P.JAGANMOHAN REDDY - (1.) , J: The Appellant is an Electricity Supply Co., and in this Appeal by Special Leave challenges the Award made against it, by the Industrial Tribunal (III) at Allahabad on 15/11/1965. The dispute between the Appellant and its Workmen is one relating to the bonus payable for the year 1960-61. As an amicable settlement could not be arrived at, the State of U. P. by its order dated 24-1-1962 referred the following dispute for adjudication to the Tribunal: "Should the employers be required to pay bonus to their Workmen for the year 1960-61? If so, at what rate and with what details?" The case of the Appellant was that after allowing for prior charges no available surplus was left for the payment of bonus to workmen. According to the Company a gross profit of Rs. 6,06,684.00 was earned for the year ending 31/03/1961, but the Tribunal added to it a sum of Rs. 9,949.00 as representing extraneous income and consequently computed the gross profit at Rs. 6,16, 633.00. The following prior charges were claimed by the Appellant and we have indicated as against each one of these in the opposite columns what the Tribunal has awarded and disallowed: JUDGEMENT_617_2_1971Html1.htm After making the necessary allowance as aforesaid towards deductions claimed as prior charges from the gross profit (Rs. 6,16,633/- minus Rs. 4,87,385.00) the Tribunal computed the available surplus at Rs.1,29,248.00. Out of this amount of available surplus three months bonus which amount to Rs. 73,000.00 was awarded as bonus leaving sufficient funds for the Company to run its undertaking.
(2.) ON behalf of the Appellant it is contended that the Tribunal was in error in disallowing depreciation on account of (a) double shift, (b) Income-tax, (c) return on working capital, (d) amount required for rehabilitation, (e) contingency reserve and (f) development reserve, the latter two of which were statutory reserves which the undertaking had to provide for, under the schedule to the Electricity (Supply) Act. The reasons given by the Tribunal for disallowing the double shift depreciation was that the Company did not produce any documents to show the total running hours of each boiler or turbine, that in any case the evidence relating to the running of each of the boilers and turbines does not justify the claim for depreciation for the double shift on the entire plant and machinery; that the Company could only claim double shift allowance with regard to certain specified machinery and that in the previous years it had not claimed double shift allowance nor did it claim any deductions before the Income-tax authorities for the year in question. For these reasons it held that the Appellant was not entitled to claim the double shift depreciation during the year in dispute. The contingency reserve and the development reserve were disallowed as in the view of the Tribunal they were not a charge on the profits. The rehabilitation requirements were rejected on the ground that the Company had failed to prove the original cost of the plant and machinery; that it had failed to show the actual amount spent on rehabilitation of plant and machinery either in the year in dispute or in any subsequent year; that no rehabilitation allowance was claimed in the previous year; that the cost of the assets of the Company had not been duly proved as engineers were not called and that the quotations produced by the Company could not be relied upon. The return on working capital was disallowed on two grounds. namely that the calculation of the working capital has been made on the basis of the assets and rehabilitation as they stood on the closing day of the year 1960-61 namely on 31-3-61 which is a mistake because whatever may have been the assets and liabilities at the end of the year they would not be the same at the beginning of the year nor could they be applied as the working capital. The second ground is that on the evidence it cannot be established that any reserves were utilised as working capital, nor was there any necessity to do so. Before us the learned Advocate of the Appellant has urged that the Tribunal was not justified in rejecting the material placed, before it, from which the several deductions claimed by it ought to have been allowed in computing the available surplus. It will be convenient to deal with each of the items separately but before doing so we wish to set out several factors and certain essential feature which have to be taken into consideration in claims made by workmen for bonus. The basic assumption which has been accepted by this Court approving the first and second Full Benches of the Labour Appellate Tribunal is that the award of bonus is not by way of an ex-gratia payment but in furtherance of social justice the claim of capital and labour which contribute to the earnings of the industrial concern, make it equitable to grant labour the benefit of their efforts if there is a surplus. The first Full Bench in the Mill Owners Association, Bombay v. The Rashtriya Mazdoor Sangh, Bombay, 1950 Lab LJ 1247 (FB) (LATI-Bom), had laid down a general formula applicable for determining the available surplus of an Industrial undertaking for the purposes of awarding bonus to its workmen. The first step in this regard is the ascertainment of the gross profits of a concern, which are arrived at after payment of wages and dearness allowances to the employees and other item of expenditure. The next step is to ascertain what are the prior charges which have to be deducted from the gross profits in order to arrive at the available surplus.
(3.) THE Full Bench formula concerns the claim of capital to prior charges which have to be taken into account to give a fair return to the investor and also to keep the industry working efficiently which in the long run will enure to the benefit of labour. THE item considered as prior charges are: (1) fair return on - (a) paid up capital; (b) working capital; (c) reserves ultilised as working capital which obviates the necessity to borrow at higher rates of interest. (2) Amount of money required for replacements, rehabilitation and modernization of machinery. (3) Depreciation allowed by the Income-tax authorities being only a percentage of the written down value, the fund set apart yearly for depreciation and designated under that head would not be sufficient for those purposes, so an extra amount would have to be annually set apart under the heading reserves to makeup the deficit. THE question what is the ratio of the available surplus which could be awarded as a bonus was also considered. THE Full Bench felt that the answer was not an easy one, but essentially the quantum of bonus must depend upon the relative prosperity of the concern during the year under review which is reflect in the amount of surplus; the need of labour at existing wages is also a consideration of importance. It observed in para 37: "... . but we should make it plain that these are not necessarily the only consideration; for instance no scheme of allocation of bonus could be completed if the amount of which bonus is to be paid is unrelated to the employees' efforts; and even when we have mentioned all these consideration we must not be deemed to have exhausted the subject." This Court in Muir Mills Co. Ltd. v. Suri Mills Mazdoor Union, Kanpur, 1955-1 SCR 991 = ( AIR 1955 SC 170) generally accepted as sound the view of the Full Bench, that since labour and capital both contribute to the earning they should derive benefit, if there is a surplus after meeting the four prior or necessary charges specified in the formula. However, neither the priority as between the four prior charges and their relative acceptance nor the condition upon which they were allowed was examined by this Court, but it was nevertheless held that bonus is neither a gratuity nor gift nor can it be regarded as deferred payment. The principles enunciate by the First Full Bench had been approved in U. P. Electricity Supply Co. Ltd. v. Their Workmen, 1955-2 Lab LJ 431 (FB) (LATI-Bom) as being also applicable to Electricity Undertakings. It was pointed out that in determining the available surplus it is not the profits that have to be determined as required under the Electricity (Supply) Act 54 of 1948, which had to be considered but the gross profits as computed from the balance sheet and profit and loss account to be prepared under the Companies Act, subject to scrutiny if challenged. The reason for non-applicability of the Electricity (Supply) Act according to this Full Bench was that the object of the Act being to reduce the price of electricity which was effected by fixing a maximum above which the profits of the concern shall not rise, the formula of the first Full Bench which was intended to do social justice was at variance with the purpose which the Electricity (Supply) Act was intended to subserve. The Tribunal said : "There is therefore no basis between the two for any convergence on the point of bonus as now understood; it is not permissible to inject the Full Bench items into the Electricity (Supply) Act and on the other hand the accounting under the Electricity (Supply) Act is at variance with normal commercial practice under the Companies Act and with the basis of our Full Bench decision. In the result we have come to the conclusion that our Full Bench decision must be applied as a whole for the ascertainment of bonus of these concerns. This, however, does not preclude consideration of the suggestions for clarification and modification ... ...." ;