BHAGWATI - (1.) THIS appeal by special leave is directed against an award made by the Industrial Tribunal, Calcutta in a reference between the National and Grindlays Bank Ltd. (hereinafter referred to as the Bank) and its workmen represented by the All India National and Grindlays Bank Employees Federation. The Bank is a banking company within the meaning of Section 5 of the Banking Companies Act, 1949 and has its Head Office in London and branch office in different parts of the world, including India. The principal office of the Bank in India is situate in Calcutta. The Bank maintains its accounts according to the calendar year and it brings out not only a consolidated balance sheet and profit and loss account for its world business, but also a separate balance sheet and profit and loss account for its Indian business. There was an industrial dispute between the Bank and its workmen in regard to bonus for the years 1956 to 1964 and as a result of negotiations, this industrial dispute was settled between the parties on an ad hoc basis under a Memorandum of Settlement dated 28/12/1965. The material terms of the settlement were : "1. The Bank will pay and the workmen and non-workmen staff will receive a sum of Rs. 27 Lakh (Rupees twentyseven lakhs only) in full and final settlement of all bonus claims covering the periods from 1/01/1956 to 31/12/1964, including any claims relating to Centenary Bonus.
(2.) THE above sum of Rs. 27 lakhs will be allocated as to one-third thereof to Award-staff only and as to the remaining two-thirds to both the Award and non-Award staff, in both cases based on the basic salary paid over the period, namely 1/01/1956 to 31/12/1964, and unrelated to any particular year. 8. THE parties agree that this Settlement shall not be taken as the basis or govern the principle for this determination of bonus in future, but nevertheless this Settlement shall be final and binding on the parties as regards bonus claims for the years 1956 to 1964 (both inclusive) and any claim relating to Centenary Bonus, as also regards qualifications for eligibility and procedure as set out above." It may be noted that this Settlement was arrived at between the parties after the Payment of Bonus Act, 1965 came into force on 25/09/1965. This Act provided a statutory formula for computation and payment of bonus and it was admittedly applicable in respect of the accounting year 1964, but no separate computation of bonus for that year was made in accordance with this statutory formula and it was settled on an ad hoc basis as a part of an omnibus settlement for the accounting years 1956 to 1964. So far as the claim for bonus for the accounting year 1965 was concerned, computation was made in accordance with the statutory formula provided in the Payment of Bonus Act and the maximum 28 Per Cent of the salary or wage earned during that accounting year was paid by way of bonus to the workmen. THE claim for bonus for the accounting year 1966, however, could not be settled between the parties and though the Bank paid 18 Per Cent of the wage or salary earned by the workmen during that accounting year as bonus, the workmen were not satisfied and the industrial dispute arising from their claim had to be referred for adjudication. THEre were different aspects of this industrial dispute which required consideration and the Central Government, therefore, formulated each aspect as a separate question and referred those questions for adjudication to the Industrial Tribunal, Calcutta. THE Industrial Tribunal made an award holding that, on an application of the statutory formula, the amount available for payment of bonus was Rs. 22.17 lakhs and the workmen were, therefore, entitled to a little over 9 Per Cent of their salary or wage as bonus, but since they had already been paid by the Bank bonus at the rate of 18 Per Cent of their salary or wage, which was much more than what they were entitled to receive, nothing further remained to be paid and they were not entitled to any relief. This award is impugned in the present appeal brought by the workmen with special leave. 2. THEre are only certain items in the computation of bonus which are now in dispute in the appeal before us and we shall confine our attention to them. But before we deal specifically with these items, it could be convenient to refer to some of the relevant provisions of the Payment of Bonus Act. We will refer only to those provisions which have a bearing on the items in dispute between the parties. Section 2 is the definition section and clause (13) of that section defines 'employee' to mean any person employed on a salary or wage not exceeding one thousand and six hundred rupees per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward. THE mode of computation of gross profits in the case of a banking company is laid down in Section 4, clause (a) which provides that the gross profit shall be calculated in the manner specified in the first Schedule. THE First Schedule sets out in items 2, 3 and 4 various amounts which are to be added and in Item 6, various amounts which are to be deducted from the net profit as shown in the profit and loss account. We are concerned in this appeal only with Items 2, 3 (a) and 6 (e) which read as follows : THE concept of 'available surplus' is