1. Industrial dispute — Determination of quantum and distribution of profit bonus for multiple years — Reference to Industrial Tribunal for calculating available surplus. (Para 1 , 2 )
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1963 Supreme(SC) 122
SUPREME COURT OF INDIA
K.C.Das Gupta : K.N.Wanchoo : P.B.Gajendragadkar
Bengal Kagazkal Mazdoor Union
Versus
Titaghvr Paper Mills Company Limited
Case No. : 550 , 551 of 1962
Date of Decision : 4/11/63
Advocates Appeared: Agarwal S.O. : Garg R.K. : Ghosh B.N. : Hingorani N.H. : Mukherjee Ajit Roy : Mukherjee D.N. : Ramamurthi M.K. : Setalvad M.C. : Singh D.P.
Advocates:
AJIT ROY MUKERJEE, B.N.GHOSH, D.N.MUKHERJI, D.P.Singh, M.C.SETALVAD, M.K.RAMAMURTHY, N.H.Hingorani, R.K.GARG, S.O.AGARWAL
AJIT ROY MUKERJEE, B.N.GHOSH, D.N.MUKHERJI, D.P.Singh, M.C.SETALVAD, M.K.RAMAMURTHY, N.H.Hingorani, R.K.GARG, S.O.AGARWAL
Determination of available surplus for bonus requires calculating gross profits based on original costs, using statutory depreciation for tax, proving working capital utilization via evidence, and deducting unused previous rehabilitation allowances and liquid reserves from rehabilitation requirements.
Headnote:(A) Industrial Dispute - Bonus - Available Surplus - Full Bench Formula - Income-tax Act - Section 10(2)(vi) - Calculation of gross profits - Revaluation of stock - If revaluation results in increased value reflected in consumption of raw materials on the debit side, the original cost must be considered to determine actual profit, as the revalued price is not what was actually paid for the materials. (Para 5)
(B) Income Tax - Calculation of tax payable for bonus purposes - In calculating the amount of tax to be deducted from gross profits, the tribunal should take into account the concessions given by the Income-tax Act, specifically using statutory depreciation rather than notional normal depreciation. (Para 6)
(C) Working Capital - Proof and Composition - A balance-sheet cannot be taken as proof of the portion of reserves actually used as working capital; such utilization must be proved by evidence. Investments and advances are not automatically working capital; they must be shown to have been realized or used for business purposes to be included. (Paras 7, 8, 9)
(D) Rehabilitation - Deductions - In determining the amount for rehabilitation, deductions must be made for: (i) rehabilitation amounts allowed in previous years but remaining unused; and (ii) liquid reserves, excluding those in the form of raw materials or those earmarked for specific binding purposes. (Paras 12, 13)
Facts of the case:
Appeals were filed by workmen's unions against an award that rejected claims for profit bonus for four years, concluding there was no available surplus. The unions challenged the tribunal's calculations regarding gross profits, income tax, working capital, and rehabilitation.
Findings of Court:
The tribunal erred in its calculations by ignoring the impact of stock revaluation on consumption, using notional instead of statutory depreciation for tax, treating all investments and advances as working capital, and failing to properly deduct unused previous rehabilitation amounts and available liquid reserves.
Issues: Whether the tribunal correctly determined the available surplus for bonus by accurately calculating gross profits, income tax, working capital, and rehabilitation requirements.
Ratio Decidendi: The court held that actual profits must be based on original costs when revalued costs are debited as consumption. Statutory depreciation must be used for tax calculations. Working capital requires specific evidence of utilization and does not automatically include all investments or advances. Rehabilitation amounts must be reduced by unused previous allowances and liquid reserves, except for raw materials or earmarked funds.
Result: Remand to the tribunal for recalculation of available surplus.
Legal Category Hierarchy
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labour law
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industrial disputes
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bonus
- available surplus calculation
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bonus
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industrial disputes
Table of Contents
2. Challenge to tribunal's calculation of gross profits, income-tax deductions, working capital interest, and rehabilitation amounts used to determine available surplus. (Para 3 , 4 , 6 , 7 , 8 , 9 , 11 )
3. Tribunal erred by ignoring stock revaluation effects on consumption, failing to apply statutory depreciation, and miscalculating working capital and rehabilitation reserves. (Para 5 , 6 , 7 , 8 , 9 , 12 , 13 )
4. Available surplus calculation requires statutory depreciation for tax, evidence of actual use for working capital, and deduction of unused previous rehabilitation allowances and liquid reserves. (Para 6 , 7 , 8 , 9 , 12 , 13 )
5. Matter remanded to the tribunal for recalculation of available surplus and submission of findings to the court. (Para 14 )
