilitation	 even though it will include modernisation would be fully justified. In this context	 it may be worthwhile examining at this stage the difference between economic life and useful life on which emphasis has been laid by Mr. Sen on behalf of the workmen. We have already indicated earlier that even the expert examined behalf of the Company	 Gerald Waplington	 made a distinction between economic life of machinery and its useful life	 Further	 in giving the life	 he applied American standards which may not be applicable in India. Court	 in various cases where the question of rehabilitation has been discussed	 has laid emphasis on useful life rather than on economic life and	 oven in the Associated Cement Companies ' case(1) in the extract quoted above	 the Court held that modernisation is justified when the use of the old plant becomes uneconomic and otherwise wholly inexpedient. Thus	 two tests were laid down	 first	 that it should be uneconomic and	 second	 that it should be also otherwise wholly inexpedient. The economic life	 as envisaged by Waplington	 was not	 therefore	 considered the appropriate. test for determining when rehabilitation of the plant and machinery would be justified. In fact	 one of the very major considerations	 that should be taken into account is the actual practice of the manufacturers using the machinery and if evidence be available	 to find out how long the manufacturers continue to use the machinery as a rule. It may be that	 during the last few years of use	 the machinery may.be continued to. be utilised because of want of resources and compulsion to retain the machinery	 because replacement is not possible at all. It is in the light of this. situation that we proceed to examine the evidence given by the Company about the behaviour of its machinery and the steps taken by the Company to have the old machinery rehabilitated. (1) 325 In this connection	 two statements filed on behalf of the Company are of significance. One of these is a list of obsolete and/or discarded machines prepared on 26th October	 1962 and marked as Ext. It is to be. noticed that	 though 40 different machines were discarded by 26th October	 1962 when this statement was prepared	 none of the machinery discarded was that installed up to. the year 1947 48. In fact	 this situation is also borne out by the three Schedules IA which have been referred to earlier by us. In those Schedules 1 A	 the machinery discarded and written off from books is shown as being worth Rs. 35	000/ out of machinery of the value of Rs. 89.75 lacs installed in the year 1947 48. Thus	 the machinery of that year discarded was nominal in value. None of the machinery installed between 'the years 1948 49 to 1951 52 was discarded. Again	 the machinery installed in 1952 53 was discarded to the extent of the nominal value of Rs. 39	000/ out of Rs. 11.06 lacs	 and no machinery installed in 1953 54 was discarded. The machinery discarded was primarily that installed in the years 1954 55 to 1957 58	 and its value was in the region of Rs. 46 lacs. Thus	 right up to 1962	 the old machinery purchased up to the year 1954 was almost all continued in use and was not discarded	 even though machinery installed in the next four years was considered unfit for further use and. was discarded or written off	 The second statement is Ext. 21 which bears the heading "replacement programme condition of machine tools" and which was prepared in March	 1960 in order to claim foreign exchange from the Government for replacement of machinery. That list contains more than 200 machines	 but	 again	 the machines installed during the year 1947 48 or earlier included in it are only 5 in number	 whereas the majority of machines. included in that list are those installed in later years	. Significance attaches to this factor	 because the machines ins.tailed in the year 1947 48 were of very large value	 their cost being. in excess of Rs. 89 lakhs. In fact	 that is the year in which the investment on installation of machinery was highest	 barring the year of bonus and the year immediately preceding it. This statement thus shows that	 even though the Company wanted replacement of a number of machines which had been installed even in the year 1949 50 and some machines installed in later years	 the replacement of those machines was given preference over the replacement of machines installed earlier in the year 1947 48. In this statement	 in the remarks column	. it was mentioned that these machines are to be scrapped. but there was no statement that machines which had been installed in the year 1947 48 were also in such a condition that they required scrapping. Thus	 these statements provide some indication of the life of machinery which point both ways. The fact that old machinery of 1947 48	 though of large value	 was not 326 considered to be in such a condition as to require immediate replacement in preference to machinery installed later would point towards that machinery having a fairly long life. On the other hand	 there is the factor that machinery installed in later years was actually scrapped or was sought to be scrapped	 and this necessarily means that later machinery was considered as having shorter life. In this connection	 another statement of which notice may be taken is Ext. 29 which shows prices of certain machines originally purchased by. the Company which is to be rehabilitated	 and the prices of the same machines	 which were purchased in the two years preceding the time when Girish Chandra Bansal was examined before the Tribunal. Girish Chandra Bansal 's 	evidence was recorded on 14th November	 1962 'and in his statement before the Tribunal he stated that Ext. 29 was prepared to compare the prices of same machines in earlier years when they were purchased originally and again when similar machines were purchased a second time in the past two years. This statement has the significance that	 though in the past two years the Company took the step of purchasing machines which would perform the identical functions which the old machines were performing	 the Company chose to add these machines as new ones	 as a part of its scheme of expansion rather than replace those old machines. In the year 1961 62	 therefore	 the Company was still of the opinion that it was preferable to add a new machine of the same type rather than replace an old machine doing the same work	 and an inference would necessarily follow that old machine must have been considered to be sufficiently serviceable. This is the view that the Company appears to have held in respect of machinery which was installed 14 or 15 years earlier. On behalf of the Company	 some statements were also. filed to show that there were very frequent break downs in the machinery of the Company and. as an illustration	 our attention was drawn to the statement for the period January	 1960 to September	 1960. It is true that	 if there are very frequent break downs in machinery	 this would give an indication of the condition of the machinery and lead to the inference that their useful life is coming to an end. There is	 however	 one great difficulty in drawing any conclusion from the statistics of number of break downs of the machinery put forward on behalf of the Company. The Company has. no doubt	 shown us statements that a number of machines had break downs during the last few years preceding the year of bonus. but no material was brought to our notice from which it might have been possible to compare how the same machinery was behaving in earlier years or within the first few years after it was installed. Unless it be possible to compare the number of 327 break downs. when their life is claimed to be over with the number of break downs when the machine was almost new ' or 'was running its economic or Useful life	 no assistance is available for assessing the. life of the machinery from a mere table showing the number of break downs. Further	 it was not possible from these statements ' to find out which of the machines installed in which year were subject to the break downs	 nor did these statements give us any picture about the percentage of machines installed in different years which ' were included in these 'statements. Consequently	 we have felt handicapped in drawing any inference from these statements. Reliance was also placed on some statements showing that	 for purposes of granting incentive bonus	 a rated time was prescribed for various machines and progressively this rated time in respect of a large number of machines has had to be increased in order to enable the workmen to earn bonus	 because the machines themselves are not working efficiently and. if the rated time is not increased	 the workmen would fail to qualify for incentive bonus for no fault of their own and simply because the machines on which they were required to work had deteriorated in condition. It is true that the statement given of increase of rated time gives some indication that the condition of the machinery in this factory has been going down and though this. factor is relevant in determining the useful life of machinery	 it cannot carry us very far	 because there is no evidence ' which would enable us to lay down a correlation between the increase in the rated time and the expiry of the useful life of the machinery. It is not possible on the evidence to discover how much the rated time is expected to increase before it can be said that the machinery has completely run out its useful life. Mr. De also drew our attention to the statements of some of the witnesses who. deposed that machinery running at high speed has a shorter life than that running at low speed. This general statement	 however	 is of no assistance	 because the Company did not attempt to classify its machines between high speed and low speed ones and ' to give evidence in that behalf. Lastly	 it was urged by Mr. Sen on behalf of the workmen that another factor which should be taken into account is that	 according to the Full Bench Formula	 for calculation of rehabilitation the machinery is treated as scrapped when its value is reduced to 5%	 because the break down value of 5% is all that is deducted when calculating the requirements for rehabilitation. The argument was that the fact that the. break down value is taken at 5% indicates that the machinery 'for purposes of rehabilitation is treated as still useful unless its value is reduced to that low figure. 