Balraj Tuli, J. - (1.) THE petitioner is a private company registered under the Companies Act. It owns a flour mill at Ferozepur under the name and style of Sutlej Flour Mills, Ferozepur City and some other manufacturing units like ice manufacture, oil crushing and rice husking. The accounting year to which this case relates is 1971 -72, that is, from March 1, 1971, to February 29, 1972. For this year, the company paid 8.33 percent, bonus under the Payment of Bonus Act (hereinafter referred to as the Act) to its employees. By notice dated August 16, 1972, the workmen demanded 20 per cent bonus from the petitioner company. On refusal by the company, the dispute was referred to the Industrial Tribunal on January 24, 1973. The Tribunal gave its award on June 28, 1974, which was published in the Punjab Government Gazette dated August 16, 1974. The petitioner company, feeling dissatisfied from that award, has field the present petition.
(2.) THE only point urged before me is that the Tribunal allowed a deduction of Rs. 55000/ - on account of direct taxes under section 6 (c) of the Act instead of Rs. 450,399/ - which was actual amount payable on account of the direct taxes by the petitioner company. Before the Industrial Tribunal, it was also claimed by the petitioner company that a sum of Rs. 1,94,138/ - should be deducted out of the income; profits and gains of the business of the petitioner company on account of the income to the earning of which the workman had not contributed their labour. That plea was not accepted by the Tribunal and is not pressed in their petition. The petitioner company had provided Rs. 55,000/ - on account of the liability to pay income -tax in its balance sheet. The learned Tribunal came to the conclusion that the petitioner company could not get out of its pleadings and claim that the amount deductible on account of the income -tax was Rs. 1,60,399/ - and not Rs. 55,000/ - which was actually provided for in the balance sheet by it. That is the only basis on which the deduction of Rs. 1,60,399/ - was not allowed and instead only a deduction of Rs. 55,000/ - was allowed It may be stated here that the petitioner company filed a statement, copy of which is Annexure P5 to this petition, showing the amount of Rs. 1,60,399/ - as payable on account of direct taxes and no object on to the correctness of this figure was raised by the workmen. The award also shows that the said amount was not disputed and the sole contention urged was that only Rs. 55,000/ - could be deducted and not Rs. 1,60,399/ - on account of direct taxes.
(3.) SECTION 6 (c) of the Act provides that from the gross profits, the amount of any direct tax which the employer is liable to pay for the accounting year in respect of his income, profits and gains, during that year, has to be deducted subject to the provisions of section 7 of the Act. The phrase occurring in section 6 (c), that requires interpretation, is 'Is liable to pay'. This matter is concluded by the judgment of their Lordships of the Supreme Court in Metal Box Company of India Limited v. Their Workman, A.I.R. 1965 S.C. 612. In that case, the company claimed a deduction from the gross profits of Rs. 145/ - lacs on account of the direct taxes. It had made provision however, for Rs. 130 lacs for direct taxes in the profit and loss account. In the computation, it had made a provision of Rs. 136/ - lacs. At the stage of evidence and arguments, it contended that the proper amount would be Rs. 145 lacs. It claimed that direct taxes were to be calculated under section 6 (c) of the Act on the gross profits worked out under section 4 of the Act, less the charges allowable under section 6 Ibid, namely, depreciation and development (sic) but without deducting from such balance the bonus payable in the particular accounting year. The Tribunal accepted the contention and allowed the deduction of Rs. 145 lacs on account of direct taxes under section 6 (c) of the Act; and the Supreme Court upheld that deduction. The relevant observations in paragraph 27 of the report read as under The key to the words in section 6 (c) namely, "Is liable to pay" emphasized on behalf of the Unions and some of the interveners lies in the opening words 'subject to the provisions of section 7' in clause (c). These words are used, whether the tax liability is to be calculated on actual taxable income or on the notional amount worked out under sections 4 and 6 and Schedule II, because the direct taxes payable by the employer are to be calculated at the rates applicable during that year as provided by section 7 that both such amounts cannot be the same is clear because section 7 in express terms prohibits taking into account unabsorbed losses and arrears of depreciation allowable under section 32 (2), the exemption allowed under section 34 and deduction allowed under section 10] (1) of the Income -tax Act. Similarly, where an assessee is a