defined in Section 2, clause (6) to mean available surplus computed under Section 5 and that section lays down that the available surplus in respect of any accounting year shall be the gross profit of that year after deducting therefrom the sums referred to in Section 6. Clauses (a) and (d) of Section 6 provide that the following sums shall be deducted from the gross profits as prior charge, namely. "(a) any amount by way of depreciation admissible in accordance with the provisions of sub-section (1) of Section 32 of the Income-tax Act, or in accordance with the provisions of the agricultural income-tax law, as the case may be:" "(d) such further sums as are specified in respect of the employer in the Third Schedule." THE Third Schedule is rather material as it bears on one item in dispute between the parties. Clauses (ii) and (iii) of the proviso to item 2 in the Third Schedule enact that in case of a banking company which is a foreign company within the meaning of S. 591 of the Companies Act. 1956 - the Bank in the present case being such banking company - the amount to be deducted shall be the aggregate of - "(ii) 7.5 per cent of such amount as bears the same proportion to its total paid up equity share capital as its total working funds in India bear to its total world working funds : (iii) 5 per cent of such amount as bears the same proportion to its total disclosed reserves as its total working funds in India bear to its total world working funds; THEn we come to the concept of allocable surplus which is defined in Section 2 cl. (4) and under that clause, 60 Per Cent of the available surplus is to be taken to be the allocable surplus and it is this allocable surplus which is to be distributed by way to bonus to the workmen, subject to a limit of 20 per cent, of the total salary or wage of the employees employed in the establishment. Section 10, sub-section (1) provides for payment of a minimum bonus of 4 per cent of the salary or wage earned by the employees, irrespective whether or not there are profits in the accounting year, and sub-section (1) of Section 11 lays down that where the allocable surplus exceeds the amount of minimum bonus payable under Section 10, sub-section (1) "the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in the accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent, of such salary or wage". Section 15 is the next material section and it provides, inter alia. "(1) Where for any accounting year the allocable surplus exceeds the amount of maximum bonus payable to the employees in the establishment under Section 11, then, the excess shall, subject to a limit of twenty per cent, of the total salary or wage of the employees employed in the establishment in that accounting year be carried forward for being set on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year to be utilised for the purpose of payment of bonus in the manner illustrated in the Fourth Schedule. (2) Where for any accounting year, there is no available surplus or the allocable surplus in respect of that year falls short of the amount of minimum bonus payable to the employees in the establishment under Section 10, and there is no amount or sufficient amount carried forward and set on under sub-section (1) which could be utilised for the purpose of payment of the minimum bonus, then, such minimum amount or the deficiency, as the case may be, shall be carried forward for being set off in the succeeding accounting year and so on up to and inclusive of the fourth accounting year in the manner illustrated in the Fourth Schedule. (4) Where in any accounting year any amount has been carried forward and set on or set off under this section, then, in calculating bonus for the succeeding accounting year, the amount of set on or set off carried forward from the earliest accounting year shall first be taken into account." Section 34, sub-section (3) enables employees employed in any establishment or class of establishments to enter into agreement with their employer for grant of bonus under a formula which is different from that under the Payment of Bonus Act, so long as it does not deprive them of the minimum bonus payable under Section 10, sub-section (1). It is in the light of these provisions that we have to consider the various points arising for determination in the appeal. We will first take up for consideration question No. 2 referred to the Industrial Tribunal. That question raises the issue whether any amount is liable to be carried forward for being set on in the accounting year 1966 and if so, what amount. The claim of the workmen was that there was excess of allocable surplus over the amount of maximum bonus in both accounting years 1964 and 1965 and the excess in respect of both these years was, by reasons of Section 15, sub-section (1) liable to be carried forward for being set on in the succeeding accounting year 1966. Now, so far as the claim in respect of the accounting year 1965 was concerned, the amount to be carried forward and set on was settled at the figure of Rupees 10.23 lacs under an agreement arrived at between the parties and no dispute, therefore, survived in respect of that claim. But the claim in respect of the accounting year 1964 was strongly resisted on behalf of the Bank and a