328 This is	 no doubt	 another aspect that must be taken into. account	 though we are unable to accept the submission that a machinery should be deemed to have useful life until it reaches the stage of having a break down value of 5%. No such absolute rule can be inferred. In this case	 the Tribunal	 in fixing the life of the machinery	 as we have mentioned earlier	 proceeded to calculate it on the basis of the depreciation rate permitted under the Income tax Act. That basis was not acceptable to either of the parties before us. On behalf of the workmen	 it was urged that it was an entirely wrong principle of calculating the life	 and even o.n behalf of the Company no attempt was made to support this method adopted by the Tribunal. In the Honorary Secretary	 South India Millowners	 Association 's case(1)	 this Court also rejected the argument that the calculation of the life may be based on the depreciation rate permitted by the income tax Act. In these circumstances	 we have to consider the cumulative effect of the various pieces of evidence and circumstances which we have discussed above and	 on its basis	 to estimate what should be considered to be the useful life of the machinery of this Company. Reference may briefly be made to the various conclusions arrived at. The evidence of the independent expert and of the engineer employees of the Company gives a figure. for useful life. of machinery which may be anywhere between 6 years to. 30 years. The lower figures given by them cannot be	 accepted as they relate to economic life in the strict sense of that expression and are based on American standards. At the same time	 the maximum life worked out from their evidence is on the hypothesis that the useful life stated by Waplington to be three times that of economic life is also the useful life in the same proportion to economic life as given in the evidence of Joyce. Then	 there is the evidence that this Company itself has been running its old machinery for quite a large number of years and even after 13 or 14 years of use	 the Company in quite a large number of cases preferred	 when buying similar machines	 to utilise them for expansion rather than for rehabilitation. On the face of it	 replacement of old machinery would have been preferred to expansion	 if the old machinery had really completed its useful life. In some cases	 however	 machinery purchased in later years had to be rehabilitated after much shorter periods	 but no detailed information is available. why such early replacement became necessary. No. ' material was provided to show the comparative quality of machines which have been run for a long time and machines which were replaced or sought to be replaced after shorter periods of us. After tak (1) [1962] 2 supp. S.C.R. 926. 329 ing into consideration the various factors mentioned by us above	 and on the evidence before us	 we think that in this case	 it would. be appropriate to hold that the average life of the machinery of this. Company in respect of different kinds of machines obtained from different sources may be appropriately taken as 15 years. This life of 15 years arrived at by us	 it may be mentioned is on the basis that the machines of the Company have been running during most of the. period	 to which the evidence relates	 in two shifts only. Girish Chandra Bansal	 one of the Engineers of the Company	 examined as a witness	 stated that the machines in this Company were working in two shifts only	 until	 for the first time in 1959 60	 the factory started to run round the clock	 i.e.	 in three shifts. He added that the factory had been working in two shifts from the time it was founded. It is also clear that; if the. factory had been working in only one shift	 the life of the machinery would have been longer	 and we think that in that case lit. would have been appropriate to take the life of the machinery as 25 years. On the other hand	 after the machines are being worked in three shifts	 the Life of the machinery is bound to be lower and	 consequently	 if the machines be worked in three shifts	 it would be appropriate to take the life of the machinery at 10 years. In the present case	 however	 we are accepting the; average life as 15 years for all the machines requiring rehabilitation	 because the evidence	 as mentioned above	 shows that the machines have been. working in two shifts only from the time when the factory started functioning	 with the exception that	 in the first few years	 they were worked in only one shift while	 from the year preceding the year of bonus	 they have been worked in three shifts. Consequently	 it may be taken that	 up to the year of bonus	 the machines have been worked on the average	 in two shifts. In working out the divisor	 however	 it will have to be kept in view that future life of the machinery will have to be calculated on the basis of three shifts and	 consequently	 on the basis of the figure of 10 years as the useful life of the machinery. We may also incidentally mention that this Court	 in the case of National Engineering 'Industries Ltd. vs The Workmen & Vice Versa(1)	 accepted the life of the precision machinery of the Company concerned in that case as 15 years	 so that the conclusion arrived at by us on the evidence in the present case happens to coincide with the figure of life accepted in that case. In this connection	 we may also take notice of one point urged by Mr. De on behalf of the Company. It appears that	 when working out the divisor and finding out what machinery required rehabilitation	 the Tribunal did not take into account machinery installed during the bonus year itself for making provision for mic life of 7 to 10 years. In his evidence	 further	 he made a dis (1) Civil Appeals Nos. 356 357 of 1966 decided on 6 10 1967. 330 any machinery is installed in bonus1 year	 the Company would be justified in claiming that it must immediately start making provision for its rehabilitation	 though the period for rehabilitation of that machinery would only start at the end of the bonus year. Once machinery has been installed and is in existence. in the bonus year	 the Company is entitled. to say that it will require= rehabilitation in future and that provision should be made for rehabilitation of that machinery also and the Company should start keeping reserves. for that purpose from the year of bonus itself. Thus	 in the present case	 the machinery installed in the year 1960 61 should have been included in the rehabilitation statement	 though the divisor in respect of that machinery will	 on our decision given above	 be 15 on the basis of two shifts and 10 on the basis. of three shifts	 as the machines will still have a residuary life of 15 or 10 years	 computing the period from the bonus year which is also the year of installation. The second factor entering the calculation of rehabilitation requirement about which there was controversy between the parties is the multiplier. We have already mentioned the fact that	 in the first and the third Schedules 1A	 the Company gave one set of multipliers	 while in ' the second Schedule 1A higher multipliers were given. The Tribunal took both sets of multipliers into. account and worked out the average and accepted that as the correct multiplier	 representing the rise in the price: rate of the machinery requiring rehabilitation. Thereafter	 the Tribunal held that the machinery which was to replace the old one would have a larger production and proceeded to work out figures for reducing the multipliers on that account. The Tribunal held that it would be justified to reduce the average multipliers arrived at by 75 for machinery installed up to ' 1951 52	 by 55 for machinery installed during the years 1952 53 to 1955 56	 and by 35 for that installed during the years 1956 57 to 1960 61. Before us	 this method adopted by the Tribunal was criticised by counsel ' for both parties. On behalf of the workmen	 it was contended that there was no justification for the Tribunal to take the average of the multipliers in the first and the second Schedules IA and that the Tribunal should only have proceeded on the basis that the multipliers given in the first Schedule IA were proved and were correct ones. On behalf of the Company	 it was urged that the Tribunal should have accepted the multipliers given in the second Schedule IA and should not have reduced them by taking into account those given in the first Schedule 1A	 and	 further	 that there was no justification at all for the Tribunal to reduce the figures of the multipliers for the various blocks of machinery by 75	 55 or 35 on the ground that the machinery to be installed in replacement would have a higher production. 331 We were taken by learned counsel for parties into the evidence tendered on behalf of the Company to prove the multipliers. We nave found that the correctness of the multipliers shown in the first Schedule 1A has been very satisfactorily proved. It appears that those figures were arrived at by comparing the prices of the old machinery installed in various years with similar machinery purchased in subsequent years. That comparison was contained m statement Ext. The Company 's witness Bansal not only proved this statement	 but also clearly stated that the machines originally purchased and those purchased later shown in	 that statement Ext. 29 were the same machines. In cross examination	 he further specifically arrested that the production capacity of these new machines mentioned in Ext. 29 was very much the same as that of the original machines which were to be replaced when they were new. It is also	 significant that these figures of multipliers included in the first Schedule IA. were not challenged on behalf of the workmen before the Tribunal. So far as the figures contained in the second Schedule 1 A are concerned	 it was suggested on behalf of the Company that they were ' based on subsequent quotations received for replacement machinery which formed part of a series Ext. Learned counsel for the Company was	 however	 unable to point out any statement in the evidence of any witness which would show that the figures for multipliers incorporated in the second Schedule IA were actually calculated from the quotations contained in Ext. In fact	 no such evidence was possible	 because the second Schedule IA was filed on behalf of the Company after the evidence of parties was over and that second Schedule IA not being a part of the record before the Tribunal when evidence was recorded	 it was not possible for any witness to give evidence proving those figures for multipliers. In these circumstances	 we must hold that the. Tribunal committed an error in taking into account the multipliers given in the second Schedule IA and that the only figures for multipliers that could have been and should be accepted are those in the first Schedule 1A. At the same time	 we must also accept 'the contention on behalf of the Company that the Tribunal had No. justification fox reducing the multipliers by deducting 75	 55	 and 35 in respect of the three blocks of machinery sought to be replaced. As we have indicated earlier	 the Tribunal proceeded to hold that this deduction was justified on the ground that the new machines which had been purchased and which were being compared with the original machines sought to be replaced must necessarily have more productive capacity. We have not been able to find any evidence on the record of any witness which would support this conclusion. It is true that the statements. made by Company witnesses	 particularly Bansal show that the new machines were 332 more efficient and were likely to produce better quality goods. no stage	 however	 in the cross;examination of Bansal was any statement made admitting that ' these new machines	 whose. prices. were being compared with those of the old machines for rehabilitation	 had a larger productive capacity than those original machines. In fact	 as we have pointed out earlier	 in his cross examination Bansal made a definite statement that these new machines will produce exactly the same number of pieces as the original machines when they were new. This Court in the case of the Associated Cement Companies Ltd.