P.JAGANMOHAN REDDY - (1.) THIS Appeal is by Special Leave against the Award of the Industrial Tribunal. Rajasthan directing the payment of a bonus of Rs. 1,21,000.00 apart from an amount of Rs. 90,000.00 already disbursed to the workmen of the Appellant for the year 1962-63. The dispute for the bonus year beginning 1/07/1962 and ending 30/06/1963 was raised by the workmen because the Company which had admittedly made profits, did not pay them a bonus though a gratuity of one month was given to them. The following dispute was therefore referred to the Tribunal. "Whether workmen of M/s. J. K. Synthetics Ltd. Kota are entitled to any bonus for the year 1962-63 and whether payment of one month's wages as gratuity by the management can be regarded as payment towards bonus for the year in question?"
(2.) THE Mazdoor Union (hereinafter called 'the Union') on behalf of the Workmen contended that on the basis of the calculations of available surplus they were entitled to a bonus of 60 per cent, in accordance with the bonus formula which will entitle them to a 5 months' wages apart from the one month's wages already paid to them. THE first statement of computation filed on behalf of the workers was obviously incorrect because it did not take into account the various prior charges such as Income-tax, return on reserves, rehabilitation reserve etc. which are deductible under the Full Bench formula as approved and accepted by this Court from time to time. It therefore filed another revised return showing an available surplus of Rs. 5.34 lakhs. THE management on the other hand challenged the validity of the claim as according to it there was no available surplus for distribution even though they had already paid one month's bonus wrongly styled as gratuity. THE calculations given by it were also found to be equally wanting. As such it filed a revised calculation showing a net deficit of Rs. 72.35 lakhs. It may however, be mentioned that as pointed out by the Tribunal, there was no dispute with regard to any of the eight items which comprised the computation of gross profits amounting to Rs. 62.16 lakhs. THE Union also did not dispute the deduction of interest on debentures of Rs. 0.06 lakhs; share transfer fee of Rs. 0.05 lakhs; the notional normal depreciation of Rs. 30.57 lakhs; and the return on share capital of Rs. 7.50 lakhs. It had however challenged the deduction of Rs. 4.1 lakhs received as dividend on shares as extraneous income which was being claimed as a deduction by the management. It also disputed an amount of Rs. 1.11,000.00 shown as return on reserves employed in the business and Rs. 75.89 lakhs shown as the annual share required for rehabilitation. THE method of calculation of income-tax amounting to Rs. 15.23 lakhs was also objected to. THE four items upon which the Tribunal was called on to adjudicate therefore were ; (1) Deduction of Rs. 4.10 lakhs received as dividend on shares from the gross profits as extraneous income; (2) Rs. 1,11,000.00 as return on reserves employed in business; (3) Rs. 75.89 lakhs as annual share required for rehabilitation, and (4) Rupees 15.23 lakhs towards Income-tax. With respect to the first issue the Tribunal felt that even though there was share capital available to the Appellant, instead of utilising it as working capital it had borrowed amounts to work the Nylon Factory for which they had to pay an interest of over Rs. 5 lakhs. In these circumstances it disallowed the claim for deduction on the ground that it would be unfair to allow the management to treat the income from Investments as extraneous income and still reduce the profits by raising loans and pay interest resulting in demunition of the surplus. On the second issue the objection of the Union for a deduction of Rs. 1.11. lakhs as return on reserves employed as working capital was disallowed on the ground that the statement M. W. 2/1 produced by Talwar, established that the excess of liability over the assets was utilised as working capital during the course of the bonus year. The claim of the management for deduction of Rs. 75.89 lakhs as share required for rehabilitation was however disallowed, as the oral and documentary evidence produced on behalf of the Management did not according to the Tribunal either establish that the life of the Plant and machinery was only 10 years for 1961-62 Block (hereinafter called 'the first Block') and 11 years for 1962-63 Block (hereinafter called 'the second Block') nor was the deviser of six years for both the first and the second Block reasonable. It found that the more reasonable multiplier was 13 years for machinery purchased in respect of the first Block and 14 years for machinery purchased in respect of the second Block and likewise a reasonable deviser for these two Blocks would be four years and two years respectively. In so far as rehabilitation requirement for buildings was concerned the Union did not raise any dispute to the claim of the management amounting to Rs. 0.90 lakhs. As there was also no dispute about the original cost of plant and machinery, the Tribunal by applying the multiplier and deviser as aforesaid computed the annual rehabilitation replacement for plant, machinery and buildings as follows : JUDGEMENT_509_3_1971Html1.htm Accordingly the additional rehabilitation to be provided for was calculated as under : JUDGEMENT_509_3_1971Html2.htm In so far as Income-tax calculation is concerned the Company's calculation of Rs. 15.18 lakhs was accepted being in accordance with the calculations under the Income-tax Act with respect to which it was said the Union did not find itself in a position to contest. The Tribunal after giving its finding on the matters in issue computed the available surplus as follows : JUDGEMENT_509_3_1971Html3.htm Of this 60 per cent payable as bonus would come to Rs. 2,11,000/. S the Company had already disbursed Rupees 90,000/-, the Tribunal directed payment of the balance of Rs. 1,21,000.00.