preliminary objection was raised that the question whether any amount was liable to be carried forward and set on out of the profits of the accounting year 1964 did not form the accounting year 1964 did not form the subject-matter of the reference and hence this Court, in appeal from the Industrial Tribunal, had no jurisdiction to adjudicate upon this question. We do not think there is any substance in this preliminary objection. Question No. 2, referred to the Industrial Tribunal, in terms raises the issue "whether any amount is to be carried forward for being set on - in the accounting year 1966", and this issue is wide enough to cover the question in regard to carry forward and set on of an amount out of the profits of the accounting year 1964. The Bank then contended that since the bonus payable for the accounting year 1964 was settled on an ad hoc basis, it was not possible to say that the allocable surplus exceeded the maximum bonus payable for that year and hence there could be no question of any excess to be carried forward and set on in the succeeding year. There is great force in this contention. Section 15, sub-section (1) provides for carry forward and set on and, on its plain terms, it comes into operation only when, in a given accounting year, the allocable surplus exceeds the maximum bonus payable under the Act so that after payment of the maximum bonus, there is surplus left which can be carried forward and set on, subject of course, to the limit of 20 per cent, of the total salary or wage. It is clear from the scheme of the Act and the context in which this sub-section occurs, following closely upon Sections 4 to 10, that the basic condition for the applicability of this sub-section is that bonus is computed in accordance with the statutory formula provided in the preceding sections of the Act and as a result of such computation, it is found that the allocable surplus is more than sufficient to cover the maximum bonus payable under the Act and where such is the case, the subsection provides that the excess over the amount of the maximum bonus shall, to the extent of 20 per cent. of the total wage or salary, be carried forward and set on in the succeeding year. This sub-section can have no application where no computation is made under the Act and bonus is paid, not in accordance with the statutory formula, but on an ad hoc basis. Then it is not possible to say what was really the bonus payable under the Act. It may be less or more than the bonus in fact paid. That inquiry being rendered irrelevant by the ad hoc settlement, there can be no question of carry forward and set on of any amount, unless specifically agreed upon as part of the settlement. The workmen in the present case were, therefore not entitled to contend that, though the claim for bonus for the accounting year 1964 was settled on an ad hoc basis without making computation under the provisions of the Act, such computation must now be made, not for the purpose of determining the bonus payable to them, which is the only purpose for which such computation is contemplated to be made, but for the purpose of determining whether there is any amount liable to be carried forward and set on. The claim of the workmen for carry forward and set on in respect of the accounting year 1964 must accordingly stand rejected. We now proceed to consider the items in dispute in the computation of 'available surplus' for the accounting year 1966, which fall within question No. 1 referred to the Industrial Tribunal. The first item to which we must refer is the item of provision for bonus to employees made in the profit and loss account. This item figures as Item 2 (a) in the First Schedule to the Act and it is required to be added back in the computation of the gross profits under Section 4 (a). Now, so far as the profit and loss account of the Bank in respect of its Indian business was concerned, the provision for bonus to employees did not figure in it as a separate item, but according to the Bank, it was included under the heading "Salaries and Allowances" or "Other Expenditure" and it came to Rs. 19.52 lakhs. The Bank thus agreed to an add back of Rs. 19.52 lakhs in respect of provision for bonus to employees. The workmen, however, contended that the provision for bonus made by the Bank was for a much larger amount and the amount of Rs. 19.52 lakhs represented provisions for bonus only in respect of those workmen who were 'employees' within the meaning of Section 2 clause (13) and the Bank had failed to take into account the provision for bonus in respect of those workmen who were not such 'employees'. The argument of the workmen was that the word 'employees' in item 2 (a) of the First Schedule was not limited to 'employees' as defined in Sec. 2 cl. (13), but covered all employees, because the objects of adding back provision for bonus to employees was to arrive at the figure of profit available for distribution of bonus and that required that the entire amount set apart as provision for bonus should be added back, for in determining what is the available fund with reference to which bonus should be paid, one cannot exclude the amount already paid or provided as bonus, whether to employees drawing more than Rs. 1,600.00 or to employees drawing less. It Ist true