(1) had indicated that it is only if	 by the introduction of a modern plant or machine	 the production capacity of the industry has appreciably increased that it would be relevant for the Tribunal to consider in an appropriate case whether it would be possible to apportion expenses on the basis that it is a case of partial modernisation and partial expansion. If	 however	 the increased production is not of a significant order. it may be regarded as incidental to replacement or modernisation and the question of apportionment may not arise (p. 969). It is	 of course	 possible that Bansal	 in stating that the new machines	 the prices of which formed the basis of calculation of multipliers	 have exactly the same capacity as the original machines to be replaced	 may not be quite correct; but there was no material at all from which 'the Tribunal could have justifiably inferred that the increase in production would be so material as to attract the principle 'for apportionment laid down by this Court in the case cited above and	 consequently	 the Tribunal fell into an error in reducing the multipliers merely on the assumption that the new machines must necessarily have a larger production capacity than the original machines. In these circumstances	 we hold that the rehabilitation	 provision should have been calculated by the Tribunal on the basis of the. multipliers given by the Company in the first Schedule 1A	 without taking an average of those multipliers and the multipliers given in the second Schedule IA and without decreasing the multipliers by 75	 55 and 35 in respect of various blocks. The third contested question with regard to rehabilitation relates to the deductions which have to. be made out of the total rehabilitation requirement to arrive at the annual provision for that purpose which must be allowed in working out the available surplus for distribution of bonus. In the Associated Cement Companies Ltd. case (1)	 when approving the Full Bench Formula this Court indicated how the calculations should be made. It was held : "Before actually awarding an appropriate amount in respect of rehabilitation for the bonus year certain (1) 333 deductions have to be made. The first deduction is made on account of the break down value of the plant and machinery which is usually calculated at the rate of 5 % of the cost price of the block in question. Then the depreciation and general liquid reserves available to the employer are deducted. The reserves which have already been reasonably earmarked for specific purposes of the industry are	 however	 not taken into account in this connection. Last of all the rehabilitation amount which may have been allowed to the employer in previous years would also have to be deducted if it appears that the amount was available at the time when it was awarded in the past and that it had not been used for rehabilitation purposes in the meanwhile. These are the broad features of the steps which have to be taken in deciding the employer 's claim for rehabilitation under the working of the formula. "(p.970). The dispute in the present case relates to the deduction of the depreciation and general liquid reserves. One aspect in controversy in this behalf raised on behalf of the Company is that even depreciation should not be deducted unless it is available to the employer for purposes of rehabilitation. The argument was that in the sentence "Then the depreciation and general liquid reserves available to the employer are deducted" the word "depreciation" should be read with the words "reserves available to the employer" and	 consequently	 the deduction should only be made of. depreciation reserves available to the employer. We are unable. to accept this submission	 because the very principle on which rehabilitation provision is allowed when making calculations for awarding. bonus militates against this interpretation. This Court	 in the:same case	 in explaining why rehabilitation is granted	 held: "We have already noticed that the object of providing depreciation of wasting assets in commercial "accounting is to recoup the original capital invested in the purchase of such assets; but the amount of depreciation which is allowed under the formula can hardly cover the probable cost of replacement. That is why ' the formula has recognised the industry 's claim for rehabilitation in addition to the admissible depreciation." (p. 966) It will thus be seen that the purpose of providing for rehabilitation charges is to enable the industry to cover the difference between the amount of depreciation which is recouped by making provision for it in accordance with the principles of commercial accounting and the amount that would be required to purchase the new machinery for replacement. Once the price of the new machinery sup. C.1./68 7 334 is known	 the rehabilitation amount would	 be the difference between that price and the amount provided as depreciation of wasting assets in accordance with the principles of commercial accounting. The deduction of depreciation provision made in 	the accounts is not	 therefore	 on the basis that amount must be available for purchasing the replacement machinery even in the year when provision for rehabilitation is being made. That amount is deducted from the price of the machinery Which will be required to be purchased in order to determine what amount the industry is going to require for rehabilitation in spite of having been allowed depreciation. In our view	 therefore	 this Court	 when it later held that the depreciation and general liquid reserves available are to be deducted in calculating the rehabilitation amount	 did not intend to lay down that the depreciation must also be available in the year of bonus. The words "available to the employer" were intended to qualify the expression "general liquid reserves" only and not the word "depreciation". General liquid reserves are to be deducted on the principle that if such reserves are in the hands of the industry and are not earmarked for binding purposes	 the industry must utilise those reserves for rehabilitating the old machinery instead of asking for provision to be made out of profits in the year of bone and in future years. The principle adopted is that provision for rehabilitation is to be made only to the extent of the difference between the price of the machinery which will have to be paid for replacing the old machinery and the amount of depreciation provision shown in the accounts according to the commercial system of accounting and even that rehabilitation requirement must first be met by the industry out of available liquid reserves rather than by asking for provision to be made out of profits. In the present case	 the Tribunal	 when calculating the provision for rehabilitation	 took the entire price of the replacement machinery as required to be provided out of profits and did not take into account that price should have been reduced to the extent of the depreciation provided for in the accounts. The annual report of this Company for the year of bonus 1960 61 was produced before us and at page 24 it showed that at the beginning of the year 1960 61 depreciation to the extent of Rs. 325.48 lacs had been provided in the balance sheet of the Company. This amount has	 therefore	 to be deducted from the price of the machinery which is to replace the original machinery when rehabilitation is resorted to. The second question on this aspect that arises is whether there were any liquid reserves available which should also have been deducted. In the balance sheet of the Company contained in the Annual Report	 various kinds of reserves have been shown. There. was a reserve for contingencies to the extent of Rs. 10.00 lacs on 31 3 1960 and a development rebate reserve of Rs. 39.51 lacs on 335 the same date. On behalf of the workmen	 it was urged that this amount of Rs. 39.51 lacs should at least be deducted when calculating the requirement for rehabilitation. From the balance sheet itself an inference was sought to be drawn that this reserve existed in the form of a liquid reserve available for rehabilitation. For this purpose reference was made to the entries on the assets side of the balance sheet which shows a sum of Rs. 220 lacs as lying in fixed deposit account. The argument was that if the Company had such a large sum as Rs. 220 lacs in the fixed deposit account	 it could not possibly urge that the sum of Rs. 39.51 lacs in respect of development rebate reserve was not a part of it and was not available as a liquid reserve. It is but natural that in the balance sheet the Company could not show any correlation. between the amounts entered on the two sides	 liabilities and ' assets	 as that is not required by any principle of commercial accounting. The argument of learned counsel for the company was 	that this development rebate reserve had been used ' as a part of the working capital of the Company represented by various items shown on 'the assets side and this fact was proved by the affidavit of Satya Narayan Murarka	 Commercial Manager of the Company	 who categorically stated that all the reserves had been utilised as part of the working capital. It seems to us that a mere statement by the Commercial Manager that the reserves have been utilised in the working capital cannot be accepted as conclusive evidence of that fact. When the balance sheet itself shows that cash amounts in the form of fixed deposits were available which were far in excess of the development rebate reserve in question there would be no justification for holding that this development rebate reserve was not available as a liquid asset and had been included by the Company in its working capital. At the stage it is not necessary	 therefore	 to go into any further details to arrive at the conclusion that this development rebate reserve was a liquid asset available for rehabilitation and	 consequently	 liable to ' be deducted when calculating the rehabilitation requirement We shall deal in greater detail with the question of what items were included in the working capital at a later stage when dealing with the controversy relating to the claim of the Company for return on working capital which is allowed under the Full Bench Formula	 when calculating the surplus available for distribution of bonus. On the question of calculation for provision for rehabilitation	 the only point raised on behalf of the workmen with regard to buildings was that the Tribunal	 in taking the life of the factory buildings at 25 years and