Summarize the following court judgment. Appeals Nos. 459 and 460 of 1957. Appeals by special leave from the judgment and order dated the 30th November	 1956	 of the Industrial Tribunal	 Bombay	 in Reference 1. T. Nos. 10 and 13 of 1956. R.H. Kolah	 Dadachanji and section N. Andley	 for the appellant. 930 C.L. Dudhia and I. N. Shroff	 for the respondents in C. A. No. 459 of 1957. A.S. R. Chari and 1. N. Shroff	 for the respondents in C. A. No. 460 of 1957. May 5. The Judgment of the Court was delivered by GAJENDRAGADKAR J. These two appeals arise out of a demand for bonus made against the appellants by their workmen for the year 1953 54. The Associated Cement Companies Ltd.	 Bombay	 the Cement Marketing Company of India Ltd.	 Bombay and the Concrete Association of India	 Bombay	 were faced with a demand of their workmen employed in their offices at Bombay for bonus equivalent to seven months ' basic wages with dearness allowance. The industrial dispute arising out of this demand was referred by the Government of Bombay for adjudication before the Industrial Tribunal	 Bombay	 under section 10 of the Industrial Disputes Act and it was numbered I. T. No. 10 of 1956. The Associated Cement Companies Ltd.	 Dwarka Cement Works	 Dwarka	 was similarly faced with a demand of its workmen for bonus equivalent to 50% of total earnings or six months ' total earnings. This dispute was referred to the same tribunal and was numbered 1. T. No. 13 of 1956. By consent of parties both the references were heard together and evidence was recorded and documents tendered in the first reference. By its award delivered on November 30	 1956	 the tribunal directed the companies to pay their workmen drawing a basic pay or wages up to Rs. 500 per month bonus equivalent to 1/3 of their basic wages or pay (less bonus already paid for the year 1953 54) subject to the conditions specified in the award. It is against this award that the respective companies have preferred the two appeals by special leave. In this judgment the said companies will hereafter be described as the appellant and their workmen as respondents. The A. C. C. is the principal company concerned in the dispute. The Cement Marketing Company of 931 India Ltd.	 (hereafter called the C. M. I.) has been separately registered under the Indian Companies Act as a Joint Stock Company; but it is a hundred per cent. subsidiary of the A. C. C. The C. M. I. are the Sales Managers of the A. C. C. while the Concrete Association of India (hereafter called the C. A. I.) is merely a department of the C. M. 1. As a result of the agreement which came into operation from ' August 1	 1953	 all financial transactions of the C. M. 1. in relation to sales now find a place in the accounts of the A. C. C. Similarly all of its fixed assets have been taken over and appear in the balance sheets of the A. C. C. All the three concerns have a common staff in Bombay. The A. C. C. had already paid to its employees bonus equivalent to three months ' basic wages for the year 1953 54 and so had the C. M. I. to its workmen. It appears that the C. M. I.	 including the C. A. I.	 undertakes to pay to its employees the same amount of bonus as has been paid or awarded to the employees of the A. C. C. There is no dispute that the A. C. C. is the biggest amongst the companies in India which manufacture cement. It owns 15 cement factories at different places in India and 2 in Pakistan. Out of the total quantity of cement despatched by all the cement factories in India in 1953 54 the A. C. C. despatched 55.46 %. The A. C. C. came into existence in 1936 as a result of the merger of four important groups of companies engaged in the manufacture of cement. These were F. E. Dinshaw	 Tatas	 Killick Nixon and Khatau	 groups. It appears that 11 companies in all merged with the A. C. C. Before the tribunal the case for the respondents was that the appellant held a position of monopoly in the cement industry and was easily in a position to pay the bonus claimed by them. Their allegation was that the appellant had inflated the capital invested by the merging companies while taking them over in 1936; it had set up new factories out of the profits earned by it without raising fresh capital and thereby had used profits for the purpose of expansion. In the year 195354 the appellant had capitalised the full amount 932 standing to the credit of the premium on shares account and had transferred a part of the reserves for taxation to the capital account thus increasing the aggregate capital. The emoluments of the workers were inadequate and so they were entitled to the bonus claimed by them in order to fill up the gap between the actual wage paid to them and the living wage due to them. The respondents also contended that the claim made by the appellant for rehabilitation and replacement in the dispute for the year 195152 included not only the amount required for rehabilitation and replacement but also expansion; and so	 according to them	 the appellant was not entitled to any amount for rehabilitation purposes in the year in dispute. They also alleged that the appellant was not entitled to claim. interest at more than 4% on paid up capital and 2 % on working capital. Thus the respondents urged that if all the relevant facts are taken into account it would be found that the claim for bonus made by them in the two respective references was just and proper. In support of their case the respondents filed several statements which	 they claimed	 had been prepared in accordance with the Full Bench formula	 and they also cross examined Mr. Tongaonkar who gave evidence on behalf of the appellant. This claim was resisted by the appellant. It was urged on its behalf that the points raised by the respondents in the present references bad been heard and finally decided in the previous adjudication (Ref. I. T. No. 115 of 1953) which dealt with their claim for bonus for the preceding year; and it was alleged that the respondents were barred from raising the same questions over again in the present adjudication. The cement machinery	 though heavy	 is subject to rigours of extremely tough and heavy duties and the machinery has to run ceaselessly day and night throughout the year. The appellant contended that	 having regard to the special features of the cement industry	 the machinery had to be kept on the highest standards of maintenance and needed frequent replacement and rehabilitation. A cement factory is a very expensive industrial proposition. The appellant denied that 933 it was in a monopolistic position and pleaded that its object was to deliver cement as cheaply as possible to the consumers. The respondents ' allegation that there was " puffing up of block capital at the time of the merger in 1936 " was denied by the appellant and it was not admitted that ever since its inception it had steadily made huge profits. The appellant also denied the allegation of the respondents that the profits	 coming out of the business had been used in expanding its factories. It had used all available resources including premium on issue of shares and depreciation fund for replacement	 rehabilitation and modernisation. It was not true that the appellant had built huge reserves and that the wages paid by the appellant to its employees were inadequate; on the contrary they compared very favourably with those in other comparable industries. The appellant denied the statement of the respondents that no plant reinstatement reserve over and above the deprecia tion allowance was necessary in the current year and it urged that the calculations made by the respondents alleged to be in terms of the Labour Appellate Tribunal formula were inaccurate. In its turn the appellant claimed more than 6% interest on paid up capital and more than 4% interest on working capital. The appellant also emphasised that it had already paid to the respondents bonus for three months though the strict working out of the formula would show that there was no available surplus for the relevant year and so the respondents would not be entitled to any bonus at all. In support of its case the appellant examined Mr. G. R. Tongaonkar	 its controller of planning and development	 and produced a statement (exhibit C 2) showing the original cost of the blocks to be replaced and the approximate replacement cost. It also produced amongst other documents a statement (exhibit C 10) showing the cost of the assets of the merging companies on July 31	 1936	 as taken over by the appellant and the statement (exhibit C 29) showing the capital expenditure from 1936 37 to 1953 54 on expansion	 modernisation	 rehabilitation	 replacement	 sundry capital jobs	 etc. 934 In addition a statement was filed by the appellant (exhibit C 23) showing that the calculations made under the Full Bench formula would show a substantial deficit and that would support its case that there was no available surplus for the relevant year from which any bonus could be claimed by the respondents. exhibit C 2 is a statement prepared by Mr. Tongaonkar showing the original cost of the block to be replaced and the approximate replacement cost. This statement has been prepared on the basis that the approximate cost to the merging companies of their assets as on 31 7 1936 was 5.73 crores. It is admitted that this statement has lumped together all the properties of the appellant including plant and machinery	 as well as buildings	 roads	 bridges and railway sidings and has classified them into four categories. The statement contains 9 columns. The first column gives the year or years of purchase of machinery. This could classifies the four categories of the blocks according to their respective years of purchase. The first category consists of blocks purchased up to 1939	 the second purchased between 1940 44	 the third purchased between 1945 47 and the last purchased between 1949 54. Column 2 gives the original cost of the said categories as on 31 7 1954. Column 3 gives particulars of such portions of the blocks as have been discarded	 scrapped or sold. In this column the years in which the blocks were discarded	 scrapped or sold are indicated and their original cost is me 935 figures mentioned in col. 5 for 1939 and 1940 44 blocks have been arrived at by reducing the corresponding figures given in col. 4 by 20%. Column 6 gives the approximate present life of the machinery and plant mentioned in col. 4; col. 7 sets out the breakdown value of the machinery referred to in col. 4	 whilst col. 8 gives the approximate cost of rehabilitation of machinery as shown in col. 5 less breakdown value as shown in col. 7. The last column works out the annual requirements of the appellant in respect of the rehabilatation of the four categories of blocks. The figures in this column are arrived at by dividing the amounts mentioned in col. 8 by the respective divisors mentioned in col. 6. The total annual requirement of the appellant in respect of rehabilitation is shown as of the order of Rs. 3	29	61	752. exhibit C 23 is a statement prepared by Mr. Tongaonkar to show the deficiency in profits in relation to payment of additional bonus claimed by the respondents for the accounting year 1953 54. This statement has been prepared alternatively on the basis of statutory depreciation allowable by income tax authorities and also on the basis of straight computation at ordinary rates. The first method results in a deficit of Its. 107.20 lakhs	 while the second in a deficit of 97.86 lakhs. In working out the provision for rehabilitation	 this statement first takes the replacement cost of block up to 1939 as per exhibit C 2 to be Rs. 1601.19 lakhs. From this amount the available reserves as on 1 8 1953 which are of tile order of Rs. 311 lakhs are deducted	 leaving a balance of Rs. 1290.19 lakhs. Then the replacement costs of the three remaining categories of blocks are taken into account and all the said amounts are divided by the appropriate divisors mentioned in col. 6 of exhibit C 2. The result is the sum of Rs. 284.48 lakhs	 and that is claimed by the appellant as the provision for rehabilitation under the formula. In his evidence Mr. Tongaonkar has given reasons in support of the respective multipliers and divisors adopted by him in making his calculations in exhibit C 2. 119 119 936 He has also given several details on all the relevant and material points in support of the appellant 's case. Naturally the respondents have cross examined him at length. One of the questions in controversy between the parties in the present appeals centres round the appreciation of Mr. Tongaonkar 's evidence and the value to be attached to the statements prepared by him. On the contentions raised by the parties before it the tribunal framed ten issues for determination and it has made its findings on them in the light of the evidence adduced before it. It has held that the appellant had not inflated the capital invested by the merging companies while taking them over in 1936. It has allowed 6% interest on the entire paid up capital of Rs. 1267.59 lakhs	 and 4% interest on the working capital. In regard to the claim for depreciation the tribunal has held that it was normal depreciation calculated according to the straight line method which should be allowed. On the question of income tax	 the tribunal has allowed the same at 83.4 pies in a rupee as claimed by the appellant on its net profits. It has	 however	 rejected the appellant 's case that the income from investments in shares and securities received by it should be excluded for the purpose of bonus; while it has allowed the sum of Rs. 10 lakhs provided by the appellant as annual contribution to the reserve for gratuity	 as also the expenditure on the cost of dismantling buildings	 prospecting expenses	 etc. It did not accept the respondents ' case that the bonus paid by the appellant to its officers should be reduced or wholly disallowed for the purpose of calculations under the formula; and	 on the question as to whether overtime payment should be included in the payment of bonus	 it has upheld the respondents ' contention and allowed the inclusion of the said payment. Having disposed of these minor issues	 the tribunal examined at length the claim made by the appellant in regard to the provision for rehabilitation	 replacement and modernisation. Indeed this was the most controversial and the most important issue raised 937 before it. The tribunal examined the evidence of Mr. Tongaonkar as well as exhibit C 2 and other documents produced by him	 and came to the conclusion that " exhibit C 2 presents an incorrect and exaggerated picture of the A.C.C. 's requirements of rehabilitation and replacement" and so it cannot be relied upon. According to the tribunal the multiplier 4.28 adopted by Mr. Tongaonkar was itself an inflationary figure; and it thought that " the consequence of applying it not to the original price but to its increased price paid by the A.C.C. would be to obtain an inflationary result. It appears that the tribunal wag inclined to hold that 2.7 was a fair multiplier representing the price increase over the pre war base. The tribunal was also not satisfied with Mr. Tongaonkar 's evidence in regard to the life of plant and machinery ; and so it held that the period of life given in col. 6 of exhibit C 2 cannot be accepted as correct. While dealing with the question about the rise in prices	 the tribunal has held that it was usual to take the average level of prices prevailing in a period of about five years in preference to the prices prevailing in a particular year as was done by Mr. Tongaonkar. The tribunal subjected Mr. Tongaonkar 's evidence on the question of replacement	 rehabilitation and modernisation to a close examination and held that the method adopted by Mr. Tongaonkar in distinguishing between modernisation and expansion was of a purely subjective estimate " which does not bear the scrutiny of an objective test ". On the whole the tribunal was not prepared to accept Mr. Tongaonkar 's evidence at its face value and it was not prepared to treat exhibit C 2 and consequently exhibit C 23 as reliable. It is relevant to point out at this stage that the tribunal has not made any finding about the life of the machinery nor has it recorded any conclusion as to a proper divisor. In fact it has completely left out of consideration Exs. C 2 and C 23 while determining the amount which should be allowed for the appellant 's claim for rehabilitation for the relevant year. The tribunal then examined the principle underlying the Full Bench formula and held that	 it was not 938 intended to be worked out as a rigid mathematical formula. " We must make it "	 says the tribunal	 " as flexible as possible so as to do justice to everybody concerned in the earning of profits". The general question	 which it has considered in this connection	 is how far and to what extent profits of a concern should contribute to the satisfaction of the claims of industry for replacement; rehabilitation and modernisation. It was impressed by the argument that	 where the requirements under these items are so huge as to be out of tune with the profits	 it would be open to an industrial adjudicator to allow only a reasonable provision to be made out of the profits for the said items and leave the industry concerned to tap other resources to make up the balance. In support of this conclusion it has referred to the observations made by F.R.M. de Paula in his "Principles of Auditing"	 the report of the Taxation Enquiry Commission and of the working party for the Cotton Textile Industry. It has also relied on a part of the speech delivered by Mr. J. R.D. Tata in addressing the annual general meeting of the shareholders of the Tata Iron and Steel Company in August 1950. In this connection the tribunal has expressed its apprehension that if all the money required for a continuous process of modernisation and expansion is to come out of the profits made by the concern	 labour will rarely see a day when they will enjoy bonus granted to them out of profits; though it has hastened to add that it was far from its mind that a progressive concern like the A.C.C. should not keep pace with