1. Dispute regarding quantum of profit-sharing and customary bonus payable to workmen by a partnership firm under the Industrial Disputes Act. (Para 1 , 2 )
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1962 Supreme(SC) 150
SUPREME COURT OF INDIA
11th April, 1962
B.P. SINHA, C.J.I., K. SUBBA RAO, N. RAJAGOPALA AYYANGAR, J.R. MUDHOLKAR AND T.L. VENKATARAMA AYYAR, JJ.
M/s. Tulsi Das Khimji, Appellants
Versus
The Workmen, Respondents.
Civil Appeal No. 503 of 1961.
Advocates appeared
Mr. M C. Setalvad, Attorney General for India (Mr. S. D. Vimadala, Advocate and M/s J. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates of M/s. J. B. Dadachanji and Co., with him), for Appellants; Mr. C. B. Aggarwala, Senior Advocate (Mr. K. R. Chaudhuri Advocate, with him, for Respondents.
Advocates:
C.B.AGARWAL, J.B.DADACHAN, K.R.CHAUDHARY, M.C.SETALVAD, O.C.MATHUR, Ravindra Narayan, S.D.VIMADALAL
C.B.AGARWAL, J.B.DADACHAN, K.R.CHAUDHARY, M.C.SETALVAD, O.C.MATHUR, Ravindra Narayan, S.D.VIMADALAL
For calculating bonus surplus in a partnership, income tax deductions should be based on the tax partners pay on their shares of profits. Furthermore, payment during years of loss is not a mandatory condition for establishing a customary bonus if the firm has consistently remained profitable.
Headnote:(A) Industrial Disputes Act, 1947 - Section 10(1)(d) - Indian Partnership Act, 1932 - Calculation of available surplus for bonus - Deduction for income tax in the case of a registered firm - Notional basis must be relevant to the law of income tax for firms - Since partners are the employers, deduction should be based on the tax payable by each partner on their share of the profits of the firm, rather than treating the firm as a corporation or deducting only the registered-firm tax. (Para 6)
(B) Customary or traditional bonus - Requirements for establishment - Payment over an unbroken series of years, for a sufficiently long period, at a uniform rate, and during years of loss - These are circumstances to be considered and not conditions precedent - Payment during years of loss is not a sine qua non, particularly where the employer has an unbroken record of profits. (Para 8)
(C) Remuneration to partners - Scope of interference by the Court - Court will not substitute its own view for that of the Tribunal on findings of fact unless the decision is perverse or illegal. (Para 7)
Facts of the case:
A partnership firm was referred to an Industrial Tribunal to determine the quantum of bonus for workmen. The dispute involved claims for both profit-sharing and customary bonuses. The Tribunal determined the available surplus after deducting income tax and partner remuneration and also awarded a customary bonus for a festival. The firm appealed the tax deduction method, the partner remuneration amount, and the finding on the customary bonus.
Findings of Court:
The court determined that income tax deduction should be based on the tax payable by partners on their shares of profits. It upheld the customary bonus award, stating that payment during loss is not a mandatory requirement if the firm has always been profitable. The court maintained the Tribunal's finding on partner remuneration.
Issues: Whether income-tax deduction for a registered firm should be based on the tax payable by partners on their shares; whether the Tribunal's fixation of partner remuneration was appropriate; and whether payment of bonus during years of loss is a condition precedent for a customary bonus claim.
Ratio Decidendi: A partnership firm is not a legal person under the Industrial Disputes Act; therefore, the partners are the employers, and tax deductions must be based on the partners' tax liability on the firm's income. Additionally, the criteria for establishing a customary bonus are considerations of substance rather than rigid conditions precedent.
Result: Appeal partly allowed.
Legal Category Hierarchy
Table of Contents
2. Contention over the notional basis for income-tax deductions, the adequacy of partner remuneration deductions, and the legal requirements to establish a customary bonus. (Para 5 )
3. Income-tax deductions for firms must relate to partners' tax on their shares; customary bonus depends on substance and consistency rather than strict conditions precedent. (Para 6 , 8 )
4. Payment of bonus during loss years is a relevant circumstance but not a sine qua non for establishing a right to customary or traditional bonus. (Para 8 )
5. Modified the allowable income-tax deduction to a notional figure based on partners' shares while upholding findings on partner remuneration and customary bonus. (Para 6 , 7 , 8 )
6. What is the proper notional basis for deducting income-tax to determine available surplus for bonus in a partnership firm?