non factory buildings at 40 years	 was not correct and that the life of the two types of buildings should have been taken at 40 years and 50 years respectively. At the 336 time of the hearing before the Tribunal	 the Company had claimed that factory buildings have a normal life of 25 years only and non factory buildings 30 years	 while the claim of the workmen was that the factory buildings had a life of 40 years and the non factory buildings 50 years. In arriving at its decision	 the Tribunal primarily took into account the provisions of Rule 9 of the Rules framed under the Income tax Act	 1922 which lays down the principle for calculation of depreciation in respect of buildings. That principle	 no doubt	 cannot be taken as giving any correct indication of the life of buildings for purposes of calculation of rehabilitation provision	 but	 in this case	 there was the difficulty that the Tribunal did not accept the evidence given by the Company to prove the age of the buildings as claimed by it	 while no evidence was given on behalf of the workmen in support of their claim that the life of the buildings should be taken at the figures contended on their behalf. In the course of arguments before us. all that learned counsel did was to refer to the decision of this Court in the Associated Cement Companies Ltd. case(1) at p. 993 where the calculations made in the Chart show that the life of the various buildings concerned in that case were taken to be between 30 and 35 years. We do not think that	 in the absence of evidence showing that the buildings of the Company were similar to those buildings whose life came up for consideration in the case cited above	 it is possible to derive any assistance from the figures accepted in that case. In these circumstances	 the position before us is that neither on behalf of the Company	 nor on behalf of the workmen is there any reliable evidence brought to our notice on the basis of which we can arrive at a correct estimate of the life of the buildings of the Company and	 consequently	 we do not think that there will be any justification for us to vary the decision given by the Tribunal in this behalf. The last controversy in the calculations for rehabilitation provision is on the question whether the depreciation and the liquid reserves available should be deducted from the total amount of rehabilitation requirement or whether it should be taken into account at the very first stage when the machinery or the buildings requiring earliest rehabilitation are taken into consideration and the annual requirement in respect of them is worked out. On behalf of the workmen	 we think	 it was rightly urged that	 if depreciation and liquid reserves available are to be deducted	 they must be incorporated in the accounts against the replacement cost of those items which required replacement earliest in time. It is obvious that if funds in the form of depreciation provision and other liquid reserves are available	 the Company claiming provision for rehabilitation must utilise them in rehabilitating those (1) 337 machines and buildings which require rehabilitation at the earliest point of time. There is no principle at all that the depreciation in respect of a particular machinery must be deducted when calculating the rehabilitation requirement in respect of that machinery itself. The Full Bench Formula approved by this Court only recognises the industry 's claim to make provision out of profits for rehabilitation of machinery which might require replacement even in future only on the ground that the industry may not be able to meet those replacement cost out of funds available in its hands. The provision for future requirement of rehabilitation must at any time depend upon what is immediately available and what is going to be required in future. If some machines have fully run out their lives	 they fast necessarily be replaced out of resources available immediately and there would be no justification for keeping the available resources in reserves for future rehabilitation	 while not providing out of those available resources for immediate replacement of the machinery. Then	 there is the second aspect that an employer in order to claim more and more rehabilitation provision	 will have a tendency to keep old blocks of machinery running and to avoid adoption of such a device it would be fair that he is required to utilise available resources at the very first opportunity when the old blocks of machinery require replacement and claim annual provision for future only in respect of that machinery which will require replacement later on. It appears that this Court in The Associated Cement Companies Ltd. case(1) proceeded on this very basis when calculating the rehabilitation requirement	 though without discussing this question in detail. In that case	 reserves to the extent of Rs. 311 lacs were found to be available. The machinery which required to be rehabilitated was divided into four blocks	 the earliest block consisting of machinery installed up to 1939 in respect of which the rehabilitation requirement was Rs. 1172.76 lacs. In respect of three later blocks	 the rehabilitation requirement was Rs. 70.40 lacs	 270.37 lacs and Rs. 768.50 lacs. The total requirements for rehabilitation in respect of all the four blocks was thus Rs. 2282.03 lacs. When calculating the annual requirement the Court did not deduct the sum of Rs. 311 lacs in respect of available reserves 'out of this total of Rs. 2282.03 lacs	 but instead deducted this amount from the cost of the machinery required to replace the pre 1939 block for which the amount arrived at was Rs. 1172.76 lacs. After deducting this amount of reserves from the replacement cost of that block	 the balance was divided by the divisor 7 which was treated as the remainder life of the machinery falling within that block. This calculation adopted in that case	 therefore	 fully bears out our view that the depreciation and available reserves must be taken into account when calculating the annual (1) 338 provision in respect of that machinery which requires earliest replacement and should not be deducted out of the total rehabilitation cost as urged by learned counsel for the. Company. Mr. De in this connection drew our attention to a decision of the kabour Appellate Tribunal in Saxby & Farmer Mazdoor Union	 Calcutta(1) at pp. 711 712. In that case	 the Tribunal first worked out the total rehabilitation and replacement cost of 'the machinery at Rs. 43.81 lacs. From this amount were deducted a sum of Rs. 14.75 lacs in respect of available reserve	 a sum of Rs 9	 03 lacs as the total depreciation on the plants and machinery and a sum of Rs. 0.737 lac in respect of the break down value of the machinery at 5 % of the cost price	 leaving a balance of Rs. 19.364 lacs as the rehabilitation requirement. Then the Tribunal noticed that	 on the basis of total requirement of Rs. 43.81 lacs over the several periods during which rehabilitation and replacement was to take place	 the annual requirement was worked out at Rs. 8.04 lacs. Applying the simple arithmetic of ratio	 the Tribunal held that the proportionate annual requirement would be Rs. 3.54 lacs	 if the total requirements are reduced to Rs. 19.364 lacs. In that case	 thus	 the Tribunal proceeded on the basis which has been canvassed on behalf of the Company before us. The total rehabilitation requirement was first worked out	 while the annual requirement was also worked out on the basis of that requirement	. without taking into account the depreciation	 available liquid reserves and the break down value of the machinery to be replaced. Thereafter	 the total rehabilitation requirement was reduced. by the amount of depreciation	 liquid reserves available and break down value of the machinery	 and the annual requirement was reduced in respect of each block of machinery in the same proportion as the proportion between the total requirement and the net amount available arrived at	 after deducting depreciation	 	available liquid reserves and break down value. We do not think that the principle adopted by the labour Appellate Tribunal was correct and should be accepted. On the face of it	 it introduces a very anomalous position. In a case where some machinery may require immediate replacement in the year of bonus in question and resources may be available for meeting the cost of the entire machinery required to replace it	 the principle adopted by the Tribunal would still permit the industry not to replace that machinery	 but claim future provision for its replacement on the basis that the available resources are to be proportionately allocated to machinery which may require replacement in much later years. We hold that in approving this course	 the Tribunal did not adopt the correct principle according to which calculation should be made	 when applying the	 Full Bench (1) 339 Formula for calculation of bonus. Learned counsel also referred us. to the decision of this Court in M/s. Titaghur Paper Mills Co. Ltd. vs Its Workmen(1) to show that	 in that case	 this Court also	 when calculating the rehabilitation provision	 deducted the entire depreciation and reserves available from the total rehabilitation requirement and did not adopt the course of deducting it from different blocks of machinery requiring rehabilitation. That case	 however	 does not support the view taken by the Labour Appellate Tribunal	 because in that case this Court had accepted the decision of the Tribunal that all the machinery in whichever year it may have been installed had a uniform residuary life of 10 years	 so that all the machinery was to be rehabilitated simultaneously during the next 10 years. There was	 therefore	 no distinction between machinery installed in one year and that installed in other years insofar as the year in which it was to be replaced was concerned. It is true that	 in some cases while describing the Full Bench Formula	this Court has mentioned that the total depreciation and liquid reserves available are to be deducted from the total rehabilitation requirement	but we do not think that it was intended to lay down in those cases that the method of deduction to be adopted is that laid down by the Labour Appellate Tribunal in Saxby and Farmer Mazdoor Union	 Calcutta(2). On the other hand as we have already indicated this Court	 in The Associated Cement Companies Ltd. case(a)	 very clearly proceeded to apply the principle which we are accepting in this case. Consequently	 we hold that the depreciation provision of Rs. 325.48 lacs and available development rebate reserve of Rs. 39.51 lacs must be taken in to account when calculating the annual provision for rehabilitation required for replacement of the earliest installed machinery until it is exhausted	 whereafter the annual requirement for the remaining blocks of machinery will have to be calculated	 ignoring these available resources. The next contest between the parties in this appeal relates to the claim of the Company to return on reserves and other funds used as working capital during the bonus year when calculating the surplus available for distribution of bonus. That a Company is entitled to return on reserves used as working capital was recognised by the Full Bench of the Labour Appellate Tribunal in The Millowners ' Association 's(4) case	 when laying down the formula for calculation of available surplus which was approved by this Court in the case of The Associated Cement Companies Ltd.