time and modernise its machinery; but it only wished that it should give a fair deal to the workers in the distribution of the profits. Having hold that	 if the claims for rehabilitation turn out to be huge and out of tune with the profits made by the industry	 it would be open to the tribunal to grant the claim of the industry in that behalf only to the extent that it deems to be reasonable and fair	 it proceeded to consider how far and to what extent the appellant 's claim should be allowed in the present proceedings. It is necessary to mention that in dealing with this 939 question the tribunal was considerably influenced by the past conduct of the appellant. It thought that for rehabilitation the appellant had claimed no more than Rs. 192 or 193 lakhs in the previous adjudication proceedings where the dispute for bonus had reference to the year 1951 52. If the claim then made by the appellant was no more than Rs. 192 or 193 lakhs	 the present claim for Rs. 284 lakhs	 the tribunal thought	 ' was obviously inflated and unreal. Similarly the tribunal emphasised the fact that the programme earlier submitted by the appellant to the Tariff Commission was in turn more modest than the claim made in the said adjudication proceedings. It appears that in the said programme the appellant had made out a case for the estimated expenditure of Rs. 18.36 crores to be spread over a period of ten years from 1 8 1952 to 31 7 1962 and that works out approximately at the figure of Rs. 184 lakhs per year. It was on these facts that the tribunal held that " if the A.C.C. estimated its annual requirements of rehabilitation	 replacement and modernisation at Rs. 192 lakhs per year during the period of ten years commencing from 1 8 1952	 1 do not think that it should be allowed to depart from it now". In substance	 according to the tribunal	 the present claim for rehabilitation was very much inflated	 it had no relation to realities	 and so the appellant should not be allowed to make such a claim. That is why it did not think it necessary to record any finding as to the proper divisor	 and to determine	 in the light of Mr. Tongaonkar 's evidence	 what approximately would be a fair or reasonable amount for rehabilitation under the formula. It is thus clear that in making its final calculations the tribunal has assumed that the claim made by the appellant for rehabilitation	 replacement and modernisation must be taken to be no more than Rs. 192 or 193 lakhs	 and on that assumption it has considered to what extent the claim should be allowed. Ultimately the tribunal came to the conclusion that in the circumstances of the case it would be fair to allow the appellant about Rs. 165 to 170 lakhs as annual provision for the said items. In support of this conclusion 940 the tribunal has relied on the fact that for the two years 1952 53 and 1953 54 the appellant had spent about Rs. 339.76 lakhs for the purpose of rehabilitation	 replacement land modernisation and that works at the average of Rs. 170 lakhs per year. The tribunal has then taken into account the fact that the appellant had a plant reinstatement reserve of Rs. 235 lakhs and a general reserve of Rs. 76 lakhs in the beginning of the year 1953 54. If these amounts which would be available for rehabilitation are spread over the ten year period of the tentative programme planned by the appellant	 the annual figure would come to Rs. 31 lakhs; and this amount would have to be deducted from Rs. 165 lakhs which the tribunal was inclined to grant in respect of the relevant item. That is how the tribunal has made the appropriate calculations under the formula	 and has shown that	 even after the payment of one month 's additional bonus as directed by it	 the appellant would still be left with a surplus of Rs. 23.48 lakhs. That in brief is the nature and effect of the findings made by the tribunal. Before dealing with the merits of the points raised in these appeals it would be convenient to refer to the genesis and the terms of the formula which has been evolved by the Full Bench of the Labour Appellate Tribunal in the case of The Mill Owners Association	 Bombay vs The Rashtriya Mill Mazdoor Sangh	 Bombay (1) in 1950. It appears that from 1940 A. D. onwards the claims for bonus made by the employees against their employers in different industries were dealt with on an ad hoe basis from case to case. Sometimes the employers voluntarily paid bonus to their workmen; and where disputes arose they were decided by the tribunals in the light of the circumstances of each case without relying on any broad consideration of policy or without attempting to lay down any general principles. In 1948 a bonus dispute arose between the Mill Owners Association	 Bombay and its employees	 and it was referred for adjudication to the Industrial Court. In considering this dispute the Industrial Court went (1)(1950) L.L.J. 1247. 941 elaborately into the matter	 laid down certain principles and awarded to the workmen bonus equivalent in amount to 3/8 of the total basic earnings of each workman subject to certain conditions. In the subsequent year a similar dispute arose between the same parties; and it was again referred to the Industrial Court for adjudication. The Court made its award on July 7	 1950	 directing 55 mills of the Association to pay to their workmen	 whether permanent or temporary	 1/6 of the basic earnings of each of them as bonus. This award was challenged by the Association before the Labour Appellate Tribunal. It was urged on behalf of the Association that the wage structure in the textile industry had been settled by standardisation and so bonus must be regarded as a gratuitous payment; and it was argued that at any rate grant of bonus cannot be made for the purpose of making up the deficiency between the actual and living wages. These contentions were rejected by the Labour Appellate Tribunal and the question about the grant of bonus was considered on general principles on the basis of which a formula		 often described as the First Full Bench Formula	 was ultimately evolved. "As both capital and labour contribute to the earnings of the industrial concern "	 observed the appellate tribunal	 " it is fair that labour should derive some benefit if there is a surplus after meeting prior or necessary charges ". The appellate tribunal was also of the view that where the goal of living wages had been attained	 bonus	 like profit sharing	 would represent more as the cash incentive to better efficiency and production; but where the industry had not the capacity to pay a living wage bonus must be looked upon as the temporary satisfaction wholly or in part of the needs of the employee. In other words	 according to this decision	 the award of bonus is based on a two fold consideration. It is made in recognition of the fact that labour has made some contribution to the profit earned by the industry	 and so it is entitled to claim a share in it; and it is also intended to help labour to bridge or narrow down the gap	 as far as may be reasonably possible	 between the living wage to which labour is entitled and the actual wage received by it. 942 Dealing with the problem from this point of view the appellate tribunal conceded that investment necessarily implies the legitimate expectation of the investor to secure recurring returns on the money invested by him in the industrial undertaking	 and so it held that it was essential that the plant and machinery should be kept continuously in good working order for the purpose of ensuring that return. Such maintenance of the plant and machinery would necessarily be to the advantage of labour because the better the machinery the larger the earnings and the brighter the chance of securing a good bonus. On this consideration it was held that the amount of money that would be necessary for rehabilitation	 replacement and modernisation of the machinery would be a prior charge on the gross profits of the year. Since the depreciation allowed by the income tax authorities is only a percentage on the written down value the depreciation fund set apart on that basis would not be sufficient for the purposes of rehabilitation and an extra amount would have to be annually set apart nationally under the heading of 'reserves ' to make up the deficit. This position was apparently not disputed by the employees. The claim made by the industry that a fair return on the paid up capital must be secured and that ordinarily it should be paid at the rate of 6% per annum was also not disputed. The employees	 however	 challenged the claim of the industry that reserves employed as working capital should carry any interest; but their objection was overruled and it was held that working capital also would be entitled to interest though at a much lower rate than that on the paid up capital. Then the question of taxes was considered and it was agreed that a provision had to be made for taxes which would be payable on the amount determined after deducting depreciation from the gross profits less any bonus which may be awarded. In the result the appellate tribunal laid down the manner and method in which the available surplus should be determined. The notional accounting for this purpose starts with the figure of the gross profits which are 943 arrived at after payment of wages and dearness allowance	 to the employees and other relevant items of expenditure. Then a deduction for depreciation is made	 and on the notional balance thus derived a provision for taxes payable is allowed. Then follow the provisions for reserves for rehabilitation	 return on paid up capital and return on reserves employed as working capital. That gives the amount of surplus if ' any. Whenever the working of this formula leaves an amount of available surplus	 labour was held entitled to claim a reasonable share in this amount by way of bonus for the current year. This formula is based on considerations of social justice and is intended to satisfy the legitimate claims of both capital and labour in respect of the profits made by the industry in a particular year. It takes the particular year ' as a unit and makes all its notional calculations on the basis of the gross profits usually taken from the profit and loss account; in this particular case the available surplus determined by the application of the formula was found to be 2.61 crores; and out of this surplus 0.30 crores were awarded as bonus to clerks and other staff and 1.86 crores was awarded as bonus to the employees leaving a net notional balance of 0.45 crores. This Court had occasion to consider the said formula in Muir Mills Co. Ltd. vs Suti Mills Mazdoor Union	 Kanpur (1). The judgment in that case indicates that without committing itself to the acceptance of the formula in its entirety	 this Court in general accepted as sound the view that since labour and capital both contribute to the earnings of the industrial concern	 it is fair that labour should derive some benefit if there is a surplus after meeting the four prior or necessary charges specified in the formula. It is relevant to add that in dealing with the concept of bonus this Court ruled that bonus is neither a gratuitous payment made by the employer to his workmen nor can it be regarded as a deferred wage. According to this decision	 where wages fall short of the living (1) ; 120 944 standard and the industry makes profit part of which is due to the contribution of labour	 a claim for bonus can be legitimately made. However	 neither the propriety nor the order of priority as between the four prior charges and their relative importance nor their content was examined by this Court in that case; and though the formula has subsequently been generally accepted by this Court in several reported decisions (Baroda Borough Municipality vs Its Workmen (1)	 Sree Meenakshi Mills	 Ltd. vs Their Workmen (2) and The State of Mysore vs The Workers of Kolar Gold Mines (3) ) the question about the adequacy	 propriety	 or validity of its provisions has not been examined nor has the general problem as to whether the formula needs any variation	 change or addition been argued and considered. It is for the first time since 1950 that	 in the present appeals	 we are called upon to examine the formula carefully and express our decision on the merits of its specific provisions. As we have already indicated	 in dealing with the present dispute the tribunal has held that	 in working out the formula	 it could relax its provisions even though the proposed relaxation may mean a material variation of the formula itself. On behalf of the appellant Mr. Kolah has taken strong exception to this approach. He has argued that	 in the last eight years and more	 on the whole the formula has worked fairly well in the interest of both capital and labour	 and so the tribunal was not justified in departing from it in the present case. This argument undoubtedly raises a question of considerable importance. Before examining this argument	 however	 it is necessary to consider one preliminary point: Was the tribunal justified in holding that the appellant could not be allowed to add to its previous claim for rehabilitation ? The decision of the tribunal on this point seems to indicate that the tribunal thought that the appellant was estopped from making any such claim; and the correctness of this conclusion is challenged by the appellant. (1)[1957] S.C.R. 33	 39. (2) ; 	 884. (3) ; 945 It is true that	 in the report submitted by the appellant before the Tariff Commission in April 1953	 it had set out the details of its ten year programme which included	 besides replacement	 rehabilitation	 modernisation and expansion	 mechanisation of quarries as well as construction and improvement of houses for its labour staff. The report of the Tariff Commission (p. 30) shows that the cost of the programme was ' estimated at Rs. 18.36 crores	 excluding the cost of a new plant at Sindri	 or about Rs. 184 lakhs per annum. Subsequently in January 1954	 when Mr. Tongaonkar gave evidence in the previous adjudication proceedings	 he produced a statement (exhibit U 8) according to which the appellant 's annual requirements for rehabilitation would be of the order of Rs. 192 or 193 lakhs	 whereas in the present proceedings the said claim is made at Rs. 284 lakhs. A bare statement of these facts prima facie suggests that the appellant 's present claim for rehabilitation has been growing from stage to stage	 and in its present form it is very much inflated; and that is what the tribunal has also assumed. In our opinion this assumption is not wholly correct. Mr. Tongaonkar 's evidence shows that in the report of the jobs submitted to the Tariff Commission the appellant had not included all relevant items of rehabilitation	 replacement and modernisation. The report merely gave a list of the jobs which the appellant had proposed to undertake during the ten year period ending July 31	 1962. It was in no sense an exhaustive statement about the appellant 's requirements in regard to the rehabilitation of all its blocks. In fact	 having regard to the nature and scope of the enquiry before the Tariff Commission	 the report made by the appellant had to be restricted to the urgent jobs which it wanted to undertake during the execu tion of its ten year programme; and so it would not be reasonable to hold that the figure of annual rehabilitation expenses which can be deduced from the said report has any relation to the claim for rehabilitation made by the appellant in terms of the working of the formula. Then again the appellant 's claim for rehabilitation 946 in the earlier proceedings has also been satisfactorily explained by Mr. Tongaonkar. The respondents have placed considerable reliance on the statement filed by Mr. Tongaonkar in the said proceedings (exhibit U 8). This document has been produced by the respondents in support of their contention that it purports to make a claim for Rs. 192 lakhs per year 'for rehabilitation. That no doubt is true ; but in terms the document purports to show the estimated expenditure required during the ten year period there specified; and as Mr. Tongaonkar has stated	 it does not include a full statement of the claim in regard to the rehabilitation of all the blocks belonging to the appellant. In considering the respondents ' argument on this point	 it is necessary to bear in mind that in the earlier proceedings the appellant had filed a separate statement showing the amount to which it was entitled by way of rehabilitation under the formula; this statement was exhibit C 3 and it has been produced in the present case and exhibited as U 5. It appears that in the earlier proceedings the tribunal did not attach any importance to the said document and virtually ignored it because	 like the present tribunal	 it held that " it does not appear to be necessary to plan further ahead than ten years and it is desirable to base calculations of rehabilitation on realities "(1). Even so the Labour Appellate Tribunal found that the appellant 's contention that its workmen were not entitled to any additional bonus was not well founded even if its claim for rehabilitation was confined to Rs. 192 or Rs. 193 lakhs. Besides	 Mr. Tongaonkar has stated on oath that exhibit U 8 was not among the documents originally submitted by the appellant to the tribunal in 1954. it was in fact prepared and submitted at a later stage at the instance of the tribunal itself. It is	 therefore	 clear that exhibit U 8 was not intended to	 and did not supply	 the basis of the appellant 's claim in the earlier proceedings in accordance with the formula. A study of the items contained in exhibit U 8 also supports the same conclusion. Mr. Tongaonkar has (1) 	592. 