(3.) BEFORE us only two items of controversy have been urged namely; (1) relating to extraneous income of Rupees 4.10 lakhs and (2) relating to rehabilitation requirement amounting to Rupees 75.89 lakhs, the first of which the Tribunal disallowed while in respect of the second it only admitted Rs. 4.23 lakhs. With respect to the first item, the disallowance of Rs. 4.10 lakhs, the management not only claimed this amount but also Rs. 7.5 lakhs as return on paid up capital of Rs. 125 lakhs at 6 per cent, per annum. Obviously even on a cursory glance it would appear that the management was seeking to obtain double benefit in respect of investments made out of the paid up capital. The reasons which impelled the Tribunal to reject the claim of the management have already been noticed and it would therefore be unnecessary to reiterate them. It however, appeared to the Tribunal that if the Company wanted to exclude income from investments it cannot also be allowed 6 per cent, return on that part of the share capital which is invested elsewhere and at the same time be allowed to treat the income of Rs. 4.10 lakhs earned therefrom as extraneous income, because apart from deducting income-tax on this amount the Company also meets the expenses of administration and management in respect of the said investments. In this view it sustained the objection of the Union. The return on paid up capital is one of the prior charges admissible under the Full Bench formula as approved by this Court. It is based on the principle that while the claim of labour to a share in the profits by way of bonus is in furtherance of social justice, the claim of the capital for a fair return to the investor and also to keep the industry running efficiently which will in the long run enure for the benefit of labour is equally based upon that principle. If therefore any amount is earned from the employment of capital unconnected with the business of the Company, the labour cannot claim the right to participate in its returns. Apart from this if any reserves are utilised for working capital whether these reserves are depreciation reserves or any other, a return in respect of these also is allowed as a prior charge at a reduced rate because utilisation of such reserves would obviate the borrowing from outside sources for which a higher interest has to be paid and which in the long run will not be for the benefit of the workers. These principles have been laid down by this Court as well accepted in Industrial adjudication. While it is true that the Company has the discretion to invest its capital in various activities it cannot on that account deprive the workmen of the benefits of the returns derived therefrom unless of course the investments in such activity is extraneous to the activities of the company, in the earning of which they had not made any contribution. Whether in any particular case the return on investments amounts to an extraneous income will depend on the facts and circumstances of each case. So far as the case before us is concerned there can be no doubt that the return from the investments is a return on a part of the paid up capital of the Company which is invested for the purpose of earning an income. It cannot therefore be construed as extraneous income. In Workmen of Hindustan Motors Ltd. v. M/s. Hindustan Motors Ltd., (1968) 2 SCR 311, to which one of us was a party (Vaidialingam, J.) no doubt where the income of the Company was from interest on fixed doposits, it was treated as extraneous income because it was held that it accrued to the Company without any contribution by the workmen. At the same time the Company was not permitted on equitable ground to claim the interest paid by it on its borrowings as business expenditure. Further in that case even the income received by the Company from its foreign collaborators as commission on sales effected by the said collaborators of their own cars in India was treated as extraneous income to which the Company's workmen made no contribution and was therefore not to be taken into account in calculating the available surplus. In the recent case of Gannon Dunkerley and Co. Ltd. v. Their Workmen, (1971) 22 Fac LR 158 = (AIR 1971 SC 2567), by a reference to the decision in the Hindustan Motors this principle was again reiterated. In that case one of the questions which this Court considered was whether dividends received from trade investments should be deducted from the gross profits for calculating the surplus available from bonus. It was held that "these trade investments have to be treated as capital assets of the Company forming part of their trading activities. The income accruing from these dividends must therefore be related to the business of the Company as a whole and hence the income from these dividends has to be included in the income for purposes of calculation of surplus available for bonus." In this view we think the Tribunal was justified in disallowing the deduction of Rs. 4.10 lakhs and in fact on behalf of the Appellant it was frankly conceded before us that the claim in respect of the said item cannot be pressed on any tenable or valid grounds. ;