(a). In the latter case in dealing with this aspect of the matter	 the Court pointed out that no distinction has been made by Tribunals between reserves used as working capital and depre (13 [1959] Supp. 2 S.C.R. 1012 at p. 1042. (2) (3) (4) 340 ciation fund similarly used. The Court approved the decision of the Labour Appellate Tribunal in The Millowners ' Association Bombay vs The Rashtriya Mill Mazdoor Sangh(1)	 where the objection of the labour to depreciation fund earning any return	 even if it was utilised for or about the business of the year	 was ovre ruled and the Tribunal observed that "no essential difference could be made between the depreciation fund and any other fund belonging to the Company which could be invested so as to earn return. ' The Court further held: "It is thus clear that what is material is not the origin of the fund. It is the fact that the fund in the hands of the concern has been used as working capital that justifies the claim for an adequate return on it. We think it is common sense that if the concern utilises liquid funds available in its hands for the purpose of meeting its working expenses rather than borrow the necessary amounts	 it is entitled to claim some reasonable return on the funds thus used." (pp. 964 65). In this appeal	 it is not disputed that the Company is entitled to claim a return on reserves which were actually utilised as working capital during the year of bonus	 but Mr. Sen on behalf of the workmen urged that this return must be allowed only on reserves used as working capital and not on any other funds used at such	 	On the face of it	 this argument cannot be accepted in view of the decision of this Court in the case of The Associated Cement Companies Ltd.	(2) where it has been clearly held that the origin of the fund is immaterial	 though with the qualification that the fund should be one which is available for investment before a claim can be made by the employer for a return on it. This principle has been affirmed or followed in a number of cases subsequently decided by this Court	 but we do not consider it necessary to refer to them in view of the fact that Mr. De on behalf of the employer conceded that this is the settled law and only contended that	 in this case	 the Company has in fact discharged the burden of proving that all the reserves shown in the balance sheet for the year of bonus were actually utilised as working capital. Consequently	 we proceed to examine this submission made on behalf of the Company. Mr. De	 in support of this submission	 drew our attention to the affidavit of Satya Narayan Murarka who is the Commercial 'Manager of the Company. In this affidavit	 Murarka stated. that all the sums shown as reserves and surpluses in the balance sheet 'were available for being utilised as working capital and were	 in (1) [1952] 1.L.L.J. 518	 522. (2) 341 fact	 so utilised. Murarka was also tendered for cross examination	 so that the workmen hand an opportunity of testing the correctness of his evidence by cross examining him. It was urged by Mr. De that there was nothing in the cross examination of Murarka which would justify rejection of the statements made by him in his affidavit that all the reserves and surpluses available had been employed as part of the working capital of the Company	 and	 in this connection	 drew our attention to some decisions of this Court where the evidence given on behalf of the employer on affidavit has been accepted by this Court as sufficient proof. The first case cited by him is The Tara Oil Mills Co.	 Ltd. vs IIts Workmen and Others(1). In that case	 a question arose whether the Company concerned was entitled to claim return on the amount of depreciation reserves used as working capital. Dealing with this claim	 the Court held: "An affidavit was made on behalf of the Company that it had used its reserve funds comprising premium on ordinary shares	 general reserve	 depreciation reserve	 workmen 's compensation reserve	 employees ' gratuity reserve	 bad and doubtful debt reserves and sales promotion reserve as working capital. The Tribunal	 however	 allowed return at 4 per centum on a working capital of Rs. 31.88 lacs. This excluded the depreciation reserve but included all other reserves which were claimed by the company and having been used for working capital. " Proceeding further	 the Court held : "It is enough to say that the affidavit of the Chief Accountant filed on behalf of the company was not challenged before the Industrial Tribunal on behalf of the respondents. It would	 therefore	 be impossible for us now to overlook that affidavit	 particularly when the Tribunal gave no reason why it treated the working capital as Rs. 31.88 lacs only. " The Court	 thus	 accepted the evidence of the affidavit	 though it was added that it will be open to the workmen in future to show by proper cross examination of the Company 's witnesses or by proper evidence that the amount shown as the depreciation reserve was not available in whole or in part to be used as working capital and that whatever may be available was not in fact so used in the sense explained above. In Anil Starch Products Ltd. vs Ahmedabad Chemical Worker 's Union and Others(2) this Court	 dealing with the ques (1) ; at p. 10. (2) A.I.R. 1963 S.C	 1346 at p. 1348. 342 tion of proof that depreciation reserve had been used as working capital	 held: "It is enough to say in that connection that an affidavit was filed by the manager of the company to the effect that all its reserves including the depreciation fund had been used as working capital. The manager appeared as a witness for the company before the Tribunal and swore that the affidavit made by him was correct. He was cross examined as to the amount required for rehabilitation	 which was also given by him in that affidavit; but No. question was put to him to challenge his statement that the entire depreciation reserve had been used as working capital. The Tribunal also did not go into the question whether any money was available in the depreciation reserve fund and had been actually used as working capital. It dismissed the claim for return on the depreciation reserve on entirely different grounds. In the circumstances	 we must accept the affidavit so far as. the present year is concerned and hold that the working capital was Rs. 34 lacs. It will	 however	 be open to the workmen in future to show by proper cross examination of the company 's witnesses. or by proper evidence that the amount shown as depreciation reserve was not available in whole or in part as explained above to be used as working capital and that whatever was available was not in fact so used." In Khandesh Spg. & Wvg. Mills Co. Ltd. vs The Rashtriya Girni Kamgar Sangh	 Jalgaon	(1) this Court	 again dealing with the question of proof of working capital	 referred to the earlier cases and held: "This judgment again reinforces the view of this Court that proper opportunity should be given to the labour to. test the correctness of the evidence given on affidavit on behalf of the management in regard to the user of the reserves as working capital. " On the basis of these views expressed by this Court	 it was urged that	 in the present case	 the affidavit of Murarka should be accepted as sufficient evidence in proof of the company 's claim that all the reserves and funds mentioned in the affidavit were in fact used as working capital	 so that the company is entitled claim a return on them. It appears to us that the affidavit of Murarka in the present case is not such that it can be held to have discharged the burden (1) ; at p. 850. 343 which lay upon the Company to prove that all the reserves and other funds had	 in fact	 been utilised as working capital. In the affidavit	 Murarka referred to the balance sheet and stated that the various funds claimed as having been used as working capital were shown at the beginning of the bonus year as in existence and the further entries indicated that those amounts were still intact at the end of the bonus year and were carried forward to the next year. Such a statement was made by him in respect of reserve for contingencies amounting to Rs. 10 lacs	 forfeited dividends amounting to Rs. 450 lacs	 profit and loss account balance amount to Rs. 3.63 lacs	 provision for depreciation amounting to Rs. 325.48 lacs	 and development rebate reserve amounting to Rs. 39.51 lacs. It is to be noticed that the fact that these amounts were shown as in existence at the beginning of the bonus. year as well as at the end of that year can certainly lead to a reasonable inference that these funds were all available to the company for being utilised in its business during the year; but the mere fact of these entries showing the existence of these funds at. the beginning and at the end of the year cannot be the basis for a conclusion that these funds must have been utilised as part of the working capital of the Company. In order to claim a return	 it is not enough for a Company to show that the amounts were available during the year for being utilised as working capital. The Company has further to discharge the burden of proving that those funds were in fact so utilised. This principle was clearly indicated by this Court in Bengal Kagazkal Mazdoor Union and Others vs Titagarh Paper Mills Company	 Ltd. and Others(1). It was in that case that this Court gave an indication of how the availability of reserves and other funds for use as working capital can be inferred from the balance sheet. It was said: "What is usually done is to take into account the ' liquid assets of various kinds available at the beginning of the relevant year and the total of such assets available at the beginning of the year is considered as working capital for that year	 if there is evidence that it has. been actually used during the year. But when we come to the end of the year and look at the balance sheet	 we have to find out the liquid assets available at the end of the year from which the amount available as working capital for the next year may be arrived at. But the liquid assets available at the end of the year will usually be of two kinds firstly	 there will be cash assets in the various reserves and secondly	 there will be assets in the shape of raw materials	 etc.	 and both together become the available working capital for the next year subject (1) at p. 364. 