947 stated that the total amount of the estimated expenditure shown in this document included only a small portion of the expenditure required for rehabilitation of the post 1944 block. It is true that Mr. Tongaonkar 's statement that in the said total amount nearly Rs. 50 lakhs represent the amount for replacement or rehabilitation of post 1944 block is inaccurate. The Chaibasa Cement Factory and the Sevalia Cement Factory for the rehabilitation of which Rs. 64.98 and 85.15 lakhs have been claimed in exhibit U 8 are undoubtedly parts of the post 1944 block and the amounts claimed for them are very much more than Rs. 50 lakhs. It is nevertheless clear that 'the items in exhibit U 8 do not include a claim for rehabilitation for all the blocks of the appellant	 and it is not surprising either	 because a claim for the rehabilitation of all the blocks had been separately made by the appellant in the earlier proceedings under exhibit C 3. Thus there can be no doubt that neither the report submitted by the appellant before the Tariff Commission nor the estimate given by exhibit U 8 was prepared under the formula; and so any disparity in the amounts claimed in the two earlier documents cannot be seriously pressed into service against the appellant when it seeks to make a claim for rehabilitation strictly in accordance with the formula. We must	 therefore	 hold that the tribunal was in error in coming to the conclusion that by reason of its previous conduct the appellant could not be allowed to place its claim for rehabilitation at a figure higher than Rs. 192 lakhs in the relevant year. In this connection it would be pertinent to remember that in dealing with the employer 's claim for rehabilitation the tribunal is called upon to assess respective values of the relevant factors on hypothetical and empirical considerations	 and so it may generally not be useful or wise to take recourse to strict legalistic principles like estoppel in deciding this question and indeed all material questions in industrial adjudications. Does the formula need to be revised	 and should it be revised and reconstructed ? That is the question 948 which we must now consider. It appears that some tribunals have taken the view that the rigid working of the formula may defeat its object of recognising the social justice of labour 's claim for bonus and so they have made suitable adjustments in its operation. It is this approach which has raised the larger issue of principle in the group of appeals which have been placed for disposal before the Constitution Bench. So we must examine this question in its broad aspects and if we decide not to change the formula we must state what	 in our opinion is the content of the different items mentioned in the formula and how they should be calculated and mutually adjusted. Let us first set out the case as it has been made for changing the formula. It is 'urged that though the formula purports to recognise the principle of social justice on which labour 's claim for bonus is based	 it does not accord to the said claim the high priority it deserves. Social justice has been given a place of pride in the preamble to the Constitution and it has been enshrined in the Directive Principles under articles 38 and 43. Since 1950	 ideas about social and economic justice have made an appreciable progress and they require the readjustment of priorities prescribed by the formula in favour of the claim for bonus. It is also contended that experience in industrial adjudication during the last eight years and more shows that employers are becoming increasingly more rehabilitation conscious and their appetite for the provision of rehabilitation is fast growing from year to year. In the present case	 for instance	 though the appellant occupies a dominant position in its line of trade and though it makes large profits	 it has made such a tall claim for rehabilitation that if the said claim is allowed the working of the formula leaves no available surplus from which bonus can be granted to labour. The appellant has no doubt paid bonus for three months and it is unlikely that the appellant would depart from its practice of paying the said bonus even in future; but that does not affect the 949 position that in the light of the appellant 's claim for rehabilitation the working of the formula would not justify the grant of any bonus to labour. This shows that the notional claim for rehabilitation which an employer can make under the formula tends to be completely divorced from the reality or actuality of the need of rehabilitation; and that needs to be corrected. Besides	 it is said	 that the theory that the trading profits of the industry must provide for the whole of the rehabilitation expenses is not universall accepted by enlightened and progressive businessmen and economists. In this connection reliance is placed on the observations of F. R. M. de Paula in his " Principles of Auditing " that " the object of depreciation is the replacement of original investment capital and that an increase in replacement cost is an important matter and means that additional capital is required in order to maintain the original earning capacity ". It is also pointed out that the Institute of Chartered Accountants in England and Wales	 in its recommendations made in 1949 under the heading " Rising price levels in relation to accounts " has pointed out that " the gap between historical and replacement costs might be too big to be bridged by a provision made for replacement spread over a period of years either by way of supplementing the depreciation charges or by setting up in lieu of depreciation a provision for renewals based on estimated replacement costs ". It is therefore suggested that in revising the formula the claims for rehabilitation should be fixed at a reasonable amount and industry should be required to find the balance from other sources and if necessary from its share in the available surplus. In this connection it is pointed out that when the Labour Appellate Tribunal evolved the formula it was dealing directly with the needs of the textile industry and there was no dispute that the plant and machinery of the textile industry had become old and obsolescent and needed immediate replacement	 rehabilitation and modernisation. It is doubtful whether	 in giving priority to the claim for rehabilitation in the 950 context of the needs of the textile industry with which the appellate tribunal was concerned	 it really intended that rehabilitation should be claimed 'by every industry on theoretical considerations whether or not the said claim was justified by its actual or practical need for rehabilitation. In substance the argument is that the Full Bench of the Labour Appellate Tribunal evolved its formula in order that labour may get a reasonable share in the available surplus and may thereby receive assistance in filling up the gap between its actual wage and the living wage which it looks forward to receive in due course; and if it is found that	 in working out the items which are treated as prior charges	 in a majority of cases the formula leaves no available surplus	 then its main object is frustrated and that is the justification for revising it and readjusting its priorities. In support of this view reliance has also been placed on the recommendations of the Committee on 'Profit sharing '. This Committee had been appointed in 1948 to advise the Government of India " on the principles to be followed for the determination of (a) fair wages to labour	 (b) fair return to capital employed in the industry	 (e) reasonable reserves for the maintenance and expansion of the undertaking	 and (d) labour 's share of the surplus profits	 calculated on a sliding scale normally varying with production	 after provision has been made for (b) and (c) above ". The Committee viewed its problem from three im portant angles	 viz.	 " profit sharing as an incentive to production	 profit sharing as a method of securing industrial peace	 and profit sharing as a step in the participation of labour in management ". The Committee recognised that putting back profits into the industry is one of the most useful forms of capital investment and this should be encouraged and it recommended that a figure of 20% for reserves should be generally aimed at	 though it considered that	 as a first charge	 10% of the net profits should be compulsorily set aside for reserves	 leaving it to the good sense of the management to allocate the balance or more out of their own share of surplus profits. In regard 951 to the labour 's share in the surplus profits	 the Committee stated that	 having due regard to the conditions prevailing in the industry selected for an experiment in profit sharing	 it had come to the conclusion that labour 's share should be 50% of the surplus profits of the undertakings. It is a matter of common knowledge that so far Government have not thought it desirable	 expedient or possible to legislate in this matter in the light of the recommendations made by this Committee; but it is suggested that these recommendations afford a rational basis for reconstructing the formula. It may be conceded that there is some force in some of the arguments urged in support of the plea that the formula should be revised and its priorities should be readjusted and redefined; but	 on the other hand	 we cannot ignore the fact that on the whole the formula has worked satisfactorily in a large number of industries all over the country. Except for a few cases	 particularly in Bombay	 where some of the tribunals have taken the view that	 in its rigid form	 the formula has become unworkable from the point of view of labour	 in a majority of cases industrial disputes arising between employers and their workmen in regard to bonus have been settled by tribunals on the basis of this formula; and it would not be unreasonable or inaccurate to say that by and large labour 's claim for bonus has been fairly and satisfactorily dealt with. The main source of contest in the working of the formula centres round the industry 's claim for rehabilitation; but	 as we shall presently point out	 if this claim is carefully scrutinised and examined in the light of evidence which the employer has to produce in support of his claim	 even the settlement of this item would	 as it is intended to	 invest the tribunal with sufficient discretion to make the working of the formula elastic enough to meet its two fold object of doing justice both to industry and labour. It is true that in the working of the formula employers sometimes make an attempt to add items to the list of prior claims. In The State of Mysore vs The 121 952 workers of Kolar Gold Mines (1)	 it was urged before this Court by the industry that it was a wasting industry and as such it needed special consideration. The contention was that for the prosperity and longevity of the industry a special provision for the prospecting of new ore has to be made and that should be added as an additional item in the list of prior charges. This argument was	 however	 rejected and it was held that the special features of the industry would be taken into account in determining the amount which could be reasonably claimed under rehabilitation. This decision shows the reluctance of this court to vary or add to the formula which oil the whole has so far worked fairly satisfactorily. The theory that the whole of the rehabilitation charges need not come out of the trading profits of the industry does not appear to be generally accepted. As has been observed by Paula himself: " In the past the accepted principle has been that the main object of providing for the depreciation of wasting assets is to recoup the original capital invested in the purchase of such assets. As part of the capital of the concern has been invested in the purchase of these assets	 therefore	 when their working life comes to an end	 the earning capacity of these assets ceases. Thus they will become valueless for the purposes of the business	 and the original capital sunk in their acquisition	 less any scrap value	 will have been lost. Hence	 in order to keep the original capital of a business intact	 if any part thereof is invested in the purchase of ' wasting assets	 revenue must be held back by means of depreciation charges to profit and loss account	 in order to replace the capital that is being lost by reason of the fact that it is represented by assets that are being consumed or exhausted in the course of trading or seeking to earn income It is also stated by the same author that " in all cases where One of the direct causes of earning revenue is gradually to consume fixed assets of wasting nature	 the depreciation of such assets should be provided for out of revenue " (3). It is true (1) ; (2) F.R.M. de Paula 's Principles of Auditing '	 1957	 P. 136. (3) Ibid	 p. 138. 953 that the author recognises that " owing to the very considerable increase in the price level since the termination of the 1939 45 war	 industry is finding its original money capital insufficient for its needs. Thus the cost of replacement of fixed assets has greatly increased and in addition	 further working capital is required to finance a given volume of production. Many economists	 industrialists	 and accountants contend that provision should be made	 in arriving at profits	 for this increased capital requirement ". Having noticed this view the author adds that " at the time of writing this matter is still being debated and final decisions have not yet been reached "	 and he concludes that " until a final solution of this complex problem is reached it would be inadvisable for the auditor to act on any principle other than that recommended by the Institute "(1); and that principle appears to be that depreciation should be provided for out of revenue. Besides	 it must be borne in mind that	 in adjusting the claims of industry and labour to share in the profits on a notional basis	 it would be difficult to repel the claim of the industry that a provision should be made for the rehabilitation of its plant and machinery from the trading profits. On principle the guaranteed continuance of the industry is as much for the benefit of the employer as for that of labour; and so reasonable provision made in that behalf must be regarded as justified. The recommendations made by the Committee on Profit sharing ' cannot be of much assistance because they raise questions of policy and principle which Legislature can more appropriately consider. If the Legislature feels that the claims for social and economic justice made by labour should be redefined on a clearer basis it can step in and legislate in that behalf. It may also be possible to have the question comprehensively considered by a high powered commission which may be asked to examine the pros and cons of the problem in all its aspects by taking evidence from all industries and all bodies of workmen. The plea for the revision of the formula raises an issue (1)F.R.M. de Paula 's Principles of Auditing '	 1957	 P 80. 954 which affects all industries; and before any change is made in it	 all industries and their workmen would have to be heard and their pleas carefully considered. It is obvious that while dealing with the present group of appeals it would be difficult	 unreasonable and inexpedient to attempt such a task. That is why we think that labour 's claim for bonus should be decided by tribunals on the basis of the formula without attempting to revise it. Whilst we are not prepared to accede to the argument that the formula should be revised	 we wish to emphasise that the formula is elastic enough to meet reasonably the claims of the industry and labour for fairplay and justice. In its broad features it recognises the claims of the industry and tabulates them under different items as prior charges	 and then provides for the distribution of available surplus between the labour	 the industry and the shareholders. The items specified in the formula have to be worked out notion ally on theoretical grounds; in determining the content of each one of the items it is therefore essential to scrutinise and weigh carefully all the relevant and material facts. If the content of each item is determined objectively in the light of all relevant and material facts	 the tribunals would generally find it possible to make reasonable adjustments between the rival claims and provide for a fair distribution of the available surplus. In this sense it is necessary to treat the formula as elastic and not rigid in working out detailed calculations under it. We have no doubt that if the industry and labour genuinely desire to settle the disputes as to bonus without the intervention of the conciliator or the adjudicator	 the formula would help them to arrive at a reasonable settlement. If the employer does not make an unduly inflated claim under the items which safeguard industry 's interests	 and if workmen do not make an exaggerated demand for bonus	 it would normally not be beyond the co operative effort of the parties to arrive at a reasonable figure which should be paid to labour by way of bonus from year to year. It is unnecessary to emphasise that industrial disputes 955 settled amicably are in the interest of both capital and labour. Amicable settlements of such disputes lead to ' peace	 harmony and co operation between capital and labour and that invariably helps more production which is a matter of great national importance at present. But unfortunately	 in many cases	 both the industry and labour do not appear to be too keen on settling ' these disputes amicably	 with the result that claims for bonus give rise to disputes year after year and inevitably the machinery under the Industrial Disputes Act is set in motion. Conciliation efforts are made but they do not succeed; then reference is made under section 10 of the Act and the dispute is taken before the tribunal; since both the parties are not in a mood to co operate with each other	 over statements are made on both sides	 allegations are met by counter allegations and they are sought to be supported by evidence. In such a case the tribunals must examine the rival contentions and scrutinise the evidence adduced by the parties objectively and in a judicial manner. If proper evidence is led and it is judicially weighed	 the tribunal would be able to work the formula in a reasonable manner and arrive at a result which would be substantially in conformity with the object underlying the formula. It is obvious that	 in making the relevant calculations under the items of prior charges specified in the formula	 