Judgment

SARKARIA, J. :- Whether the difference of 10 per cent between an Industrial Company and other Companies in the levy of Income-tax provided in the Finance Act, 1966 is to be construed a "rebate" or "relief" in the payment of any direct tax, for the development of an industry for the purposes of Section 7 (e) of the Payment of Bonus Act, 1965 - (for short, the Bonus Act) is the short question that falls to be answered in this appeal by special leave.

2. The appellant is a Private Ltd. Company. It manufactures automobile ancillaries and other goods in its Factory at Bombay. It employs about 170 workmen. The workmen demanded bonus for the year 196-465. Their demand was not met by the Company. Conciliation proceedings before the Conciliation Officer having failed, the dispute was submitted to the Government which by its Order, dated May 2, 1967, referred the same for adjudication to the Industrial Tribunal.

3. One of the points mooted before the Tribunal was, whether in calculating the available surplus, the direct tax payable by the Company was deductible at the rate of 55 per cent or 65 per cent. The case of the Mazdoor Sangh (Respondent No. l) was that the rate should be 55 per cent as the Company was paying the tax at that rate only. As against this, the Company contended that it was entitled to deduct as per Section 7 (e) of the Bonus Act, direct tax at the normal rate of 65 per cent and not at 55 per cent which was only concessional levy amounting to a relief for the purpose of development.

4. The Tribunal accepted the contention of the Company. After referring to the speech of the Finance Minister on the Budget of 1966-67, the Tribunal held:

".........while the private companies have been normally assessed to income-tax at the rate of 65 per cent, those engaged in industrial undertakings have been assessed at the concessional rate of 55 per cent, as a measure of rendering assistance to their growth. Such a concession would, unquestionably amount to relief for the purpose of development as contemplated by Section 7 (e) of the Act."

Aggrieved, the Mazdoor Sangh impugned the Tribunal s Award, dated 29-2-1968, by a Writ Petition under Article 227 of the Constitution before the High Court of Bombay. The High Court held that the Company being an Industrial Company, was liable to pay tax under the Finance Act, 1966 at the rate of 55% only on its total income after deduction depreciation. Therefore, it could not claim deduction at a rate higher than 55% in calculating the available surplus. In the result, the High Court set aside the Award and remitted the case to the Tribunal for further disposal in accordance with law. Hence this appeal by the Company.

5. Broadly, the scheme of the Bonus Act is this: At first, the gross profits derived by an employer from an establishment are calculated in the manner specified in the First Schedule, or the Second Schedule, whichever may be applicable (S. 4). On the basis of such gross profits, the available surplus for the particular accounting year is computed. This is done by deducting therefrom the sums referred to in Sec. 6. According to Clause (c) of Section 6, one of the sums so deductible is:

"Subject to the provisions of Section 7, 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".

6. Section 7, to which S. 6 (c) is subject, provides how for the purposes of the Act, the direct tax payable by the employer is to be calculated. Clause (e) of Section is material. It runs thus:

"no account shall be taken of any rebate (other than development rebate or development allowance) or credit or relief or deduction (not hereinbefore mentioned in this section) in the payment of any direct tax allowed under any law for the time being in force relating to direct taxes or under the relevant annual Finance Act, for the development of any industry?

7. The rates of income-tax applicable to Private Ltd. Companies under Parag