344 to necessary adjustments and also subject to the evidence that they were actually used as working capital. " Proceeding further	 the Court	 while dealing with the bonus year 1955 56	 held : "Now the working capital is generally arrived at by finding the liquid reserves available on 1st April	 1955. These liquid reserves may be in the form of reserves of various kinds	 i.e.	 depreciation reserves	 general reserve	 renewal reserve	 and so on	 and also in the form of investments	 advances and raw materials	 etc. in stock. All these have to be taken into account in arriving at the working capital after necessary adjustments. As we have already pointed out	 the amount of working capital thus arrived at	 if there is evidence that it was actually used as working capital for the year	 may be allowed interest in accordance with the Full Bench Formula." In that case	 thus	 the two steps necessary for proving the claim were separately indicated. The first step in proving that reserves and other funds have been used as working capital is to show that they were available by proving the balance sheet in which those reserves and funds are shown in existence at the beginning of the year. The second step indicated is that evidence must be given to prove that these reserves and funds were actually utilised as working capital during the year. Obviously	 this proof is needed	 because	 even though the reserves and funds may be available	 they may not be utilised as part of the working capital and may form part of cash amounts kept by the Company or may be utilised for purposes other than that of working capital. The mere existence of the reserves and funds at the beginning of the year	 even taken together with their existence at the end of the year	 cannot lead to. any inference that these reserves and funds must have formed part of the working capital during the year and could not form part of other items such as fixed deposits	 investments	 etc. Murarka in his affidavit	 as we have indicated above	 gave his conclusion that the various reserves were used as part of the working capital only on the basis that these reserves and funds were in existence both at the beginning and at the end of the year. The conclusion drawn by Murarka had	 therefore	 no basis at all. The facts on which he relied could only justify an inference that these reserves and funds were available	 but they could not exclude the possibility that they were utilised for purposes other than that of working capital. The affidavit of Murarka in this case cannot thus be held to be sufficient proof of this second ingredient that the reserves and 345 funds were in fact utilised as working capital. So far as the cases referred to by learned counsel are concerned	 which we have discussed earlier	 they do not	 in our opinion	 lay down the principle that	 if in an affidavit filed on behalf of the employer a broad statement is 'made that all reserves and other funds were used as part of the working capital	 that statement must be accepted as. sufficient proof	 even when the statement is coupled with an admission that it is based on an inference from the balance sheet only and no other proof is furnished to show that these available reserves and funds were in fact brought in as working capital by the employer during the year in question. In these circumstances	 even though in the cross examination of Murarka on behalf ' of the workmen nothing very material was elicited on this question	 we have to hold that the affidavit given by Murarka is not sufficient discharge the burden which lay on the Company to prove that all the reserves and other funds shown in the balance sheet as in existence at the beginning and at the end of the bonus year in question were utilised as working capital. The balance sheet	 it appears to us	 itself gives an indication. that this claim made on behalf of the Company cannot be fully justified. In the balance sheet	 the assets of the Company are shown under various heads and it seems to us that items falling under certain heads only can be treated as working capital of the Company during the year	 while others have to be excluded. The items which cannot be treated as part of the working capital are: fixed assets of the value of Rs. 411.08 lacs	 investments of the value of Rs. 14.48 lacs	 fixed deposit amount of Rs. 220 lacs	 loans and advances recoverable in cash or in kind or for value to be received or pending adjustment amounting to Rs. 11.74 lacs	 and loans and advances from Trust and other authorities amounting to Rs. 8.09 lacs. On the other hand	 the working capital would consist of current assets of the value of Rs. 31.34 lacs	 Stock in Trade of the value of Rs. 337 lacs	 sundry debts of the value of Rs. 69.82 lacs	 bank and cash balances of the value of Rs. 37.98 lacs	 loans and advances of the value of Rs. 14.27 laes	 and insurance and other claims of the value of Rs. 7.61 lacs. Thus	 in the present case	 the balance sheet gives an 'indication that a sum of Rs. 498.02 lacs was the amount shown at the beginning of the year against items of assets which can be classified as part of the working capital	 whereas the remaining sum of Rs. 665.38 lacs represent fixed assets	 fixed deposits	 investments and other loans and advances which cannot be classified as part of working capital. Similarly	 an examination of the items entered on the side of liabilities in the balance sheet shows what were the sources from which moneys became available for acquisition of these assets. 346 Amongst these	 the reserves shown are only Rs. 10 lacs for contingencies and Rs. 39.51 lacs as development rebate reserve. Though the balance sheet does not itself show the depreciation fund	 it is also clear from the Schedule attached to the balance sheet that	 up to the beginning of the year	 a depreciation provision had been made to the extent of Rs. 325.48 lacs. In order not to show it as available development reserve or fund in the balance sheet	 what the Company did was to show the depreciated value of the capital assets at Rs. 411.07 Iacs instead of the actual value of Rs. 736.56 lacs which was the amount paid in cash for acquiring those fixed assets. For purposes of dealing with the question whether any reserve was used as working capital	 we must	 therefore	 proceed on the basis that there was a depreciation reserve of Rs. 325.48 lacs	 while the investment on the fixed assets was Rs. 736.56 lacs and not merely Rs. 411.07 lacs. Taking this depreciation reserve also into account	 it would thus appear that the reserves available at the beginning of the year Were of the amount of Rs. 374.99 lacs. The subscribed capital and capital available from forfeited shares was Rs. 819.57 lacs. Funds available from other resources	 such as profit and loss account balance	 unsecured loans	 current liabilities and provisions	 provision for taxation	 proposed dividends and contingent liabilities not provided for	 amounted to Rs. 294.33 lacs. The question that arises. is how much money from each of these ' sources had gone into the working capital and how much into fixed assets or other items of assets indicated by us above. In examining this position	 the value of the fixed assets has to be taken as Rs. 736.56 lacs which was the actual amount spent in acquiring 'those assets and not at the written down value of those assets at Rs. 411.08 lacs. It seems to us that this being the position	 there was no justification for Murarka to claim that all the amounts available in reserve had gone towards the working capital and did not represent other assets	 such as the fixed deposit of Rs. 220 lacs and similar other items. In these circumstances	 we have. to hold that no reliance can be placed on the affidavit of Murarka that all the reserves	 including the depreciation reserve and the contingent anti development rebate reserve were actually used as part of the working capital during this year. The question that next arises on this conclusion of ours is whether any return at all should be allowed to the Company on reserves or other funds claimed as having been utilised as working capital during this year. The exact figure on which the Company could claim return has not been proved by it	 but it seems to us that at least some part of the reserves must necessarily have been utilised in the working capital. The Company had a paid up capital of Rs. 819.57 lacs and it can safely be assumed that 'this money:was utilised for acquiring the fixed assets	 as that will 347 be the primary purpose of obtaining capital from the share holders. A sum of Rs. 736.56 lacs must	 therefore	 have gone in cash into the fixed assets out of this sum of Rs. 819.57 lacs	 leaving a balance of Rs. 83.01 lacs. The sum available from other resources was Rs. 294.33 lacs which	 together with the balance of the subscribed capital left over	 gives a figure of Rs. 377.34 lacs. Consequently	 for purposes of the working capital	 a maximum amount of Rs. 377.34 lacs could have been available from the subscribed capital or other resources and the balance of the amount must necessarily come out of the reserves. The items of assets classified as representing the working capital	 as we have indicated above	 have a total value of Rs. 498.02 lacs. Deducting from this amount the sum of Rs. 377.34 lacs available from subscribed capital or other resources	 there remains a balance of Rs. 120.68 lacs which must have necessarily come out of the various reserves	 including the depreciation reserve	 and this amount at least must be held to represent reserves acually used as working capital during the year by the Company. We think that	since the information available from the balance sheet itself shows that at least Rs. 120.68 lacs out of the reserves did form part of the working capital of the Company	 it would be fair to allow the Company 4% return on this amount	 even though we are not inclined to accept the evidence of Murarka and have to hold that the Company on its part failed to prove that this amount or the whole of the amount of reserves had been utilised as part of them working capital during this year. Consequently	 the amount which the Company has to be allowed as return on reserves utilised as working capital comes to Rs. 4.83 lacs. In this connection	 we may also take notice of the claim made by the Company that return should also be allowed on certain other sums. used as working capital which have been described as working income. The Company claimed that it had money available from four different sources. The details given were Rs. 249.71 lacs from profit as worked out in the Profit and Loss Account at the end of the year	 Rs. 63.07 lacs as reserve for depreciation for the year. Rs. 36.00 lacs as development rebate for this year and Rs. 4.71 lacs as value of discarded fixed assets written off. The claim was that at least half the amount represented by these figures should be treated as a fund which was available during the bonus year for being utilised as working capital. This submission	 in our opinion	 cannot be accepted. There is nothing to show whether any of these amounts became available to the Company during the year and if so	 when they became available. In fact	 the profit as worked out in the Profit and Loss. Account can be held to have accrued to