the tribunals should have a clear idea as to the content of each one of the said prior charges; and so it is necessary to examine carefully this aspect of the matter. We have already noticed that the formula for awarding bonus to workmen is based on two considerations; first that labour is entitled to claim a share in the ' trading profits of the industry because it has partially contributed to the same; and second that labour is entitled to claim that the gap between its actual wage and the living wage should within reasonable limits be filled up. The concept of labour 's contribution to the profits of the industry has reference to the contribution made by the employer and the workmen taken together as a class; and so it would 956 not be relevant to	 inquire which sectionof labour has contributed to what share of the profits. The board idea underlying this concept is that the capital invested by the employer and labour contributed by workmen jointly produce the profits of an industry. This does not necessarily mean that	 in theindustry in question	 labour must actually manufacture or produce goods	 though	 in the case of manufacture and	production of goods contribution of labour. is patent and obvious. In the Burma Shell Oil Storage and Distributing Co.	 of India Pd. vs Their	 Workmen(1) the Labour Appellate Tribunal rejected the employers ' claim that	 since workmen employed by them did not manufacture or produce any goods but merely assisted them in the distribution Of oil	 they were not. entitled to claim any bonus under the formula. It is wrong to say "	 observed the labour Appellate	 Tribunal	 that because the employees of these oil companies merely market the oil they have not earned the right to any bonus". It was also Pointed out that the workmen had to perform :duties of various intensity for marketing an article of public. utility	. and in that sense they contribute to	 production according to the concept of economists". So were the clerks held entitled to bonus for	their duties in the	 general business of the concern though	 they had nothing to do with the physical act of marketing the commodity it was also emphasised that the other object of granting the bonus was to help the workmen to fill up the gap between their actual wages and the living wage. Thus in dealing with the claim for bonus made by workmen the two fold basis of the formula must always be kept in mind. The working of the formula begins with the figure of gross profits taken from the profit and loss account which are arrived at after	payment of wages and dearness allowance to the employees and other items of expenditure. As a general rule the amount of gross profits thus ascertained is. accepted without submitting the statement of the ' profit and loss 'account to a close scrutiny. If	 however	 it appears that (1)(1953) 957 entries have	 been made on the debit side	 deliberately and mala fide to reduce the amount of gross profits	 it would be open to the tribunal to examine the question and if it is satisfied that the impugned entries have been made mala fide it may disallow them. This principle has been recognised by the Labour Appellate Tribunal when it observed	 for instance	 in M/s. J. K. Cotton Manufacturers Ltd.	 Kanpur vs Their Workmen (1) that if managing agents deliberately divert profits to the selling	 agents with a view to deprive labour of their bonus and pay commission to the selling. agents at high rates then certainly the matter must be taken into consideration in the determination of available surplus balance " It would likewise be open to the parties to claim the exclusion of items either on the credit or on the debit side on the ground that the impugned items are. wholly extraneous and entirely unrelated to the trading profits of the year. In considering such a plea the tribunal must resist the temptation of dissecting the balance sheet too minutely or of attempting to reconstruct it in any manner. It is only glaring cases	 where the impugned item may be plently and obviously extraneous that a plea for its exclusion should be entertained. Where the employer makes profits in the course of carrying on his trade or business	 it would be unreasonable to inquire whether each one of the	 items of the said profit is related to the contribution made by labour. In such matters	 the tribunal must take an overall	 practical and commonsense view. Thus it ma be stated that as a rule the gross profits appearing at the foot of the statement of the profit	 and loss account should be taken a	% the basic figure while working out the formula. In	 working out the formula the other important fact which should not be ignored is	 that the formula proceed 's to deal with the labour 's claim for bonus on the basis that the relevant year for which bonus is claimed is a self sufficient unit and the appropriate accounts have	 to. be made on the notional basis in respect of the said	 It is substantially because (1)[1954] L.A.C. 716	 745. (Also vide 	 421.) 958 of this basic assumption that if an employer receives during the bonus year a refund with respect to the excess profits tax paid by him in a previous year the amount of refund is not included on the credit side. In Model Mills etc. ' Textile Mills	 Nagpur vs The Rashtriya Mill Mazdoor Sangh (1) the Labour Appellate Tribunal observed that according to the. formula	 the income tax is to be deducted as a prior charge on trading results of the year just as much as the bonus is to be ascertained upon the trading results of the year. The concession made by the income tax authorities in making a refund of the excess profits tax already paid by the employer is intended to aid a concern on account of past losses and so it has nothing to do with the formula. The same principle governs cases where owing to a loss incurred in the previous year or years the employer is entitled to claim allowance for adjustment under section 24 (2) of the Income tax Act during the bonus year; and so it is held that the allowance for adjustment which the employer claims cannot be taken into account in determining the amount of income tax payable on the profits of the bonus year under the formula. In Bennett Coleman and co.	 Ltd. vs Their Workmen (2) the Labour Appellate Tribunal rejected the contention raised by labour that since under section 24 (2) the employer would not be liable to pay tax during the bonus year no provision for payment of tax should be made in working out the formula. The Labour Appellate Tribunal pointed out that the fact that the employer was not required to pay tax during the bonus year was the result of the adjustment of the previous year 's unabsorbed depreciation and losses against current year 's profit	 and that had no relevance in determining the available surplus from the trading profits of the bonus year. The same view has been taken in several other decisions to which the Labour Appellate Tribunal has referred. In our opinion	 once it is realised that in working out the formula the bonus year is taken as a unit self sufficient by itself	 the decisions of the Labour Appellate Tribunal in regard (1) (1955) I J. 534	 540. (2) (1955) I J. 60. 959 to the refund of excess profits tax and the adjustment of the previous year 's depreciation and losses against the bonus year 's profits must be treated as logical and sound. Having ascertained the amount of gross profits	 the first item of deduction relates to depreciation. The propriety of this deduction was not questioned before the Labour Appellate Tribunal which evolved the formula; but the content of the item of depreciation became a matter of controversy subsequent to 1950. After 1948	 section 10 (2) (vi) of the Income tax Act has provided for initial and additional depreciation besides the statutory depreciation which was already admissible. In other words	 depreciation allowed under the Income tax Act now consists of what may be called the statutory normal depreciation calculated under r. 8 as well as initial depreciation and additional depreciation. The allowance of these depreciations is an exception to the general rule that the income has to be taxed without reference to the diminution in the value of the capital. Under the amended provision of section 10 (2) (vi) of the Income tax Act the employers began to claim that from the gross profits all the depreciations admissible under the Income tax Act should be debited; and this claim was upheld by some tribunals and rejected by others. This conflict of decisions led to confusion; and so a Full Bench of the Labour Appellate Tribunal was constituted to decide this and other points in the case of the U. P. Electric Supply Co.	 Ltd.	 etc. Electricity Supply Undertakings vs Their Workmen(1). The Full Bench held that " the depreciation which should be deducted from the gross profits in working the formula is annual depreciation allowable under the provisions of the Income tax Act including the multiple shift depreciation; it also held that the initial depreciation and additional depreciation which were also allowed under the Income tax Act are abnormal additions to the income tax depreciation designed to meet particular contingencies and for a limited period; (1) (1955) II J. 431. 122 960 and so it would not be fair to the workmen that these two depreciations should be rated as prior charges before the available surplus is ascertained ". Apparently some doubt arose as to what exactly was allowed to be deducted under this Full Bench decision; and two of the members of the Full Bench took occasion to clarify the position in Surat Electricity Co. 's Staff Union vs Surat Electricity Co.	 Ltd. (1). This decision shows that what the Full Bench intended to treat as depreciation for the purpose of the formula was a notional amount of normal depreciation; in order to avoid any future doubt or confusion	 the judgment in the case has set out the manner in which this notional normal depreciation has to be worked out. Since this decision was pronounced it is the notional normal depreciation that is deducted from the gross profits in working the formula. It seems to us that the view taken by the Full Bench is wholly consistent with the basic idea of social justice on which the original formula is founded. The relevant provisions of the Income tax Act allowing further depreciation are based on considerations which have no relevance to the original formula; indeed	 as the Full Bench has pointed out	 if the said two items of depreciations are allowed to be deducted from the gross profits it would in a majority of cases defeat the object of the formula itself. We would accordingly hold that the depreciation which has to be deducted from the gross profits should be the notional normal depreciation as explained in the case of Surat Electric Co.	 Ltd. (1). The balance obtained after deducting depreciation from the gross profits is then taken as the amount on which calculations have to be made about the income tax payable for the bonus year. This item gives rise to a controversy between the parties. It is urged for the employers that in determining the amount payable by way of income tax on this balance the tribunal should not take into consideration allowances which are made under the relevant provisions of the Income tax Act. There is no doubt that in taxing the employer for the bonus year the Income tax Act would (1)(1957) II L. L. J. 648. 961 make allowance not only for the normal depreciation but also for the initial and additional depreciations; but the argument is that the income tax should be determined nationally without reference to the said allowances. In support of this argument it is further urged that though the employer may obtain credit for the two further depreciations for some years	 later on the said allowances will not be made and his liability ' to pay tax would be correspondingly increased. It is but fair	 so the argument runs	 that the employer should be allowed to create a fund of income tax reserve from which he would be able to bear his tax liability in future as and when it is bound to increase. On the other hand it is contended on behalf of workmen that while determining the amount of tax payable for the bonus year the tribunal cannot ignore the concession given to the employer by the Income tax Act by making the allowance of two further depreciations. What the employer claims is not the amount of tax payable during the bonus year but much more in addition in order to build up a reserve and this notion of building up a tax reserve for meeting future	 though certain	 increased tax liability is foreign to the basic idea of the formula. For making calculations under the formula the bonus year is taken as a unit and all items specified in the formula should be worked out on that basis. That is why the refund of the excess profits tax received in the bonus year is excluded from consideration and the right of the employer to adjust his previous year 's losses and depreciation against the trading profits of the bonus year is likewise ignored. So too the fact that the employer may have to pay increased taxes in future years must be treated as irrelevant. That in brief is the case for workmen. In our opinion	 having regard to the basis of the formula and the manner in which the other items of the formula are required to be worked out	 it would not be reasonable to allow the employer to claim under the item of income tax an additional amount is respect of the two further depreciations which are expressly allowed to him under section 10(2)(vi) of the Income tax 962 Act. It is clear that the amount determined under this item would not represent the actual tax which the income tax department will recover from the employer. In that sense it would always be a notional amount ; but in calculating even this notional amount it would be unfair and unjust to ignore the concessions allowed to the employer by section 10(2)(vi). The creation of a fund of income tax reserve may conceivably lead to unnecessary complications. Besides	 if on principle the further depreciations allowed by the Income tax Act are treated as inadmissible under the formula and so are excluded from consideration	 it would be substantially inconsistent with the object of such exclusion to allow the employer to claim tax in respect of the said amounts of the two depreciations. It is clear that even if the amount of income tax is determined after taking into account the concession given to the employer by section 10(2)(vi) it would work no hardship to the employer	 for the simple reason that in future years when these concessions cease to be operative and his liability to pay the tax correspondingly increases	 he would be entitled to claim the amount of income tax which would then be payable by him. This method of calculating income tax is thus fair to both the parties and it has besides the merit of being consistent with the basic character of the formula. It would be relevant in this connection to remember that	 though in most of the industries workmen continue to be employed from year to year	 nationally and on principle	 the claim for bonus for a particular year is made on behalf of workmen employed during the said year; and in that sense	 the relevant calculations have to be made with the bonus year as a unit. That is why considerations of future tax liability of the employer are foreign to the calculation under the formula. We would	 therefore	 bold that in calculating the amount of tax payable for the bonus year the tribunals should not take into account the concessions given by the Income tax Act to the employers under the two more depreciations allowed under section 10(2)(vi) of the Income tax Act. This point has been considered by this Court in 963 Sree Meenakshi Mills	 Ltd. vs Their Workmen (1) where has upheld the view taken by the Full Bench the Labour Appellate Tribunal in the case of the U. Electric Co.	 Ltd.	 etc.	 Electricity Supply Undertakings (2) and has directed that in determining amount of income tax payable during the bonus yea the further depreciations permissible under the income tax Act should be taken into account. We would only like to add that in that case this Court had occasion to say what exactly the normal depreciation meant; but it is clear that the normal depreciation mentioned in the judgment was not intended to mean anything other than the notional normal depreciation as explained by the Labour Appellate Tribunal in the case of the Surat Electric Co.	 Ltd. (3 ). The amount income tax thus determined has then to be deduct( as a prior charge. The next step in the working of the formula related to the deduction of an appropriate amount in respect of the return on paid up capital as well as working capital. We have already noticed that the formula provides generally for the payment of interest at 69 per annum on the paid up capital and at 2% on worldling capital. Subsequent decisions show that the tribunals do not regard the said rates as inflexible and they have suitably modified them in the light of the relevant circumstances in each case. We think that this is a correct approach and that it is necessary to fix the rates of interest on the two items of paid up capital and working capital according to the circumstances of each case. In this connection it may be added that ordinarily industrial tribunals awards interest at the rate of 6% per annum on paid up capital. In Workmen of Assam Co.	 Ltd. vs Assam Co.	 