said the workmen, that the word 'employees' is defined in Section 2, clause (13), but they contended that every defini is subject to the requirement of the context and here the context clearly showed that the word 'employees' was not used in the restricted sense, but in a wider sense, including all employees. Now, this argument of the workmen would have required serious consideration by us, but we do not think we can permit the workmen to raise it, as it does not appear to have been advanced by them before the Industrial Tribunal. The award of the Industrial Tribunal does not show that this argument was at any time urged by the workmen. The only argument raised by the workmen before the Industrial Tribunal was that the amount of bonus payable to them for the accounting year 1966 was Rs. 38.66 lacs representing 18 per cent of their wage or salary and this amount of Rs. 38.66 lacs was liable to be added back and not the amount of Rs. 19.52 lacs. This argument was rightly rejected by the Industrial Tribunal because what is liable to be added back under Item 2 (a) of the First Schedule is not the amount of bonus payable to the workmen, nor the amount of bonus in fact paid, but the provision for bonus made in the profit and loss account. We cannot, therefore, permit the workmen to raise a new contention for the first time in this Court that the provision for bonus liable to be added back was not merely the provision for bonus to 'employees' as defined in Section 2, clause (13), but also the provision for bonus to workmen who were not such 'employees'.
(3.) THE next item in dispute relates to the amount liable to be deducted from the gross profits under Section 6, clause (a). What is required to be deducted under this clause is the amount of depreciation admissible in accordance with the provisions of sub-section (1) of Section 32 of the Income-tax Act. Now, depreciation represents the diminution in value of a capital asset when applied to the purpose of making profit or gain. THEre are various methods known to accountancy practice for measuring such diminution in value and a banking company, like any other firm or company, may follow any one of these methods in maintaining its accounts and the amount of depreciation calculated according to such method would be reflected in its profit and loss account. But, though such amount of depreciation shown in the profit and loss account may be unexceptionable from the point of view of commercial accountancy principles, it would not necessarily be admissible as a deduction from gross profits under Section 6 clause (a). What is allowable is a deduction from the gross profits under that clause is not depreciation calculated according to any recognised method of accountancy followed by a banking company, but only such depreciation as is admissible in accordance with the provisions of sub-sec. (1) of Section 32 of the Income-tax Act. THE profit and loss account of the Bank for the accounting year 1966 showed an amount of Rupees 22.40 lacs debited against the composite item "Depreciation and Repairs to the Banking Company's Property" and according to the Bank this figure included an amount of Rs. 1.89 lacs by way of depreciation. Now, there would be no difficulty if the Bank claimed to deduct only the amount of Rs. 1.89 lacs by way of depreciation under Section 6 clause (a) as that was the amount of depreciation debited in the profit and loss account. But the Bank claimed that though it had debited by way of depreciation in the profit and loss account only an amount of Rs. 1.89 lacs, the amount of depreciation actually admissible in accordance with the provisions of sub-sec. (1) of Section 32 of the Income-tax Act was Rs. 12.79 lacs and in support of this claim the Bank produced a certificate issued by the Income-tax Officer which was marked Ex. 12 in evidence. THE Industrial Tribunal relying solely on the certificate Ex. 12 held that "depreciation admissible in accordance with the provisions of sub-section (1) of Section 32 of the Income-tax Act" was Rs. 12.79 lacs as evidenced by the certificate Ex. 12 and the Bank was, therefrom, entitled to deduct that amount for the gross profits under Section 6 clause (a). This decision of the Industrial Tribunal was assailed before us and it was contended on behalf of the workmen that the burden of showing what was the amount of depreciation admissible in accordance with the provisions of sub-section (1) of Section 32 of the Income-tax Act was on the Bank and this burden the Bank had failed to discharge by producing proper evidence. The only evidence produced on behalf of the Bank said the workmen, was the certificate Ex. 12 issued by the Income-tax Officer but that certificate was no evidence and could not be taken into account for the purpose of holding that the depreciation admissible under sub-section (1) of section 32 of the Income-tax Act was Rs. 12.79 lacs. The Bank, however, contended that the workmen did not at any time dispute that the depreciation admissible under sub-section (1) of Section 32 of the Income-tax Act was Rs. 12.79 lacs nor did they at any time challenge the correctness of the certificate Ex. 12 issued by the Income-tax Officer and in the circumstances, this certificate was sufficient to establish the claim of the Bank.;