The deduction should be based on the income-tax payable by each partner on their share of the firm's profits. It should not be based on corporate tax rates or the partners' total world income. (Para 6 )
7. Must a workman prove that bonus was paid even in years of loss to establish a claim for customary bonus?
No. Payment during loss years is a circumstance for consideration, not a condition precedent. If a firm has an unbroken record of profits, the absence of payment during loss years does not negate the claim. (Para 8 )
8. Under what circumstances can a court modify a Tribunal's finding on partner remuneration for bonus calculations?
Since such findings are generally matters of fact, a court will not interfere unless the law is improperly administered or natural justice is violated, provided there is no solid factual substratum for a different figure. (Para 7 )
Judgment
SINHA, C.J.I. : This appeal, by special leave, is directed against the award dated May 10, 1961, made by the Central Government s Additional Industrial Tribunal (Shri Salim M. Merchant) Bombay, in Reference No. 4 of 1960, on a reference made by the Central Government under cl. (d) of sub-s. (1) of S. 10 the Industrial Disputes Act (XIV of 1947). The main point in controversy between the parties relates to the question of bonus, both traditional or customary bonus and profit-sharing bonus.
2. The appellants are a partnership ; firm, registered under the Indian Partnership Act, 1932, and have their office at 46, Veer Nariman Road, Fort, Bombay 1. The firm carries on business in the name of Messrs. Tulsidas Khimji, and for the relevant year ended October 31, 1958, the partners were (1) Shri Karsondas Tulsidas (2) Shri Ranchoddas Gokuldas (3) Shri Narandas Tulsidas (4) Shri Moolsingh Karsondas (5) Shri Shantu Karsondas and (6) Shri Narendra Ranchhodas. They are closely related to one another. The first two partners aforesaid have been associated with the firm for about 40 years, the third for about 35 years, the fourth for about 15 years, the fifth for about 8 years and the 6th for about 5-6 years. At all material times, the six partners had been working for and in the interest of the firm, which carried on different kinds of business, namely, (1) Clearing and forwarding agents, (2) Godown Keepers, (3) Insurance Agents and (4) Cotton Supervisors and Controllers. For carrying on these different kinds of business, they maintained four different and distinct departments. The respondents are workmen employed under the firm. The question referred to the Tribunal was "quantum of bonus payable to workmen for the year ended October 31, 1958". A number of issues were raised before the Tribunal, of which it is only necessary to notice the 4th and the 5th issues, which are as under :
4. Whether the claim under reference should be restricted to a claim for profit-sharing bonus or customary bonus or on basis of implied terms of contract?
5. Whether it is open to the workmen to claim bonus on the basis of surplus profits, and at the same time claim bonus on the ground of custom and practice or implied terms and conditions of service ?, or whether the workmen should elect the basis on which they claim bonus? ,
3. The union of the workmen had claimed profit-sharing bonus at the rate of 6 months wages (inclusive of Dearness Allowance) and traditional or customary bonus at a rate, which is not clear but which may be said to be either three months or one month s wages, plus dearness allowance, on the occasion of the Dewali festival. The difficulty in clearly stating the case for the workmen is that they were not clear in their own minds as to whether they were claiming the customary or traditional bonus as one of the implied terms of their employment or for the special festival occasion of Dewali. It was not even clear whether the claim for 6 months wages, inclusive of dearness allowance, was the total claim for bonus or was in addition to the traditional or customary bonus, either implied or as festival bonus on the occasion of Dewali. That accounts for the form of the issues set forth above. The appellants conceded only one month s basic wages as bonus which had already been paid, and contested the claim for traditional or customary bonus either as an implied term of contract of service or as a festival bonus. As there was some confusion about the claim of the respondents, the Tribunal after referring to a number of documents and oral statements, came to the conclusion that the respondents had claimed by way of maximum bonus, 6 months wages on a profit-sharing basis, and that the minimum was the claim for customary or traditional bonus of three months basic wages and one month s dearness allowance on Issue No. 4 the Tribunal decided that those were alternative claims, and that it was not necessary for the workmen to elect any one of the alter