Ltd. this Court held that interest allowed by the tribunal a 7% on paid up capital and confirmed by the Labour Appellate Tribunal was justified because " an industry connected with agriculture like the tea industry is exposed to greater risks than any other industry such (1) ; (3) (2) (1955) II L.L.J. 431. (4) 964 weather	 pests in the plants and gradual deterioration of the soil ". On the other hand	 in Ruston and ornsby (India) Ltd. vs Their Workmen (1) the Labour appellate Tribunal allowed only 4% return on the art of paid up capital represented by bonus shares for the year in which such shares were issued and 	)served that 	for subsequent years no distinction between it and other paid up capital represented by paid up shares should be made ". Similarly	 in regard reserves or depreciation used as working capital interest has been allowed either at 4% or at 3% or 	Ten at 2% according to the relevant circumstances. in the Mill Owners Association	 Bombay vs The Rashtriya Mill Mazdoor Sangh (2) the Labour Appellate Tribunal has observed that " as we have said before	 there is no fixed rule as to the rates of such return (on capital) and each case must depend on its individual acts. We have in appropriate cases given as high as % but in case of the mills the Full Bench has considered that the equivalent of 2% would be reasonable nd we propose to retain it at that level for the present ". In Tea and Coffee Workers Union vs Brooke Bond (India) (Private) Ltd. (3) the Industrial Tribunal as considered the previous decisions on the question of the return on working capital and held that	 in the case before it	 it would be an adequate return on the working capital if 3% interest is allowed because there were no special reasons existing for allowing a higher ate. In dealing with this aspect of the matter it is relevant to point out that no distinction has been made )y tribunals between reserves used as working capital and depreciation fund similarly used. In the Mill Owners Association	 Bombay vs The Rashtriya Mill Mazdoor Sangh (2) (page 523) when labour objected to the depreciation fund earning any return even if it was utilised in or about the business of the year	 the labour Appellate Tribunal overruled the objection and observed that " no essential difference could be made between the depreciation fund and any other (1) (2) 522. (3)(1958) 965 fund belonging to the company which could be invested so as to earn a return ". 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 art adequate return on it. We think it is commonsense 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. It is of course necessary that the employer must show that the amount under the depreciation fund was in fact available and that it has actually been used as working capital during the relevant year. What return should be allowed on such funds must inevitably be a question of fact to be decided by the tribunal in its discretion in each case in the light of the relevant circumstances. It would thus be noticed that in working out these two items under the formula there is no fixed or rigid rule about the rate of interest which can be claimed and awarded. It is also clear that if any fund is used by the employer for the purpose of expanding his business he is not entitled to claim any return on such fund under those items. In the case of the U. P. Electric Supply Co.	 Ltd. etc. Electricity Supply Undertakings (1) the Full Bench of the Labour Appellate Tribunal held that " considering all the factors presented to them they did not think that a case had been made out for giving a special prior charge in the shape of return on the reserves utilised for expansion ". When the amounts awardable to the employer under these two items are determined they have to be treated as prior charges in the calculation of available surplus under the formula. The original formula referred to replacement	 rehabilitation and modernisation of the plant and machinery. Soon after the formula was evolved a dispute arose as to whether the industry was entitled to claim rehabilitation for its buildings as well and it was held that " a claim for rehabilitation for buildings had to (1) (1955) II L.L.J. 431. 966 be treated as a prior charge just like the claim for the rehabilitation of plant and machinery " (1). :This position is not disputed before us	 and we think rightly. That takes us to the item of rehabilitation and it is this item which poses a very difficult problem. 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. Since the Second World War prices of industrial plant and machinery have registered a continuous upward rise and its inevitable consequence has been a proportionate rise in the claim for rehabilitation. In considering the claim for rehabilitation it is first necessary to divide the blocks into plant and machinery on the one hand and other assets like buildings	 roads	 railway sidings	 etc.	 on the other. Then the cost of these separate blocks has to be ascertained and their probable future life has to be estimated. Once this estimate is made it becomes possible to anticipate approximately the year when the plant or machinery would need replacement; and it is the probable price of such replacement on a future date that ultimately decides the amount to which the employer is entitled by way of replacement cost. This problem can be considered item wise where the industry does not own too many factories and item wise study of the plant and machinery is reasonably possible; but if the industry owns several factories and the number of plants and machines is very large it would be difficult to make a study of the replacement costs item wise	 and in such a case the study has to be blockwise. In either case what the tribunal has to estimate is the probable cost of replacement of plant and machinery at the time when such replacement would become due. It would be clear that the decision of this question would inevitably depend upon several uncertain (11) 	 522. 967 factors. The estimate about the probable life of the plant and machinery is itself to some extent a matter of guess work and any anticipation	 however intelligently made	 about the probable trend of prices during the intervening period would be nothing but a guess. That is how	 in the determination of this problem	 several imponderables face the tribunals. One of the points which raises a controversy in this ' connection is: What level of prices should the tribunal consider in making its calculations about the probable cost of replacement ? Would it be the price level prevailing during the bonus year or that prevailing at the time when the tribunal holds its enquiry ? Prima facie it may appear that it is the price level prevailing in the bonus year that should be treated as relevant; but if the relevance of the evidence about the price level is limited only to the bonus year	 it may hinder rather than help the process of a satisfactory determination of the probable cost of replacement. What the tribunal has to do in determining such cost is to project the price level into the future and this can be more satisfactorily done if the price level which has to be projected into the future is determined not only in the light of the prices prevailing during the bonus year but also in the light of subsequent price levels. It seems to us that in order to enable the tribunal to make an estimate in this matter as near actualities or realities as possible it is necessary that the tribunal should be given full discretion to admit all relevant evidence about the trend in price levels. The price level during the bonus year would no doubt be admissible; but that alone should not be taken as the basis for decision. That is the view which the tribunals have taken in a majority of cases in dealing with the question of rehabilitation and we do not think that there is any justification for disturbing the usual practice in that behalf. The problem of determining the probable cost of replacement itself is very difficult; but the difficulty is immeasurably increased when it is remembered that the claim for rehabilitation covers not only cases of 123 968 replacement pure and simple but of rehabilitation and modernisation. In the context rehabilitation is distin guished 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. At this stage it is relevant to remember that the claim under this item is confined to rehabilitation	 replacement and modernisation. It is common ground that expansion of the plant and machinery is not included in this item; but in several cases it is not easy to distinguish between modernisation of the plant and machinery and its expansion. It is urged that an expert can	 if he so chooses	 make an attempt to include expansion within what he may describe as modernisation by clever use of technical words and details	 and that it is precisely this aspect of the matter which has to be carefully examined by the tribunal. The industry sometimes claims that a plant may become obsolescent because it has become out of date and has to be substituted by a new modern plant. Is the introduction of the new modern plant in such circumstances an item of expansion or mere modern isation ? It is difficult to lay down any general tests which would govern the decision of this question. 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 of giving service was uneconomic and other 969 wise 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. 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. We have set out these considerations in order to emphasise the fact that in dealing with the problem of rehabilitation the tribunal must carefully examine the evidence and consider the employer 's claim in all its aspects before determining the amount which should be allowed by way of rehabilitation as a prior charge in the relevant year. The decision on the question of the probable cost of rehabilitation is always reached by adopting a suitable multiplier. This multiplier is based on the ratio between the cost price of the plant and machinery and the probable price which may have to be paid for its rehabilitation	 replacement or modernisation. Since there has been a continuous rise in the prices of industrial plant and machinery the older the plant which needs rehabilitation the higher is the multiplier. That is why there is always a competition between industry and workmen on this point. Industry is sometimes tempted to keep its old pre 1939 block alive with a view to claim a higher multiplier which gives it a larger amount of rehabilitation expenditure; whereas workmen urge that the old pre 1939 block has been nominally kept alive as a device and so press for a lower multiplier which would reduce the claim for rehabilitation. Once a proper multiplier is adopted in respect of each one of the blocks the first step in determining the probable cost of rehabilitation can be easily taken. It then becomes a matter of mere arithmetical calculation. At this stage the divisor steps in. The total amount required for rehabilitation which is determined by the 970 application of a suitable multiplier in respect. of each block has to be divided by a suitable divisor in respect of each block in order to ascertain the annual requirement of the employer in that behalf year by year. In the case of the divisor the employer seeks for a lower divisor whereas workmen claim a higher divisor and this contest has to be decided by the tribunal by reaching a fair conclusion on the evidence before it about the probable future life of the block in question. It would thus be noticed that the adoption of a suitable multiplier and divisor plays a very important part in the decision of the vexed question about the employer 's rehabilitation claim. Before actually awarding an appropriate amount in respect of rehabilitation for the bonus year certain deductions have to be made. The first deduction is made on account of the breakdown 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. " It would thus be clear that the decision of this major item in the working of the formula presents many difficulties; and in the last analysis its decision depends upon several hypothetical and empirical considerations. It is	 therefore	 not surprising that in the case of Metal Box Co. of India	 Ltd. vs Its Workmen (1) the Labour Appellate Tribunal has observed that " It is unfortunately too true that all (1) 	 321. 971 our calculations as to rehabilitation may be disproved by subsequent events; it is impossible to say what the trend of world prices would be in the next fifteen years or which circumstances will intervene before that period to upset such calculations one way or the other	 and no calculations of this kind are capable of mathematical accuracy. We have to take a commonsense view of these matters and make an allowance ' for rehabilitation to the best of our ability and in accordance with our formula ". It has also been observed by the Labour Appellate Tribunal that if an appropriate multiplier and divisor are determined " they are generally used because the tribunals take the view that the reconsideration of the said multiplier and divisor should not be hastily undertaken and could be justified only on the basis of a substantial change of a stable character extending or likely to extend over a sufficient number of years so as to make a definite and appreciable difference in the cost of replacement ". (Vide: The Mill Owners Association Bombay vs The Rashtriya Mill Mazdoor Sangh (1) In dealing with the employer 's claim for rehabilitation tribunals have always placed the onus of proof on the employer. He has to prove the price of the plant and machinery	 its age	 the period during which it requires replacement	 the cost of replacement	 the amount standing in the depreciation and reserve fund	 and to what extent the funds at his disposal would meet the cost of replacement. If the employer fails to lead satisfactory evidence on these points tribunals have on occasions totally rejected his claim for rehabilitation. (Vide: Ganesh Flour Mills Co. Ltd.	 Kanpur vs Ganesh Flour Mills Staff Union	 Kanpur (2); Bombay Gas Co. Ltd. vs Their Workmen (3); Dharangadhra Chemical Works Ltd. vs Its Workmen (4)). If the tribunals are satisfied that the employer is deliberately and without a sufficient cause not taking any steps to rehabilitate	 replace or modernise his machinery even though an appropriate allowance is made in that behalf from year to year	 they may take into (1)(1952) (3)(1955) (2) (4) 972 account this conduct in determining the extent of such allowance in the bonus year in question. Similarly if it appears that the employer has deliberately or mala fide refrained from rehabilitating or replacing his old machinery with a view to claim a higher multiplier in calculating the rehabilitating amount	 the tribunals may take his conduct into account in determining the actual allowance of rehabilitation to him. The main difficulty in deciding questions about reha bilitation arises from the fact that satisfactory evidence is not always placed before the tribunals and it is urged that the evidence given by the employers ' experts is interested and the workmen with their limited resources are not able to test the said evidence by adequate or effective cross examination. In such a case the tribunal may	 if it so desires and if it is possible	 secure the assistance of assessors (vide section 38 of the Industrial Disputes Act). It is therefore necessary that the tribunal should require the employer to give clear and satisfactory evidence about all the relevant facts on which it can make the requisite estimate. The questions which the tribunal has to consider under this item are essentially questions of fact and its final decision on them is bound to be hypothetical	 since it would be based on a fair evaluation of several circumstances which are by no means certain and which cannot be predicated with any amount of precision or even definiteness. That is why it is of the utmost importance that all relevant and material evidence should be adduced by the employer and it should be properly tested by cross examination. When that is done the tribunal must do its best to consider the said evidence objectively and reach its final decision in a judicial manner. Once the amount of rehabilitation is thus determined the available surplus for the bonus year is ascertained and the final stage is reached when the tribunal has to give directions for the distribution of the said available surplus. It is not seriously disputed that three parties are entitled to claim a share in this available surplus; labour claims bonus from it	 the industry claims a share for the purpose of its expansion 973 and other needs	 and share holders claim a share by way of additional return on the capital invested by them. In the case of the Mill Owners Association	 Bombay (1) where the formula was evolved	 out of the available surplus of Rs. 2.61 crores 2.16 crores was distributed by way of bonus leaving a balance of 0.45 crores with the industry. In the Trichinopoly Mills Ltd. vs National Cotton Mills Workers ' Union (2) the available surplus was found to be Rs. 34	660 and out of it Rs. 30	000 was ordered to be distributed as bonus to the workmen. These two and other similar in stances	 however	 cannot be pressed into service for the purpose of evolving any general rule as to the ratio or proportion in which the available surplus should be distributed. The ratio of distribution would obviously depend upon several facts: What are the wages paid to the workmen and what is the extent of the gap between the same and a living wage? Has the employer set apart any gratuity fund ? If yes	 what is the amount that should be allowed for the bonus year ? What is the extent of the available surplus ? What are the dividends actually paid by the employer and what are the probabilities of the industry entering upon an immediate programme of expansion? What dividends are usually paid by comparable concerns ? What is the general financial position of the employer? Has the employer to meet any urgent liability such as redemption of debenture bonds ? These and similar considerations will naturally determine the actual mode of distribution of the available surplus. In this connection labour 's claim to fill up the gap between the wage actually paid to it and the living wage has an important bearing on the decision of this point. Industry 's claim for paying additional return on capital and for making additional provision for expansion would also have to be considered. The fact that the employer would be entitled to a rebate of income tax on the amount of bonus paid to his workmen has to be taken into account and in many cases it plays a significant part in the final distribution. Therefore	 in our opinion once the (1) (2) 974 available surplus is determined	 the tribunal