6. How does stock revaluation affect the calculation of gross profits for bonus purposes?
If stock is revalued, the revalued cost should not be shown as consumption on the debit side; only the original cost price paid for acquiring raw materials should be considered to determine actual profit. (Para 5 )
7. What depreciation should be considered when calculating income-tax for available surplus?
The tribunal must take into account concessions provided by the Income-tax Act, specifically deducting statutory depreciation from gross profits to arrive at the amount of tax payable. (Para 6 )
8. How must an employer prove that reserves were used as working capital?
A balance-sheet is insufficient proof; the employer must prove the utilization of reserves as working capital through evidence, such as affidavits, which the workmen have an opportunity to contest via cross-examination. (Para 7 )
9. Under what conditions can investments and advances be treated as working capital?
Investments and advances are working capital only if evidence shows they were actually realized and used for business, or pledged as security; unchanged investments or non-business loans are excluded. (Para 8 , 9 )
10. What deductions are permissible when determining the net amount required for rehabilitation?
Deductions include breakdown value, depreciation, general liquid reserves (excluding raw materials or earmarked funds), and any rehabilitation amounts allowed in previous years that remained unused. (Para 12 , 13 )
K.N.WANCHOO, J.
(1) THESE two appeals by special leave arise out of the same award of the Second Industrial Tribunal, West Bengal and will be dealt with together. The two appeals are by two unions of workmen of the Titaghar Paper Mills Co., Titaghar No. 1 and the Titaghar Paper Mills Co. Kankinara No. 2. The two mills have been treated as one establishment and are under one management. So the Government of West Bengal referred the dispute between the mills and the unions for profit bonus for the years 1955-56, 1956-57, 195758 and 1958-59 to the tribunal for determining the quantum of bonus for each year and the method of its distribution amongst different categories of workmen including temporary hands.
(2) THE tribunal went into the matter and came to the conclusion after the application of what is known as the Full Bench formula evolved by the Labour Appellate Tribunal in 1950 and approved by this Court in the Associated Cement Companies Ltd. v. Its Workmen (1), that there was no surplus in any of the four years for the grant of bonus and therefore rejected the claim of the workmen. The two appeals are by the two unions against this award.
(3) THE contention of the workmen is that the tribunals conclusion that there was no available surplus in any of the years is incorrect and four points have been urged in this connection to show how the tribunal went wrong. These points are : (1) The tribunals calculation of gross profits for the years 1956-57 was wrong; (2) The tribunal went wrong in the matter of calculation of income-tax for all the four .years; (3) The tribunal went wrong in the matter of calculating working capital for all the four years; and (4) The tribunal went wrong in calculating rehabilitation for all the four years. We shall deal with these points one by one.
(4) RE. (1). The contention in this behalf is that for the year 1956-57 the mills revalued their stock of raw materials, chemicals and dyes etc. as well as general stores, machine furnishings etc. and paper stock as well as coal stock. This revaluation resulted in an increase of Rs. 38,81,618.00 in the value of these things as on April 1, 1956. This increase in value was reflected in the consumption of raw materials, general stores and coal and in the sale of paper with the result that the profit-and-loss account showed inflated figures in terms of money on the basis of this revaluation, though in actual fact this amount was not spent, the increase being merely due to a paper entry on account of revaluation. Therefore it is said that as the tribunal ignored this aspect of the matter it did not correctly calculate the gross profits for the year 1956-57. The tribunal in this connection relied on the judgment of this Court in the Tata Oil Mills Co. Ltd. v. Its Workmen, (1), and said that if there had been any addition to the profit on account of an increase in the value of the stock, that would be an extraneous profit for which no credit could be claimed by the workmen and such extraneous profit could not be taken into account in calculating the available surplus. It is urged on behalf of the appellants that the tribunal was in error in applying the principle laid down in the Tata Oil Mills Cos case (1), to the facts of this case.
(5) THERE is in our opinion force in this contention. It is true that in The Tata Oil Mills case (1), the profit of rupees three lacs which arose merely on account of a change in the method of accounting was treated as extraneous income; but the judgment of that case does not show that the result of the revaluation was that increased value was taken into account in the matter of consumption of raw materials etc. The tribunal overlooked this fact when it proceeded to apply the ratio in the Tata Oil Mills case (1), to the facts of the present case. It has however been urged on behalf of the respondent that there is a contra-entry in the profit-and-loss account and that shows that t
