The multiplier is the ratio between the original cost and the cost of replacement. It is one of the methods of arriving at the hypothetical cost of replacement at a future date.

Headnote:
Bonus - Rehabilitation allowance - Calculation of - Rehabilitation cost of old machinery - Method of calculation - Rehabilitation cost of new machinery - Price rise - Calculation of - Life of machinery - Determination of - Depreciation - Deduction of - Available funds - Deduction of - Interest on paid up capital - Rate of - Fixation of.
Fact of the Case:

The dispute referred to the Tribunal related to the workmen's demand for bonus for the years 1956-57 to 1959-60. By the said award the Tribunal disallowed the claim for 1956-57 on the ground that it was belated and allowed the demand for the rest of the years 1957-58 to 1959-60.
Finding of the Court:

The Tribunal worked out the rehabilitation requirements for the years 1957-58 to 1959-60 in a Chart which is Annex. A to the award. Since the controversy in these appeals mainly centres round the figures of rehabilitation requirements allowed by the Tribunal it is expedient to set out that Annexure :
Issues: None
Ratio Decidendi: 1. The multiplier is the ratio between the original cost and the cost of replacement. It is one of the methods of arriving at the hypothetical cost of replacement at a future date. 2. Where the cost of replacement is available through quotations and these quotations are not disputed by the Union it would not be necessary to resort to a hypothetical multiplier or if the multiplier must be ascertained it must be the ratio of the cost to the employer and the estimated cost of replacement actually proved through the quotations. 3. The principle accepted in the Full Bench formula and approved by this Court in the case of Associated Cement Co. Ltd., 1959 SCR 925 was that payment of bonus is in recognition of the contribution of labour in the profits earned by the industry and to assist labour to overcome as far as possible the difference between the actual wage and the living wage. 4. The question is how to estimate the probable price of machinery at such future date? As observed in the Associated Cement Company's Case, 1959 SCR 952 of the report (SCR) the Court Said :- "What the Tribunal has to do in determining such cost (i. e. probable cost of replacement ) is to project the price level into the future and this can be more satisfactorily done if the price level which has to be projected in future is determined not only in the light of the prices prevalent during the bonus year but also in the light of subsequent price levels." The submission that it is the price level during the bonus year which is the criterion therefore is not correct. The test is the probable cost of replacement when rehabilitation becomes due. 5. However this does not mean that the Tribunal must mechanically accept the quotations. The rehabilitation cost allowed under the Full Bench formula is the probable cost of rehabilitation which while including modernisation does not include expansion. 6. But the distinction between modernisation and expansion may in some cases be subtle and not capable of clear distinction. The question therefore would always be whether replacement of one machine by a new one is the introduction of modern machinery or one which is an item of expansion If it is an item of expansion its cost naturally has to be excluded. The test is whether by the introduction of the new machinery the production capacity is likely to be significantly augmented. If that is found the Tribunal would have to apportion the cost on the basis that replacement is partly modernisation and partly expansion. On the other hand, if the increased production is not significantly on the higher side it would be a case of modernisation incidental to replacement. 7. The question is on whom is the burden proving whether a given replacement amounts to expansion or modernisation. It seem to us that since it is the employer who seeks replacement cost, it is for him to satisfy the Tribunal as to what will be the overall cost of replacement and in doing so it is he who must satisfy that the cost is of replacement only and does not include any expansion of machinery.
Final Decision: The appeal by the Company must be allowed and the direction made by the Tribunal for payment of bonus for these three years has to be set aside. In the circumstances of this case, the parties will bear their own costs. The appeal by the Union is dismissed. There will be no order as to costs.

Judgement

SHELAT, J. :- These two appeals by special leave, one by the appellant company and the other by its workmen are directed against the award dated May 4, 1964 of the Industrial Tribunal, Rajasthan to which reference was made under section 10 (1) (d) of the Industrial Disputes Act, 1947. The dispute referred to the Tribunal related to the workmen s demand for bonus for the years 1956-57 to 1959-60. By the said award the Tribunal disallowed the claim for 1956-57 on the ground that it was belated and allowed the demand for the rest of the years 1957-58 to 1959-60.

2. In working out the available surplus for distribution as bonus the Tribunal in general followed the Full Bench formula evolved by the Labour Appellate Tribunal in Millowners Association, Bombay, 1950 2 Lab LJ 1247 (LATI-Bom.) and approved by this Court in the Associated Cement Co., Ltd. v. Its Workmen, 1959 SCR 925 The Tribunal worked out first the gross profits for the said years and the prior charges deductible therefrom and arrived at the available surplus. For the year 1957-58 gross profits found were Rs. 28.29 lacs, Rs. 25.36 lacs for 1958-59 and Rs. 34.92 lacs for 1959-60. There is no dispute about these figures. The Tribunal then ascertained the prior charges deductible from the gross profits. There is no dispute with regard to the figures for depreciation income-tax and wealth tax. As regards interest allowable on paid up capital the Tribunal allowed 6 per cent per annum tax free interest for 1957-58 and 1958-59. For 1959-60 the Company demanded interest at the race of 8.57 per cent by reason of a change in the Income-tax law having been made during the year. The Union, on the other hand, claimed that only 6 per cent interest should be allowed. The Tribunal allowed a mean between the two, viz., 71/4 per cent. There was no question of interest on working capital as it was not the Company s case that any reserve was utilised as working capital. Similarly, there is no dispute with regard to the rehabilitation charge for buildings allowed by the Tribunal. Apart from the question as to interest allowable on paid-up capital for the year 1959-60 the main dispute in these appeals is with regard to the rehabilitation allowances in respect of plant and machinery for the three years in question and the method followed by the Tribunal in calculating them.

3. The Company ever since its commencement has been purchasing new and also old reconditioned machinery. As regards new machinery the Company furnished (a), cost to the Company; (b) the current price during the year 1963-64 and (c) percentage in the rise in prices. The Company also furnished in respect of reconditioned machinery (a) cost to the Company and (b) estimated cost which its vendors would have paid if they had purchased it as new in the years in which the Company installed the old machinery. In respect of the old machinery the cost to the Company and the estimated cost to the sellers according to the Company were follows:-

Year Cost to the Co. (In lacs) Estimated cost to the sellers (In lacs)

Upto

1952-53 13.37 20.05

1953-54 to 1955-56 3.49 5.23

1956-57 1.40 2.10

1957-58 1.77 2.65

Total : 20.03 30.03

The difference between the cost to the Company and the estimated cost to the sellers thus came to 150 per cent. No old machinery was purchased during 1958 59 and 1959-60. The Company also produced quotations of prices for equivalent machinery current in year 1963-64. The Union did not dispute (a) the figures of cost to the Company of the new machinery as given in its statement Ex M 2, (b) the figures of cost of old machinery to the Company and its estimated cost to, the sellers as given in Ex. M 3 and (c) the quotations of prices received by the Company in 1963-64 from manufactures of these machines, both old and new, "except in the case of machinery installed during the bonus years."

4. The Tribunal worked out the rehabilitation requirements for the years 1957-58 to 1959-60 in a Chart which is Annex. A to the

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1967 Supreme(SC) 291

The multiplier is the ratio between the original cost and the cost of replacement. It is one of the methods of arriving at the hypothetical cost of replacement at a future date.

Cases Referred (1)