should	 in the light of all relevant circumstances	 proceed to make an award directing the payment of a fair and just amount to labour by way of bonus. If the formula is thus worked reasonably it would in a large majority of cases succeed in achieving its principal object of doing justice both to labour and industry. Before we part with the question of working the formula it is necessary to observe that the practice adopted by some tribunals in giving the amount of bonus a priority in the calculations is not justified. Logically it is only after all the prior charges have been determined and deducted from the gross profits that available surplus can be ascertained; and it is only after the available surplus is ascertained that the question of awarding bonus can be considered. Some tribunals seem to work out nationally the amount of bonus which they think can be awarded and place that amount higher up in the process of making calculations before the income tax payable is determined. The inevitable consequence of this procedure is to make the amount of tax proportionately less. We wish to make it clear that this procedure should not be followed. As we have already pointed out	 in directing the distribution of the available surplus the tribunal has to take into account the rebate of income tax to which the employer is entitled on the amount of bonus paid to his workmen but that on principle is different from placing the amount of bonus immediately after depreciation in the working of the formula. It has been urged before us by the respondents that the amount of rehabilitation as well as the amount of depreciation should be deducted from the gross profits before income tax payable is ascertained. In this connection reliance is placed on the fact that in its judgment which evolved the formula the Labour Appellate Tribunal has at one place described rehabilitation as the first charge in priorities. Having regard to the context in which the said statement is made it is clear that all that the Labour Appellate Tribunal wanted to emphasise was that the textile industry 975 with which it was directly concerned in the said case needed rehabilitation very urgently. The final calculations made in the judgment give a clear indication as to how the formula has to be worked out. We are	 therefore	 satisfied that rehabilitation cannot be given the high priority claimed for it by the respondents	 We must now consider whether the tribunal was right in directing that overtime payment should be ' included in the calculation of the bonus which it has directed the appellant to pay. Mr. Kolah contends that the direction to include overtime wages is contrary to the usual practice followed by industrial tribunals and it is also unsound on principle. This dispute arises between the employer and the workmen in this acute form because the total amount of bonus is not determined logically after ascertaining the available surplus. If the said amount is logically determined as indicated by us	 then the question as to whether overtime wages should be included or not would really be a matter of dispute between workmen inter se because once the amount of bonus is determined	 how it should be distributed between workmen inter se would cease to be a matter of direct concern to the employer. Therefore we think that there would be no occasion for such a dispute between the employer and his workmen if the tribunals follow the logical method of determining the amount of bonus in the manner indicated by us. On principle we do not think it would be fair to the workmen as a whole that overtime should be included in calculating the bonus which each workman should receive. Workmen who do overtime get additional payment for such overwork. If in addition to such payment they are allowed to include the said payment in their wages in calculating bonus to which they are entitled	 obviously the gap between their actual wage and the living wage would be filled up to a larger extent than in the case of other workmen who do not receive such additional overtime payment. Besides	 if the payment of bonus proceeds on the broad consideration that it is due to the workmen for their contribution to the profits it would be unreasonable to make 124 976 a distinction between workmen and workmen on the ground that some have contributed more to the profit than others; and that is exactly what would follow if overtime workers are allowed to claim a larger amount of bonus than their other colleagues. That is why we think that the tribunal was not justified in directing that the calculations of bonus should be made on the basis that overtime payments constituted a part of the basic wages of the employees. The next point to consider relates to the return on paid up capital to which the appellant is entitled. The tribunal has awarded to the appellant return at the rate of 6% on paid up capital and at 4% on the working capital. The appellant claims a return at a higher rate on paid up capital whereas the respondents contend that the return should be paid on the paid up capital at a lower rate. In support of its claim for a higher return the appellant has relied on the fact that it has consistently paid dividends at a reasonably low rate and it did not seek to make undue profits even during the years of war. In this connection Mr. Kolah has invited our attention to a statement	 exhibit C 1	 showing the percentage of dividend to paid up capital and invested capital for the eighteen financial years 1936 37 to 1953 54 and he has asked us to contrast the low rates of dividend evidenced by it with dividends paid by other companies as shown by another document exhibit C 12. He has also asked us to take into account the highest and the lowest quotation for the company 's shares in the Bombay Stock Exchange during the period 1949 55. On the other hand Mr. Dudhia has urged that during the relevant year the appellant has capitalised Rs. 35.85 lakhs from the reserve fund and 175.45 lakhs from Premium on Shares Account by issuing one bonus share for every five shares held by the shareholders; and he argues that the tribunal was in error in allowing 6% on the paidup capital during the bonus year. Incidentally Mr. Dudhia also relied	 though halfheartedly	 on the finding of the tribunal that the appellant had paid an inflated price for the pre 1939 block. It is true that in one place the tribunal has made an observation to 977 this effect ; but it is clear that the said observation is inconsistent with its definite finding recorded earlier in the course of its judgment that it was not prepared to hold that the A. C. C. had inflated the capital invested by the merging companies by taking them over in 1936. Therefore this part of Mr. Dudhia 's argument is invalid. In our opinion	 the question as to what return should be allowed to paid up capital in ' a given case must be left to be determined by the tribunal in its discretion having regard to all the relevant facts; and if the tribunal has in its discretion awarded 6% interest on the paid up capital we see no reason to interfere with its decisions It is clear that no question of principle or law is involved in the matter. There is one more point which we must consider before we proceed to deal with the facts in the present case. This point relates to the employer 's claim to treat the amount in the gratuity fund as a prior charge; and this claim has been allowed by the tribunal. It appears that in M/S. Metro Motors vs Their Workmen (1) the Labour Appellate Tribunal observed that it was desirable in all cases to create a separate reserve fund for the payment of gratuity and it directed that the modest fund claimed by the employer for the year in question was a proper deduction from its profits. The question which we have to decide is whether the allowance on this account should be treated as a prior charge in making the calculations under the formula. There can be no doubt that	 in a sense	 the gratuity fund is created for the benefit of workmen and there should be no difficulty in recognising the appellant 's claim for the deduction of an appropriate amount on this account; but we think on principle it is desirable that no addition should be made to the list of prior charges recognised by the formula. Even so when the available surplus is determined the tribunal ought to take into account the employer 's claim on account of the gratuity fund created for the benefit of his workmen and the amount which the tribunal may regard as a reasonable (1)(1952) II L.L.J. 205. 978 allowance in that behalf should be definitely borne in mind in finally deciding the amount which should be paid to the workmen by way of bonus. This method will meet the employer 's claim adequately without making any addition to the list of priorities specified in the formula. Mr. Dudhia contended that the tribunal should not have allowed Rs. 10 lakhs under this item but we do not think there is any substance in this contention. Incidentally Mr. Dudhia has pointed out that in dealing with the appellant 's claim for a return on working capital the tribunal has made a mistake by including a further sum of 0.66 lakhs as return on investments. Mr. Kolah has conceded that this is a mistake and so the return on the working capital would stand at 26.10 lakhs only. It is now necessary to consider the evidence of Mr. Tongaonkar and decide the most controversial point of fact in dispute between the parties about the appellant 's requirements for rehabilitation. Mr. Tongaonkar holds the Degree of Bachelor of Science of the London University	 and he is also a Member of the Institution of Electrical Engineers	 London. He joined the appellant in November 1934	 but before that he had nearly three years ' practical experience in England in various engineering firms; and on his return to India	 he had joined the Dinshaw group of cement factories. He continued to work with the said group until its merger with the appellant in 1936	 when he was appointed by the appellant. Mr. Tongaonkar is in charge of the department which deals with the construction of new cement factories	 modernisation and extension of the existing cement factories	 design and manufacture of cement machinery for A. C. C.	 and major engineering problems of the A.C.C. Since April 1956 he has been appointed the Controller of Planning and Development of the A. C. C. He visits the A. C. C. factories very frequently and claims to be acquainted with the condition of the plant and machinery at all the A. C. C. factories. There is no doubt that Mr. Tongaonkar is qualified to give evidence on the technical points which are relevant in 979 dealing with the question of rehabilitation. Even so	 in appreciating 'his evidence	 it would not be unreasonable to bear in mind the fact that he is an officer employed by the appellant	 and as such he is likely to be interested in supporting the claim for rehabilitation which the appellant has decided to make. According to Mr. Tongaonkar	 the average future life of the plant and machinery existing in 1939 would ' be approximately seven years from 1 8 1954. Similarly	 the approximate future life of the three other categories of blocks would be 13	 15 and 20 years respectively. He has stated that in calculating the life of machinery	 it is necessary to take into consideration	 first the mechanical condition of the machinery	 second whether it is efficient or has been rendered obsolete because new machinery of modern design with a considerably better efficiency has come into the market. In other words	 the probable useful life of the machinery may be prematurely determined by the emergence of more efficient machinery. In support of this statement he has given some instances where the appellant 's plant or machinery had to be changed mainly for the reason that a new corresponding plant or machinery was more efficient and gave more satisfactory results. However	 stated generally	in the opinion of the witness	 the average life of a cement plant taken as a whole would be 25 years if it is properly main tained. Mr. Tongaonkar then gave evidence about the rise in prices of plant and machinery and he produced exhibit C 36 which is a statement showing the progressive increase in prices from pre war days up to 1955 56 of major items of machinery	 gear boxes	 motors and power plant used in cement factories. He has stated that the said statement had been prepared on the basis of actual quotations which he had in his possession. His evidence shows that between 1951 54 there has been a rise of 11%	 whereas between 1954 56 there has been a rise of 7% in the prices of the relevant items of machinery. He then sought to corroborate his evidence on this point by the expenditure actually incurred by the appellant while putting into commission 980 a new cement factory at Sindri in about 1955. The calculations made by him in this behalf show that the cost of construction of a new factory is approximately 4.3 times the cost of construction of similar factory in 1939. In regard to the life of buildings	 Mr. Tongaonkar stated that first class buildings lived approximately for 40 years provided they are properly maintained and provided they are not in earthquake zone; but he added	 that for the main unit of the cement plant it is usual to take the life of buildings at 25 years. He also stated that in many cases the existing buildings have got to be either demolished or considerably modified when the main machinery whose life is 25 years has to be replaced by modern machinery which is of a different design and which would require buildings and foundations of different size and type. Thus	 for this special circumstance also	 he was not prepared to give the buildings of the appellant an average life longer than 25 years. In regard to the increase in the cost of constructing buildings	 he produced two statements	 C 6 and C 14. exhibit C 6 shows the increase in prices of building materials since 1938 1954	 whereas exhibit C 14 shows the continually increasing amount of expenditure incurred by the appellant for construction of labour quarters	 etc. It is on this evidence that Mr. Tongaonkar has adopted the respective multipliers and divisors in arriving at the figure of the amount required for rehabilitation. As we have already pointed out	 for the pre 1939 block he has taken 4.28 as the multiplier	 whereas for the block purchased between 1940 44 he has taken 2.8 as the multiplier. He has explained that the multiplier of 4.28 is really made up of two multipliers. Certain portion of the plant and equipment which is obtained from abroad is estimated at 60% of the total cost and the expenditure on the remaining items is estimated at 40% of the total cost. The multipliers of these two groups are estimated at 4.8 and 3.5 respectively	 and by calculations it has been noticed that the average ratio comes to 4.28. This is the 981 genesis of	 and the justification for	 the adoption of 4.28 as the multiplier. He has also added that the proportion of 60% and 40% which he had mentioned was based on his experience of building a number of cement factories and of carrying out extension and modernisation of existing cement factories. The multiplier was based	 said the witness	 on the state	 of comparative quotations of plant and machinery received in 1939 and quotations received of similar machinery recently. It would thus be clear that in devising the multiplier and divisor	 Mr. Tongaonkar has drawn very largely on his experience and has drawn inferences which he thought were reasonable. Besides in making the relevant calculations he has not dealt with the plant and machinery and the buildings and other assets separately	 but has lumped them together under the respective blocks. The approximate cost of the merging companies of their assets as on July 31	 1936	 was 5.73 crores of rupees. exhibit C 3 which is a certificate issued by the Chartered Accountants shows that " according to the blocks	 the original cost of the block of fixed assets excluding goodwill and purchase of rights and land as at 31st July	 1954	 of the appellant under the groups of years of acquisition"	 amounted to Rs. 19	41	38	 100. Similarly	 exhibit C 28 which is also a certificate issued by the Chartered Accountants	 shows that the original cost of such portion of fixed assets excluding goodwill and purchase of rights and lands as have been discarded	 scrapped or sold as on July 31	 1954	 of the appellant companies under the groups of years of acquisition noted in the certificate	 amounted to Rs. 1	70	91	 296. The figures supplied by these two certificates are mentioned in cols. 2 and 3 respectively in exhibit C 2. Under the method adopted by Mr. Tongaonkar the cost of discards is shown in the respective years when the portions of blocks were discarded; and the amounts spent on rehabilitation from year to year have gone with the blocks of the said respective years shown in col. 2. The amount of rehabilitation has thus been calculated by the adoption of the multiplier and divisor selected by Mr. Tongaonkar. The question 982 which calls for our decision is whether the multipliers and divisors adopted by Mr. Tongaonkar can be said to be appropriate. As we have already mentioned	 it is the multipliers and divisors that play a decisive part in the determination of the employer 's claim for rehabilitation in all bonus proceedings	 Mr. Tongaonkar 's evidence has been severely criticised by the respondents and in fact	 the tribunal does not appear to have been favourably impressed by it. Before dealing with the criticism made against his evidence	 it would be pertinent to observe that the witness has given exhaustive details on the points put to him in examination in chief	 and his evidence	 read as a whole	 does make an imposing reading. But sometimes the wealth of details given by experts is Apt to complicate the narrow points of dispute between the parties and to create doubt and confusion; the large number of technical details expressed in technical language may	 in some cases	 tend to cloud rather than clarify the points which the tribunal has to consider. We feel inclined to hold that is what has