the Company only when the Profit and Loss Account was worked out at the end of the year. We have already referred to the decision of this Court in 348 Bengal Kagazkal Mazdoor Union and Others(1) where it was held that amounts shown as liquid assets at the beginning of the year are the only amounts which can be held to be available for utilisation as working capital in that year. Amounts which accrue during the year or at the end of the year cannot be held to be available	 unless evidence is led on the basis of which a positive finding can 'be recorded that those amounts became available on a particular date during the year and were thereafter actually utilised as part of the working capital. Profit for the year and reserve or development rebate for the year in question cannot be proved to have accrued on any particular date during the year and	 therefore	 it is also not possible to hold that they were utilised as part of the working capital during that very year. This claim which is a novel one put forward on behalf of the Company for the first time in applying the Full Bench Formula for calculation of available surplus for distribution of bonus	 must	 therefore	 be rejected. A point that was raised on behalf of the workmen	 but which was not seriously argued before us	 was that the return on paid up capital should not be allowed at least to the extent to which money had been invested in the subsidiary or other companies. The amount in question is Rs. 14.48 lacs already noticed by us earlier when dealing with the question of proof of utilisation of reserves as working capital. In dealing with that question	 we have already proceeded on the basis that the paid up capital was either invested in fixed assets	 or must have been utilised as part of the working capital	 and have not accepted the plea that this sum of Rs. 14.48 lacs of investment came out of the paid up capital. Consequently	 no question can arise of reducing this amount from the paid up capital when allowing 6% return on it in accordance with the Full Bench Formula. Another deduction	 while calculating the surplus out of the profits available for distribution of bonus	 which has been challenged on behalf of the workmen relates to the income from home delivery commission. From the facts	 it appears that this Company was manufacturing cars in collaboration with a foreign concern and the arrangement was that	if that foreign concern sold any of its goods in India	 the Company would be entitled to its commission on those sales	 even though the Company may not be a party to the transactions of those sales. This arrangement thus recognised the exclusive right of the Company in respect of sale of its cars and to reimbursement in case the foreign collaborator entered into transactions infringing that right. It seems to us that the income thus accruing to the Company has to be treated as extraneous income which was earned by the Company without (1) 349 any activities in which the workmen participated or contributed their labour. Learned counsel for the workmen referred us to the decisions of this Court in the Tata Oil Mills Co. Lid. Q) and Voltas Limited vs Its workmen(1). The situations that were discussed in those cases were different. In those cases	 the principle laid down was that	 if any income was earned in the course of the normal business of the Company in which the workmen were also engaged	 that income must be included in the profits for calculation of surplus available for distribution of bonus. None of the instances that came up for consideration were similar to the one before us. The home delivery commission earned in the present case did not require any contribution of work or labour on the part of the workmen	 and accrued to the Company simply because of its agreement with the foreign collaborator ' which entitled the Company to claim the commission without going through any process of manufacturing or selling the cars or their components. In the circumstances	 the deduction of the home delivery commission from the profits was fully justified. The last point urged related to the interest on fixed deposits earned by the Company during the bonus year. We have already indicated earlier that a sum of Rs. 220 lacs was in fixed deposit account and the profit and loss account shows that a sum of Rs. 5.17 lacs was received as interest on it by the Company. This has also to be excluded when calculating the available surplus	 because this income also accrued to the Company without any contribution on the part of the workmen. It was not the regular business of the Company to keep money in fixed deposits and earn interest thereon. ' At the same time	 however	 we feel that on equitable grounds	 the Company should not be entitled to claim the sum of Rs. 2.16 lacs as an expenditure of the business of the Company in respect of interest paid to bank and others. When the Company was receiving interest on fixed deposits	 it would be proper to hold that at least the interest paid by the. Company should come out of the interest earned by it. There seems to be no justification for permitting a Company to keep money in a fixed deposit and treat the interest accruing on it as extraneous income	 while	 at the same time permitting the Company to take loans	 pay interest and treat that interest as business expenditure. Consequently	 in this case	 when calculating the available surplus	 a sum of Rs. 5.17 lacs minus Rs. 2.16 lacs Rs. 3.01 lacs only will be deducted as extraneous income which was earned without any contribution from the workmen and which cannot therefore	 be taken into account when calculating available surplus. On the basis of these decisions	 we have worked out Charts bowing the amount of annual rehabilitation provision which (1) ; (2) ; LISupCl/688 350(a) CHART Year Original Cost Discarded Price Replace and Factor ment Cost written or Multi off from plier books 1 2 3 4 5 1942 43 to 1946 47 2.17 . 2.80 6.08 1947 48 89.75 0.35 2.80 250.32 1948 49 44.77 . 2.50 111.93 1949 50 37.60 . 2.30 86.48 1950 51 5.29 . 2.40 12.70 1951 52 14.63 . 2.70 39.50 1952 53 11.06 0.39 2.50 26.68 1953 54 9.09 . 1.50 13.64 1954 55 38.65 24.33 1.90 27.23 1955 56 30.05 8 01 1.80 39.69 1956 57 34.47 5.95 1.60 45 63 1957 58 75.32 7.79 2.00 135.06 ]958 59 53.74 . 1.25 67.17 1959 60 140.15 . 1.15 161.17 1960 61 98.52 . 1.10 108.37 350(b) (All figures in lacs of rupees) Less 5 % Balance Deduct Balance Resi Annual Cost deprecia require duary Rehabili tion & other ment Age tation reserve require available ment 6 7 8 9 10 11 0. 11 5.97 364.99 Nil Immaterial . 4.47 245.85 359.02 Nil " . 2.24 169.69 113.17 Nil " . 1.88 84 60 3.48 81.12 3 27.04 0.27 12.43 12.43 3 4.14 0 45 13.19 . 13.19 5 2.64 0 72 26.51 26.51 6 4.42 1.43 44.20 44.20 7 6.31 3.37 131.69 . 131.69 8 16.46 2.69 64.48 64 48 9 7.16 7.01 154.16 154.16 9 17.13 4.93 103.44 103.44 10 10.34 116.70 351 CHART II (All figures in lacs of rupees) Annual Requirement for Rehabilitation for all the Machinery 116.07 Less Depreciation Provision for the Year of Bonus 1960 61 63.07 Net Requirement for Rehabilitation of Machinery in the Year 1960 61 53.00 Requirement for Rehabilitation of Buildings 11.97 Total Rehabilitation Requirement 64	97 CHART III (All figures in lacs of rupees) Profit as per Profit&Loss Account 249 '71 Add : Provision for Depreciation 63.07 Reserve for Development Rebate 36.00 Charity and Donation 0.35 Expenses pertaining to previous years (Sales tax) 0	01 99 43 99	43 349	14 Less: Income pertaining to previous years and Provisions no longer required 5.70 Surplus on Sale of Fixed Assets 0	09 Home Delivery Commission 1.03 Interest on Fixed Deposits 3	01 Normal Notional Depreciation 69	26 Income tax Liability for the year 112	37* 6% Return on Ordinary Share Capital 29	77* 8.57% Return on Preference Share Capital 27	55 4%Return on Working Capital 4	83 Provision for Rehabilitation 64	97 318.58 318	58 Net Surplus Available for Payment of Bonus 30.56 *These figures have been corrected by us. In the statement filed by the Company they were wrongly entered as 12.18 lacs and 129 ' 89 lacs respectively. 359. must be allowed to the Company and	 taking that into account	 the amount of surplus available out of the profits for distribution as bonus. Chart 1 shows the annual rehabilitation requirement for machinery which works out at Rs. 116.07 lacs. Chart II gives the calculation	 on the basis of this figure	 of the net amount required for rehabilitation during the year of bonus for the machinery and buildings	 after taking into account the depreciation provision for the year of bonus. This net amount is Rs. 64.97 lacs. Chart 111	 based on these figures and on other figures arrived at by us in our judgment	 shows that a net amount of Rs. 30.56	 lacs would be available as surplus for payment of bonus during this year. The Tribunal was	 therefore	 not right in arriving at its decision that this Company was not in a position to pay bonus at all. As we have indicated earlier	 the workmen have claimed bonus equivalent to 6 months ' wages which would amount to a sum of Rs. 24 lacs. We do not find any justification for granting bonus at such a high rate. Though the Company has earned a large amount of profit during the year of bonus	 it is to be noticed that	 for quite a large number of years	 the Company has been running at a loss. The Company has an expanding business and the total amount of surplus available for allocation between the capital and the labour is Rs. 30.56 lacs. In all these circumstances	 we consider it just and proper that bonus should be paid to the workmen. 20% of their annual wages	 so that a total sum of Rs. 9.60 lacs out of this surplus will be paid out as bonus	 leaving the balance of Rs. 21.03 lacs with the Company for being utilised for other purposes. The appeal is	 consequently	 allowed	 the decision of the Tribunal is set aside and it is hereby ordered that the Company shall pay to the workmen a total amount of Rs. 9.60 lacs as bonus	 representing 20% of the annual wage of the workmen. In the circumstances of this case	 we direct parties to bear their own costs of this appeal. G.C. Appeal allowed.