religious or charitable institution and its income either wholly of partially, as the case may be, is exempt under the Income -tax Act, such an employer, to whom section 34 of the Act does not apply, is treated as a Company in which the public are substantially interested and its income is to be assessed accordingly by the Tribunal and compute its liability for direct taxes. Clause (c) of section 7 does away, for the purposes of sections 0 and 7, the distinction between the liability of an individual and a Hindu undivided family under the Income -tax Act, and provides that the income derived by such a Hindu undivided family is to be treated as the income of that employer as an individual. Likewise, where profits and gains of an employer include profits from exports, a rebate allowed under the Income -tax Act on such profits is not to be taken into account while working out the tax liability under section 6 (c). Also, the rebate allowed under any of the Acts levying direct taxes on sums spent on development of an industry is also not to be taken into account while computing the tax liability. It, was, however, argued that the provisions of section 7 lay down the only departure from the Income -tax Act and that except for that departure the Tribunal must assess the actual taxable income and arrive at the tax liability there on at rates prevailing during the accounting year in question. In our view this submission is not correct What section 7 really means is that the Tribunal has to compute the direct taxes at the rates at which the income, gains and profits of the employer are taxed under the Income -tax Act and other such Acts during the accounting year in question That is the reason why section 6 (c) has the words "is liable for" and the words "income, gains and profits". These words do not, however, mean that the Tribunal while compiling direct taxes as a prior charge, has to assess the actual taxable income and the taxes thereon. How can the Tribunal arrive at the amount of bonus to be paid to labour without first estimating the amount of taxes and deducting it from the gross profits and thus ascertaining the available surplus? If it were to reverse the process and first deduct the bonus and ascertain the tax amount, it would have to do so on a some what ad hoc figure thus bringing about the same result deprecated by this Court in decisions referred to above This and the other difficulties already pointed out must lead to the result that the Tribunal must estimate the amount of direct taxes on the balance of gross profits as worked out under sections 4 and 6 but without deducting the bonus, then work out the quantum of taxes thereon at rates applicable during that year to the income, gains, and profits of the employer and after deducting the amount of taxes so worked out arrive at the available surplus Section 6 (c) being subject to section 7, the computation has to be done without taking into account the items specified in section 7 (a) and in the manner prescribed by the remaining clauses of that section This interpretation is commendable because, (1) it is consistent with the words "is liable to pay" in section 6 (c), (2) it is in harmony with the provisions of sections 4 and 6 Schedule II, and (3) it is consistent with the intention of Parliament apparent from the scheme of computation of available surplus in the Act. The Act recognises the principle laid down in the Full Bench formula that both labour and capital are entitled to a share in the profits. That is why 40 per cent of the available surplus is left to the capital and interest is allowed to the employer on paid up and working capitals while working out the gross profits. Parliament besides was or, at any rate, is presumed to have been aware that depreciation allowed under the Income -tax Act would not be sufficient for rehabilitation purposes. It did away with rehabilitation as a prior charge partly because there were complaints that it was being ill -used, but partly also because it knew that the rebate in Income -tax Act on bonus paid would go to the employer with which he could recoup the depreciation which would be larger than the one allowed under section 32 of the Income tax Act. In our view, it was for that reason that it did not lay down that bonus is to be deducted before computing the amount on which direct taxes are to be calculated under section 6(c). If Parliament intended to make a departure from the rule laid down by Courts and tribunals that the bonus amount should be calculated after provision for tax was made and not before, we would have expected an express provision to that effect either in the Act or in the Schedules. In our view, the contention urged by the Company that the tax liability is to be worked out by first working out the gross profits and deducting there form the prior charges, under section 6, but not the bonus payable to the employees is right.;