happened to some extent in the present case. But that by itself cannot obviously be said to introduce any infirmity in the evidence given by the expert or affect its credibility. It only means the tribunal has to analyse his statements	 examine them carefully in the light of his cross examination and decide how far it would be justified in acting on them. It has been urged before us by the respondents that the claim made by Mr. Tongaonkar in regard to the rehabilitation of the pre 1939 block should be rejected. The contention is that	 this block must have been completely replaced before 1953 and no claim for its rehabilitation can be entertained. This argument was based substantially on the assumption that a part of Rs. 997.42 lakhs must have been utilised for the purpose of replacing the said block. Mr. Tongaonkar has stated that prior to 1 8 1954 the total amount spent on modernisation	 replacement and rehabilitation and other sundry jobs	 but excluding ' expansion	 was approximately Rs. 9.97"crores	 and in support of this 'statement he produced exhibit C 29	 983 which shows the said expenditure year by year. According to this statement 78 lakhs had been spent on the construction of Rohri Works and Kistna Works	 and Rs. 622 13 lakhs had been spent on the expansion during the post war period. This gives the figure of Rs. 700.13 lakhs. Deducting this amount from the total expenditure of Rs. 1697 55 lakhs	 the balance of	 Rs. 997.42 lakhs is shown as expenditure on modernisation	 rehabilitation	 replacement and other sundry capital jobs. It is in respect of this amount of Rs. 997.42 lakhs that Mr. Tongaonkar was severely cross examined. In cross examination he stated that he was not in a position to say whether out of the total expenditure of Rs. 997.42 lakhs shown in exhibit C 29 a major portion had been spent on rehabilitation and replacement of the pre 1939 block and 1940 44 block. He admitted that the figures in exhibit C 29 had been prepared by the Accounts Department from the Financial Books so far as year to year total expenditure was concerned and he also stated that it was not possible for him to give details about the said expenditure. These answers indicated that the amount of Rs. 997.42 lakhs had been ascertained mechanically by deducting from the total expenditure of Rs. 1697.55 lakhs incurred on all jobs up to 31 7 1954 the estimated expenditure of Rs. 700.13 lakhs which was treated as expenditure for expansion during the said period. It is on these statements that the respondents placed reliance in support of their argument that the amount of Rs. 997.42 lakhs must have been utilised for completely replacing the pre 1939 block. Thus presented	 the argument no doubt appeared very plausible	 and so we asked Mr. Kolah to give us a satisfactory explanation about the items of this expenditure. Accordingly Mr. Kolah has filed a statement	 exhibit I which gives a rough classification of the total capital expenditure of about Rs. 997 lakhs incurred up to 31 7 1954 on modernisation	 replacement	 rehabilitation and other sundry and miscellaneous jobs. The several items of this expenditure are broadly indicated under eight heads	 the last of which covering an 125 984 amount of Rs. 160 lakhs has in its turn been split up into five separate items by the statement 1(a). There was some dispute before us about the admissibility of some of the said items under cl. 5 of this document 1(a). But Mr. Kolah contends	 and it is not disputed by the respondents either	 that even if the whole of the disputed item 5 is excluded	 the remaining items on exhibit 1 give a fairly satisfactory explanation about the work of rehabilitation	 replacement and modernisation on which the bulk of Rs. 997.42 lakhs must have been spent. In view of this statement we must hold that the assumption made by the respondents that the said amount of Rs. 997.42 lakhs must have been utilised for replacing the pre 1939 block is not well founded. It is then contended that there is no justification for keeping the pre 1939 block still alive in view of the estimate made by Mr. Tongaonkar about the life of the cement plant and machinery. The suggestion is that the oldest block is deliberately kept alive in order to enable the appellant to claim a higher multiplier in calculating the rehabilitation amount. It cannot be said that there is no force at all in this criticism. In fact Mr. Tongaonkar himself has admitted that a given portion of this block could have been discarded earlier	 but he added	 that a part of it had been rehabilitated as a temporary measure in order to carry on. That is why that particular portion of the block had not been discarded so far. According to him the pre 1939 block contains a portion whose useful life is already over	 but the appellant would have to carry on with it until finances could be found for modernisation or reconstruction or entire replacement of the said block. In our opinion	 this explanation cannot be said to be wholly satisfactory. If the useful life of the whole block had really expired	 the appellant would have easily found it possible to replace the said block in due time having regard to its general financial position. The next criticism made against Mr. Tongaonkar 's evidence is that admittedly he has not calculated the average life of the said block. He stated that he had assessed the pre 1939 block by his personal visits to 985 the factory by observing to what extent it had been rehabilitated as a temporary measure and by considering what its present condition was. It is possible that with his knowledge and experience Mr. Tongaonkar may be able to form a proper assessment about the life of the machinery in the manner deposed to by him. But unfortunately	 effective cross examination on this point has been stifled to some extent because ' we find that on some material points questions put to the witness were objected to by Mr. Kolah and the objection was upheld by the tribunal. The witness was asked whether he could tell the tribunal with his wide experience	 how many years on the average 1939 block had spent prior to 1939. This question was clearly relevant and from the respondents ' point of view it was important. If the witness was able to predicate about the future useful life of the machinery from his examination of the plant	 it was suggested to him that it should be possible for him to give an estimate about the life already spent by it by the same process. The object of this question obviously was to show that the machinery in question had lived much longer than its estimated life as deposed to by the witness. This question having been disallowed	 any further cross examination to test the claim of the witness that from the inspection and examination of the machinery he can predicate the period of its future useful life became impossible. The witness was further asked to state whether it would be correct to assume that the said pre 1939 block had on an average spent more than 15 years of its life. This question also was disallowed	 and the respondents naturally make a serious grievance that they were not given an opportunity to show that Mr. Tongaonkar 's estimate about the life of the plant and machinery was a gross under statement. The respondents have then objected to the inclusion of several items in the approximate cost of rehabilitation mentioned in col. 8 of exhibit C 2. The new additional packing machine in regard to the factory at Banmore as well as the crane storage are	 it is urged	 not items of rehabilitation	 but of expansion. Similar 986 criticism is made in regard to the dust collector plants	 coal handling plants	 items in regard to the fluidification system	 diesel engine shunting locomotive and similar other items. The respondents ' grievance is that by including these items which are really matters of expansion	 the amount of approximate cost of rehabilitation has been unduly increased. We are unable to say if the grievance is justified. In regard to the multiplier adopted by Mr. Tongaonkar	 the criticism is that it is based on hypothetical considerations determined by him in a subjective manner. It is also pointed out that the failure of the witness to take out the present day replacement cost of individual items of the pre 1939 block has introduced an additional element of uncertainty in the final calculations made by him in regard to the multiplier. No doubt	 the witness has stated that he has used the multiplier of 4.8 on a comparative study of the quotations received between 1939 and the present day	 but dealing with the machinery blockwise is not a very satisfactory way of determining such a multiplier. In support of this argument	 reference is made to the statements made by the witness to the cost of 180 ton per day kiln	 if manufactured by the appellant	 would be lower than that of a 300 ton a day kiln. The witness then added that the appellant does not manufacture a 180 ton a day kiln	 and if such a kiln is imported from abroad its cost would be somewhat higher than that of a 300 ton a day kiln manufactured by the appellant under present day conditions. He was then asked whether he had got a quotation of a 180 ton a day kiln	 and he admitted that he had none	 and that he had estimated it approximately at Rs. 11 1/2 lakhs. The respondents urged that this estimate about the cost of an imported 180 ton a day kiln is purely notional and is not based on any material at all. This part of the criticism is justified. The next argument urged against the statements prepared by Mr. Tongaonkar is that he appears to have taken into account the prices prevailing in 1956 and has completely ignored the prices as they obtained in the previous years. We have already observed that 987 in deciding the amount of rehabilitation by the adoption of an appropriate multiplier	 the tribunal should take into account all relevant facts and these would not be confined to the price level prevailing in any one particular year. When deciding the hypothetical question as to what would be the price in future when the plant and machinery would have to be replaced or rehabilitated	 the tribunal has to take an overall picture of prices into account	 and the argument is that concentration on the price level of 1956 alone has introduced an infirmity in the calculations made by the witness. There is another infirmity in these calculations which has been criticised by the respondents. Mr. Tongaonkar has lumped together the plant and machinery as well as buildings and other properties belonging to the appellant in col. 2 of exhibit C 2. The more scientific and satisfactory method of dealing with the question of rehabilitation is to treat the plant and machinery separately from the buildings and other assets that need rehabilitation. In fact we asked Mr. Kolah to give us a statement showing the cost of the plant and machinery and the buildings and other assets separately in order to enable us to have a clearer picture about the extent of the rehabilitation needs of the appellant. He has accordingly filed a statement	 exhibit F (a). There is yet another point on which Mr. Tongaonkar 's evidence has been criticised by the respondents. It is argued that this evidence shows that under his concept of modernisation several items of expansion can be included. Mr. Tongaonkar has stated that by ' modernisation ' he meant 'a composite scheme comprising replacement of the part of the old machinery by new machinery	 installation of additional machinery because the layout of the composite modernisation scheme is different from the previous layout and rehabilitation of the remaining machinery as a short term measure '. By ' rehabilitation ' he ment 'alterations to a machine or machinery	 installation for improving its mechanical performance	 its technical efficiency or to extend its life by a further span '. This would also 988 include what he compendiously describes as the removal of weak links. According to him expansion can be divided into two groups	 viz.	 Group No. 1 construction of the completely new factory solely for obtaining additional production; and Group No. 2 would cover the specific additional machines which are installed not for modernisation purposes as such	 but with the primary object of obtaining additional production. He concedes that in the 'modernisation of an existing factory ' expansion is only a part of the scheme. This means that in the modernisation scheme ' there would be an element of ' expansion '. It would thus be clear that the very broad and wide description of modernisation ' given by the witness would justifiably give rise to an apprehension in the minds of workmen that under the heading of 'modern isation ' items of expansion ' pure and simple are likely to creep in. That is why evidence given by experts in such proceedings needs to be scrutinised carefully	 with a view to exclude items of 'expansion ' properly so called from the relevant calculations. Mr. Tongaonkar has stated that when plant or machinery is rehabilitated or replaced it may lead to increase in production. But such an in Crease is purely incidental. But what would be the position where	 for instance	 a 180 ton a day kiln is substituted by a 300 ton a day kiln by way of rehabilitation or replacement ? The employer is entitled to say that the first category of kilns is not available in the market or that the later category of kilns is more profitable Ind economically more useful. That being so	 if the first kiln is discarded and is substituted by the latter	 that is an item of rehabilitation or replacement and not of expansion. On the other hand	 by the substitution of the latter kiln there would be such an appreciable increase in production that the workmen may be entitled to contend that some apportionment should be made and the rehabilitation part of the machinery should be separated from the expansion part which has crept into the transaction. We confess that it would be very difficult to undertake the task of making any such apportionment. 989 Even so	 tribunals may have to consider the workmen 's plea if they are satisfied that the steps taken by the employer by way of rehabilitation have led to a very large increase in production. In this connection the respondents have relied on exhibit H. 0. C 2 which	 according to them	 shows considerable increase in production	 and that	 it is urged	 is the result of expansion and not of rehabilitation. Mr. Tongaonkar has suggested in his evidence that it is the intention of the employer that decides the character of the transaction. If the employer wants to instal new machinery solely with the object of expanding his business	 that is expansion; but if he purchases new machinery for business reasons and not for the purposes of expansion	 it would be rehabilitation notwithstanding the fact that the new machinery gives rise to increased production. This approach	 in our opinion	 gives undue importance to the intention of the employer and we think that	 on a proper occasion	 the question may have to be considered by the application of some objective tests. In this connection it would be relevant to bear in mind the fact that the steps taken by the appellant for rehabilitating	 replacing or modernising its machinery are a part of its plan of expanding its business so as to meet the growing demand for cement in our country. In deciding the question as to whether the claim as disclosed by the statements prepared by Mr. Tongaonkar is inflated or not	 the respondents have asked us to consider the estimate made by the appellant 's Chairman in that behalf. In his speech delivered on January 24	 1951	 at the Fourteenth Annual General Meeting of the appellant company	 the Chairman stated that most of the company 's pre war plant would be due for replacement in the course of the next ten years and he added that " at the present price levels	 replacement will cost on an average 2 1/2 times the original cost. This will involve an expenditure of about Rs. 8 crores over and above the provision already made for depreciation ". The contention is that	 considered in the light of this estimate	 the pre	sent claim for rehabilitation is very much inflated. 