The workmen of the respondent company raised an industrial dispute about bonus claimed by them for the year 1960 61. The Industrial Tribunal applying the Full Bench Formula held that the sum needed for rehabilitation of machinery exceeded the surplus otherwise available and therefore no bonus was payable. Against this decision of the Tribunal the workmen appealed to this Court and raised various objections as to the manner in which the available surplus was calculated by the Tribunal. HELD: (i) On the facts and the evidence produced in the case the life of the respondent company 's machinery should be taken at an average of 15 years if the machinery is worked in two shifts. and 10 years if it is worked in three shifts. The artificial rule laid down in the Income tax Act for calculation of notional depreciation can provide no criterion at all for determining the life of the machinery	 and the Tribunal committed an error in proceeding on that basis. [319 H] The life of machinery taken in other cases is also not a correct basis for fixing the life of machinery in a particular case. Various factory come in that affect the useful life of a machinery. Factors such as the quality of the material used in the machines	 and the nature of the material on which the machines are to operate	 very materially affect their life. Further the life of a machine will also depend on the manner in which it is handled in a particular factory. Consequently the correct principle is to determine the life of machinery in each case on the evidence adduced by the parties. [319 E F; 320 D] Further what has to be determined is the useful life of the machinery rather than its economic life. In fact one of the very major considerations which should be taken into account is the actual practice of the manufacturers using the machinery and	 if the evidence be available	 to find out how long the manufacturers continue to use the machinery as a rule. [324 D H] The fact that in the Full Bench Formula the breakdown value of machinery is taken at 5% is certainly an aspect to be taken into account. but it cannot be accepted that a machinery should be deemed to have useful life until it reaches the stage of having a breakdown value of 5% No such absolute rule can be inferred. [328 A] The Tribunal was wrong in not taking into account machinery installed during the bonus year itself for making provision for rehabilitation. If any machinery is installed in. the bonus year	 the company would be 312 justified in claiming that it must immediately Start making provision for its rehabilitation	 though the period for rehabilitation of that machinery would only start at the end of the bonus year. [330 A C] ' (ii) The multipliers given by the company in the schedule originally submitted by the company which were not objected to by the workers were the correct basis for Calculation of the rehabilitation cost and the Tribunal should not have departed from them. There was no justification for taking an average of the multipliers submitted at first and those submitted thereafter in a second schedule. The Tribunal also was not justified in reducing the multipliers on the ground that the new machines which would be purchased to replace the original ones would necessarily have more ' productive capacity. There was no material at all from which the Tribunal could justifiably have inferred that the increase in production would be so. material as to	 attract the principle of apportionment laid down by this Court in the case of the Associated Cement Companies Ltd. 1331 A F; 332 (iii) In calculating the rehabilitation requirement for the machinery the depreciation provision made in accordance with the principles of commercial accounting has to be deducted from the amount that would be required to purchase the new machinery for replacement. The contention that deduction should be made only of depreciation reserves available to the employer cannot be accepted. SUch an interpretation militates against the very purpose for which rehabilitation provision is allowed	 namely	 to enable the industry to cover the difference between the amount of depreciation which is recouped by making provision for it in accoromance with the	 principles of commercial accounting and the amount that would be required to purchase the new machinery for replacement. Therefore	 in the present case	 the Tribunal erred when in calculating the provision for rehabilitation it took the entire price of the replacement machinery as required to be provided	 entirely out of profits without reducing the price to the extent of the depreciation provided for in the accounts. [333 E 334 B F] (iv) The claim of the workmen that the sum shown in the balance sheet of the company as development rebate reserve should be deducted from the available surplus must be allowed. The mere statement of the General Manager on affidavit to. the effect that the reserves had been utilised as part of the working capital could not be aceepted as evidence of the fact. When the balance sheet itself showed that cash amounts in the form of fixed deposits were available which were far in excess of the development rebate reserve in question	 there would be No. justification for holding that this development. rebate reserve was not available as a liquid asset and had been included by the company in the working capital. This development rebate reserve was a liquid asset available for rehabilitation and consequently liable to be deducted when calculating the rehabilitation requirement. [335 A G] (v) If some. machines have fully run out their lives	 they must necessarily be replaced out of resources available immediately and there would be no justification for keeping the available resources in reserve for future rehabilitation while not providing out of those available resources for immediate. replacement of machinery. There is also the aspect that an employer in order to claim more and	 more rehabilitation provision will have a tendency to keep old blocks of machinery running and to avoid adoption of such a device it would be fair that he is required to utilise available resources at the very first opportunity when the old blocks of machinery require replacement and claim annual provision for future only in respect of that machinery which will require replacement later 313 on. Consequently	 in the present case the depreciation provision and the available development rebate reserve must be taken into account when calculating the annual provision for rehabilitation required for replacement of the earliest installed machinery until it was exhausted	 whereafter 'the annual requirement for the remaining blocks of machinery would have to be calculated	 ignoring these available resources. [336 G H; 337 C D] (vi) For the purpose of working 'out return on working capital in the year of bonus the origin of the fund used as working capital is immaterial and it cannot be said that the return must be allowed only on reserves used as working capital and not on any other funds used as such. However the fund must be available for investment before a claim can be made by the employer for a return on it. [340 E F] But	 the mere existence of reserves and funds at the beginning of the year	 even taken together with their existence at the end of the year cannot lead to any inference that these reserves and funds must have formed part of the working capital during the year and could not form part of other items such as fixed deposits	 investments etc. The affidavit filed by the company in this connection did not exclude the possibility that they were utilised for purposes other than that of working capital. in the balance sheet the amounts which represented fixed assets	 fixed deposits	 investments and other loans and. advances could not be classified as part of the working capital. The items representing working capital were current assets	 stock in trade	 sundry debts	 bank and cash. balances	 certain loans and advances and insurance and other claims. The items representing working capital had a total value of Rs. 498.02 lacs. Deducting from this the sum of Rs. 377.34 lacs available from subscribed capital or other sources. there remained a balance of Rs. 120.68 lacs which must have necessarily come out of the various reserves including the depreciation	 and this amount at least must be held to represent resources actually used as working capital during the year by the company. On this amount it would be fair to allow a 4% return to the company. [344 F H; 347 D E] (vii) The company 's claim that half the amount from the following sources	 namely	 (1) the profit in the profit and loss account worked out at the end of the year	 (2) depreciation reserve for the year	 (3) development rebate for the year	 (4) value of discarded fixed. assets written off should be treated as 'a fund which was available during the bonus year for being available for being utilised as working capital	 could not be accepted. There was nothing to show whether any of these amounts became available to the company during the year and if so when they came available. [347 F] (viii) In allowing 6% return on paid up capital in accordance with the Full Bench Formula no question could arise of deducting the amounts invested in subsidiary companies from the paid up capital because the said investment had not been held to have come out of paid up capital [348 [348 F] (ix) The income of the company from interest on fixed deposits was its extraneous income which accrued to the company without any contribution by the workmen. this income had therefore to be excluded in calculating the available surplus. At the same time the company could not on equitable grounds be permitted to claim the interest paid by it on its borrowings as business expenditure. Therefore the interest on fixed deposits was to be treated as extraneous income only after deducting from it the interest paid on the borrowings. [349 D F] 314 (x) The income received by the company from its foreign collaborators as commission on sales effected by the said collaborators of their own cars in India was extraneous income to which the company 's wOrkmen made no contribution. It was not therefore to be taken into account in calculating the available surplus. [349 C] (xi) Calculated in the above manner the available surplus came 10 Rs. 30.56 lacs. The Tribunal was not right in its decision that the company was not in a position to pay bonus at all. However	 though the company had earned a large amount of profit in the year of bonus it had for quite a large number of years been running at a loss. The available surplus being only Rs. 30.56 lacs	 the workmen 's demand of bonus equivalent to six months ' wages amounting to Rs. 24 lacs was too high. It would be just and proper to allow bonus at 20% of their annual wages which would come to Rs. 8.60 lacs. [352 A E] Associated Cement Companies Ltd. Dwarka Cement Works	 Dwarka vs Its Workmen & Anr. 	 Saxby & Farmer Mazdoor Union	 Calcutta vs M/s. Saxby & Farmer (India) Ltd. 	 Workmen M/s. Saxby & Farmer (India) Pvt. Ltd. vs M/s. Saxby & Farmer (India) Private Ltd. C.A. 152/64 dr. 12 4 1965	 The Millowners ' Association	 Bombay vs The Rashuriya Mill Mazdoor Sangh	 Bombay	 The Honorary Secretary South India Millowners ' Association & Ors. vs The Secretary	 Coimbatore District Textile Workers ' Union. [1962] 2 Supp. S.C.R. 926	 National Engineering Industries Ltd. vs The Workmen & Vice Versa	 [1968] 1 S.C.R. M/s. Titaghar Paper Mills Co. Ltd. vs Its Workmen	 [1959] Supp. 2 S.C.R. 1012	 Millowners	 Association	 Bombay vs The Rashtriya Mill Mazdoor Sangh	 	 Tata Oil Mills Co. Ltd. vs It 's Workmen & Ors. ; 	 Anil Starch Products Ltd. vs Ahmedabad Chemical Workers ' Union & Ors.	 	 Khandesh Spg & Wvg. Mills Co. Ltd. vs The Rashtriya Girni Karogat Sangh	 Jalgaon	 ; 	 Bengal Kagazkal Mazdoor Union & Ors. vs Titagarh Paper Mills Company	 Ltd.	 [1963] II L.L.J. 358 and Voltas Limited vs Its Workmen	 ; 	 considered.