990 When Mr. Tongaonkar was asked about this estimate he stated that the Chairman had not consulted him while drafting the annual report or while drafting the portion of the speech in regard to 'rehabilitation ' and he also added that he did not agree with the figures given by the Chairman regarding the replacement cost of plant and machinery in his report dated January 24	 1951. This explanation may not be very satisfactory. But we cannot ignore the fact that when the Chairman made his statement he did not purport to calculate the claim for rehabilitation in terms of the formula and so it would not be fair to test the evidence of the witness in the light of the estimate given by the Chairman in his speech. We have so far considered the broad arguments urged against Mr. Tongaonkar 's evidence. Unfortunately	 the tribunal has contented itself merely with the observation that the multiplier of 2.7 would be adequate; and it has given no finding as to the suitable divisor. That is why we must now proceed to adopt a suitable multiplier and divisor for deciding the question of rehabilitation. We have already stated our conclusions in regard to some of the infirmities in the evidence of Mr. Tongaonkar and the statements prepared by him. He has lumped together all assets of the appellant that need rehabilitation. He has taken into account the prices prevailing only in 1956	 and in the selection of an average multiplier he has probably been slightly generous to the appellant. His estimate about the life of the plant and machinery has not been allowed to be sufficiently tested in crossexamination and	 on the whole	 it appears to err a little too much on the side of a conservative estimate ; and if that is so his divisor may need revision; it is also probable that in the items included by him under rehabilitation may have been included some which are more of the character of expansion than rehabilitation	 replacement or modernisation. Besides	 it is not unlikely that the steps taken by the appellant ostensibly for rehabilitation	 replacement and modernisation of the machinery have appreciably increased its production	 and that may partly be due to the fact that the 991 general plan of expansion adopted by the appellant has been in operation for some time past. It is in the light of these facts that we have to examine the appellant 's claim for rehabilitation. In doing so	 we have taken exhibit C 2	 exhibit C 23 and exhibit F (a) as a basis for our calculations. It is somewhat unfortunate that in making its claim for rehabilitation Mr. Tongaonkar did not make calculations separately in respect of plant and machinery as distinct from buildings	 roads	 bridges and railway sidings. It is true that at our instance a statement exhibit F (a) has been filed before us; but if such a statement had been filed before the tribunal	 the respondents would have had a better opportunity of testing the accuracy of the calculations made in it and the basis on which the respective multipliers and divisors are sought to be deduced from it. We would	 therefore	 like to make it clear that the calculations which we now propose to make in regard to the item of rehabilitation should not be 	taken to be binding on the parties in subsequent years. If	 in the light of our decision on the principal points raised before us in the present appeals	 the parties decide to settle their disputes about bonus for subsequent years there would be no occasion for the tribunal to deal with them on the merits. If	 however	 these disputes have to be	 settled by the tribunal	 it would be open to the parties to lead evidence in support of their respective contentions. The tribunal also would be at liberty to consider the matter afresh and come to its own conclusion on the merits. Let us now proceed to make the relevant calculations. The first step to take is to correct the figures in exhibit C 2 by excluding the cost of buildings	 roads	 	bridges and railway sidings from the total cost mentioned in it against the several blocks. This cost has been supplied to us by the appellant in exhibit F (a). This is how the corrections work out. In our calculations all figures are expressed in 'lakhs ': 126 992 Chart I. Period Original cost Less cost of Balance of block buildings etc. (1) (2) (3) (4) Up to 1939 486.89 132.98 353.91 1940 44 59.91 22.38 37.53 1945 47 208.93 68.15 140.78 1948 54 1144.81 333.47 811.34 In exhibit F (a) the appellant has shown the respective average ratios in col. 5 in regard to items of property mentioned in col. 2. We think	 in making our calculations	 it would on the whole be fair to adopt 3.5 as a suitable multiplier up to 1939	 2 from 1940.47 and 1 from 1948 54 (as in C 2) for replacement by part A.C.C. machinery. We have not disturbed the divisors taken by C 2 though we feel inclined to hold that Mr. Tongaonkar has underestimated the probable life of machinery. The amount of yearly requirement for rehabilitation for the total block minus buildings	 etc.	 would then work out at Rs. 229.39. This does not take into account the available reserves; that aspect is considered later on: Chart II. Period Original cost of Multiplier Total Less Balance Life Yearly break of require down as machi ment in exhibit C 2 nery (in Yrs.) (1) (2) (3) (4) (5) (6) (7) (8) (approx.) UP to 1939 353.91 x3.5 1238.68 65.921172.767 167.54 1940 44 37.53 x2 75.06 4.66 70.40135.41 1945 47 140.78 x2 281.56 11.19 270.371518.02 1948 54 811.34 x1 811.34 42.84 768.502038.42 . . Total 229.39 . . Then we would deal with the buildings	 roads	 bridges and railway sidings. 	 These may be given an average life of 30 years for all blocks in order to compensate for cases where they have to be demolished on account of modernisation. According to the previous statements of the appellant the life of factory buildings was about 35 years and residential 993 areas 50 years. Even so we propose to take the average life of 30 years in making our calculations in respect of these blocks. The multipliers may be taken as 2.25 for pre 1939 blocks	 1.5 for 1940 47 blocks	 1 for 1948 54 blocks. The Bombay block has been taken as in exhibit C 2: Chart III. Period Cost Multi Total Less Balancelife Yearly plier break down require valued at 5% ment of cost (1) (2) (3) (4) (5) (6) (7) (8) UP to 1939 132.98 X 2.25 299.20 6.65 292.55 20 144.63 1940 44 22.38 x 1.5 33.57 1.12 32.45 25 1.29 1945 47 68.15 x 1.5 102.22 3.40 98.82 25 3.95 1948 54 333.47 x 1 333.47 16.67 316.80 30 10.56 Bombay office 40.83 50.28 .73 49.55 69 .71 block . . . Total 31.14 . . . Thus the total yearly requirement for rehabilitation of this block would come to 31.14 lakhs. The appellant 's claim for rehabilitation can now be calculated on the basis of exhibit C 23 as corrected in the light of the three charts prepared by us. As	 the calculations in the chart show	 we would hold that the appellant is entitled to an allowance of 216.10 lakhs for rehabilitation in the relevant year: Chart IV. Replacement of pre 1939 block: Cost of machinery (Chart II) 1172.76 Deduct reserves 311.00 Balance 861.76 divided by 7: 123.11 Add for buildings (Chart III) 14.63 . . . Total 137.74 Replacement cost of 1940 44 block Including buildings etc. (5.41 plus 1.29) . 6.70 do for 1945 47 (18.02 plus 3.95) . 21.97 do for 1948 54 (38.42 plus 10.56) . 48.98 do for Bombay Office . 71 . . . . total . 216.10 994 Having decided that the total claim for rehabilitation admissible to the appellant is 216.10 lakhs for the relevant year	 we must now proceed to determine whether on the working of the formula any surplus profit is available. We have made the following calculations in the light of the principles laid down by us in this judgment: Chart V. Total profit excluding Bhupendra factory 428.71 Less notional normal depreciation (p. 428	 Pt. 1) 100.22 Less income tax payable @ 7 as. in the Rupee as per Note A below 115.16 Less 6% on paid up capital 76.06 Less 4% on working capital 26.10 . . . Total. 317.54 317.54 Balance. 111.17 Less provision for rehabilitation. 115.88** . . . Balance. 4.71 This is how we have calculated theincome tax payable for the relevant year: Note A. Gross profits 428.71 Less statutory depreciation 165.49 Balance 263.22 Income tax @ 7 as. in the Rupee 115.16 **Provision for rehabilitation (vide Chart V): Total from Chart IV. 216.10 Less notional normal depreciation. 100.22 Balance. **115.88 995 We ought to add that in our calculations we have not taken into account the Bhupendra Factory because the relevant material for working out the figures in regard to this factory is not adequate or satisfactory. However from such material as is available it appears that if the profits made by the said factory are included in the calculations and rehabilitation required by it is worked out	 it would not materially affect the ' figure of rehabilitation amount determined by us. The result is that there is no available surplus from which the respondents can claim any bonus for the relevant year. It is true that the appellant has already paid the respondents 20.65 lakhs as bonus for the relevant year	 and it is likely that it may continue to do so in future ; but that is a matter which is not governed by the formula. In view of the fact that the working of the formula leaves no available surplus the appeal must be allowed and the award made by the tribunal set aside. Since the appellant had come to this Court for the decision of the larger and more important question about the revision of the formula	 we would direct that there should be no order as to costs. Appeal allowed.

For the year 1953 54	 the employers paid bonus to the workmen equal to three months ' wages	 but the workmen demanded bonus equivalent to seven months and six months basic wages with dearness allowance. The employers contended that after making deductions for the prior charges from the gross profits in accordance with the formula evolved by the Full Bench of the Labour Appellate Tribunal in Mill Owners Association	 Bombay vs The Rashtriya Mill Mazdoor Sangh	 	 there was no available surplus left and consequently the 926 workmen could claim no bonus. The workmen countered that the formula required revision as the employers were becoming increasingly more rehabilitation conscious and their appetite for the provision for rehabilitation was fast growing with the result that in most cases	 after allowing for rehabilitation	 there was no surplus left for the payment of bonus and the main object of the formula was thus frustrated. The workmen further contended that the whole of the rehabilitation expenses should not be provided for out of trading profits and that the claim for rehabilitation should be fixed at a reasonable amount and the industry should be required to find the balance from other sources: Held	 that though there may be some force in the plea made for the revision of the Full Bench formula	 the problem raised by the said plea is of such a character that it can be appropriately considered only by a high powered commission and not by this Court while hearing the present group of appeals. Besides the Full Bench formula had on the whole worked fairly satisfactorily in a large number of industries all over the country	 and the claim for bonus should be decided by Tribunals on the basis of this formula without attempting to revise it. The formula was elastic enough to meet reasonably the claims of the industry and labour for fair play and justice. If the content of each item specified in the formula was determined objectively in the light of all relevant and material facts	 the Tribunals would generally find it possible to make reasonable adjustments between the rival claims and provide for a fair distribution of the available surplus. Muir Mills Co. Ltd. vs Suti Mills Mazdoor Union	 Kanpur	 ; 	 Baroda Borough Municipality vs Its Workmen	 ; 	 Sree Meenakshi Mills Ltd. vs Their Workmen; 	 and The State of Mysore vs The Workers of Kolar Gold Mines; 	 	 referred to. The formula was based on two considerations: first	 that labour was entitled to claim a share in the trading profits of the industry	 because it had partially contributed to the same; and second	 that labour was entitled to claim that the gap between its actual wage and the living wage should	 within reasonable limits	 be filled up. In dealing with the claims for bonus	 the two fold basis of the formula must always be kept in mind. Further	 it was not necessary that the workmen must actually manufacture or produce the goods before they become entitled to claim any bonus. Burma Shell Oil Storage & Distributing Co. of India Ltd. vs Their Workmen	 	 applied. The working of the formula begins with the figure of gross profits	 taken from the profit and loss account	 which are arrived at after payment of wages and dearness allowance to employees 927 and other items of admissible expenditure. It would be open to the Tribunal to examine the accounts and to disallow deliberate and mala fide debit entries made to reduce the amount of gross profits. It would likewise be open to the parties to claim the exclusion of items	 credit or debit	 on the ground that they were patently and obviously extraneous and entirely unrelated to the trading profits of the year. But the Tribunal must resist the temptation of dissecting the balance sheet too minutely or attempting to reconstruct it. K. Cottton Manufacturers Ltd.	 Kanpur vs Their Workmen	 	 applied. The formula deals with the claims for bonus on the basis that the relevant year is a self sufficient unit and the appropriate accounts have to be made on the notional basis in respect of the said year. Hence	 the refund of excess profits and the adjustment of the previous year 's depreciation and losses cannot be made against the bonus year 's profits. Model Mills etc. Textile Mills	 Nagpur vs The Rashtriya Mills Mazdoor Sangh ; Bennett Coleman and Co. Ltd. vs Their Workmen	 	 referred to. After ascertaining the amount of gross profits	 the first item of deduction therefrom relates to depreciation. The depreciation which has to be deducted from the gross profits should be the notional normal depreciation as explained in the case of Surat Electricity Co. Ltd.	 	 and should not include the initial and additional depreciation allowable under the Income tax Act. U.P. Electric Supply Co. Ltd. vs Their Workmen	 ; Surat Electricity Co 'section Staff Union vs Surat Electricity Co. Ltd.	 	 referred to. The second item of deduction is on account of income tax. On the balance obtained after deducting the depreciation from the gross profits the tribunal has to calculate the amount of income tax payable for the bonus year. In making this calculation it would not be reasonable to allow the employer to claim under the item of income tax an additional amount in respect of the two further depreciations which are expressly authorised under section 10(2)(vi) of the Income tax Act. Therefore the two concessions thus given by the Income tax Act should not be taken into account in determining the amount of income tax under the formula. Sree Meenakshi Mills Ltd. vs Their Workmen	 [1958] S.C.R. 878	 explained and followed. The third item of deduction under the formula relates to the return on paid up capital as well as working capital. The formula provides generally for the payment of interest at 6% 118 928 per annum on the paid up capital and at 2% on working capital. These rates are not inflexible and will vary according to the circumstances of each case. Workmen of Assam Co. Ltd. vs Assaam Co. Ltd.	 [1959] S.C.R. 327 ; Rustom and Hoynsby (India) Ltd. vs Their Workmen (1955):I L.L.J. 73	 Mill Owners Association	 Bombay vs The Rashtriya Mill Mazdoor Sangh	 	 Tea and Coffee Workers Union vs Brooke Bond (India) (Private) Ltd.	 	 U. P. Elcctric Supply Co. Ltd. vs Their Workmen	 	 referred to. The fourth item of deduction is on account of rehabilitation which includes replacement and modernisation but not expansion. Rehabilitation has to be calculated for the plant and machinery as well as the buildings. The whole of the rehabilitation charges have to come out of the trading profits as this guarantees the continuance of the industry to the benefit both of the employer and labour. The Tribunal has to estimate the probable cost of replacement of plant and machinery at the time when such replacement would become due. In determining such cost	 the Tribunal has to project the price level into the future	 determined not only in the light of the prices prevailing during the bonus year	 but also of subsequent price levels. The decision on the question of the probable cost of rehabilitation is always reached by adopting a suitable multiplier. This multiplier is based on the ratio between the cost price of the plant and machinery and the probable price which may have to be paid for its rehabilitation	 replacement or modernisation. As there has been a continuous rise in the price of industrial plant and machinery	 the older the plant which needs rehabilitation	 the higher is the multiplier. If the employer has deliberately or mala fide refrained from rehabilitating his old machinery with a view to claim a higher multiplier	 his conduct may be taken into account in determining the multiplier and the amount of rehabilitation payable to him. Once a proper multiplier is adopted	 the probable cost of rehabilitation can be easily determined by multiplying the original cost by the multiplier. At this stage the divisor steps in. The total amount required for rehabilitation has to be divided by a suitable divisor in order to ascertain the annual requirement of the employer in that behalf year by year. Before awarding an appropriate amount in respect of rehabilitation for the bonus year	 deductions have to be made	 first 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	 secondly the depreciation and general liquid resources available to the employer other than those earmarked for specific purposes	 thirdly all the rehabilitation amounts which may have been allowed to the employers in the previous years	 but had remained unused in the meanwhile. 929 It is only after all the prior charges have thus been deter mined and deducted from the gross profits that the available surplus can be ascertained for payment of bonus. The procedure adopted by some Tribunals of nationally working out the amount of bonus and then giving it priority in the calculations before the determination of the income tax payable inevitably lessens the amount of tax proportionately	 and should be deprecated. Rehabilitation cannot be given priority before the income tax payable is ascertained and deducted from the gross profits. No addition should be made to the list of prior charges re cognised by the formula even with respect to the employers claim for deductions on account of gratuity fund created for the benefit of the workmen. But the Tribunal ought to	 when the available surplus is determined	 take into account such a claim and reasonable amount of allowance should be definitely borne in mind in finally fixing the amount of bonus. M/s. Metro Motors vs Their Workmen	 	 referred to. When the available surplus has been ascertained	 three parties are entitled to claim shares therein : labour 's claim for bonus	 the industry 's claim for the purpose of expansion and other needs and the share holders ' claim for additional return on the capital invested by them. The ratio of distribution would obviously depend on several factors: such as the gap between the actual wages and the living wages	 the setting apart of a gratuity fund by the employer and the amount thereof	 the extent of the available surplus	 the dividends actually paid by the employer and those paid by comparable concerns	 the probabilities of expansion	 the general financial condition of the employer and his necessity to meet urgent liabilities. It would be wrong on principle to take overtime payment into account in calculating the bonus payable to each workman. Once the total amount payable as bonus is determined on the principles as indicated	 the question of overtime payment being taken into account can no longer be a dispute between the employer and his workmen but one between the workmen inter se.