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PETITIONER: MYSORE KIRLOSKAR LIMITED

       Vs.

RESPONDENT: WORKERS OF THE MYSORE KIRLOSKAR LIMITED

DATE OF JUDGMENT: 15/11/1961

BENCH:

ACT:      Industrial      Dispute-Bonus-Income      Tax deductions-Method of  calculation-Working Capital- Return,  if  could  include  borrowed  or  deposit amount  on  which  company  was  paying  interest- Rehabilitation-Evidence as  to the  prior  charges not led, if could be led for subsequent dispute.

HEADNOTE: ^      Held, that in consonance with the decision in the Associated Companies Ltd’s case the income-tax deduction must  be calculated  on the amount which represents the  balance after  deducting the  full statutory  depreciation  allowed  from  the  gross profit.      Held,  further  that  the  rate  allowed  for return on  working capital  is to 2 to 4% which is at the  discretion of the Tribunal and the Supreme Court  usually   will  not   interfere  with   the discretion  exercised   by  the   Tribunal  in   a particular case.      Held, further that for the purpose of returns on working  capital, the  working  capital  cannot include a  sum which was either borrowed or was in deposit with  the company on which the company was paying interest.  The company cannot claim further interest on  the borrowed  amount which  has  been used as  working capital,  for it has already paid interest on  it to those from whom it was borrowed and this has been taken into account as expense in arriving at the gross profit. Where borrowed money is used as working capital there is no question of giving any  further return on this borrowed money. The return on reserves used as working capital can only be  given on  moneys belonging to the company which are used as working capital.      Held, also,  that where  there is  a  dispute with regard  to the claim for bonus by the workmen for  a  particular  year  and  the  fact  that  no evidence as  to rehabilitation  was  led  in  that particular year will not preclude the company from leading evidence  as to the amount which should be allowed to  it as  prior  charges  on  account  of rehabilitation, in  any subsequent  dispute as  to bonus relating to subsequent years.      The Associated  Cement Companies  Ltd. v. Its Workmen, 376

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JUDGMENT:      CIVIL APPELLATE  JURISDICTION :  Civil Appeal No. 233 of 1960.      Appeal by  special leave from the award dated September 29,  1958, of  the Industrial  Tribunal, Mysore, in Reference (I.T.) No. 21 of 1957.      M. C.  Setalvad, Attorney-General  for India, S. L.  Narasimha Murthy  and I. N. Shroff, for the appellant.      Janardan Sharma, for respondent No. 1.      1961. November  15. The Judgment of the Court was delivered by      WANCHOO, J.-This  is  an  appeal  by  special leave in an industrial matter. There was a dispute between the  appellant and its workmen as to bonus for the year 1954-55. This dispute was referred by the Government  of  Mysore  under  the  Industrial Disputes Act  No. XIV  of 1947)  to a tribunal for adjudication. A  number of  objections were raised by the  appellant before  the tribunal; but we are not concerned  with them,  as the law with respect to profit  bonus has been settled by this Court in the  Associated   Cement  Companies  Ltd.  v.  Its workmen(1). The only points urged on behalf of the appellant by the learned Attorney-General are with respect to  the amount  of income-tax,  return  on working capital  and provision  for rehabilitation in connection  with the  calculations made  by the tribunal. We  shall therefore confine ourselves to the three  points which have been raised before us on behalf of the appellant.      The  tribunal   allowed  Rs.  1.67  lacs  for income-tax. The  contention of  the  appellant  is that this  is incorrect in view of the decision of this Court in the Associated Cement Companies Ltd. It appears that the gross profits of the appellant were Rs.  9.46  lacs,  while  the  full  statutory depreciation allowed to the appellant for the year in dispute  was Rs.  4.30  lacs.  Thus  income-tax should have been deducted 377 on the  sum of Rs. 5.16 lacs at seven annas in the rupee,  which   was  the  rate  prevalent  in  the relevant year.  This  amount  comes  to  Rs.  2.25 lacks. The  contention of  the appellant  in  this behalf  is   in  our   opinion  correct   and  the calculation made  by the  tribunal will have to be modified accordingly.      The next  question is about return on working capital. The  dispute is  both as  to the  rate of return and  the  amount  on  which  it  should  be allowed. The  tribunal has  allowed three per cent on working  capital. The  appellant contends  that the tribunal should have allowed four per cent. As was  pointed   out  in   the   Associated   Cement Companies’ case  the rate  allowed by tribunals on working capital  is between  two to four per cent. In the present case the tribunal has allowed three per cent. We do not think that there is any reason for us  to interfere  with the  discretion of  the tribunal in this matter though it is true that the recent trend  of tribunals  is to  allow four  per

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cent return on working capital.      Turning now  to the amount of working capital on which  return should  have  been  allowed,  the appellant originally  claimed that the amount used as working  capital was  Rs.  43.85  lacs.  Latter however, a  revised statement  was put  in and the amount was reduced to Rs. 36.70 lacs. The tribunal has however calculated the working capital used in the business as Rs. 7.85 lacs. The main reason why the tribunal  arrived at  this figure  was that it held that  the amount  in the depreciation reserve could not  be treated  as reserve  used as working capital on  which  a  return  was  admissible.  It therefore excluded out of consideration the entire amount in  the depreciation  reserve which was Rs. 36.24 lacs  in considering  what sum had been used as working  capital. This  view of the tribunal is clearly incorrect in view of this Court’s decision in The Tata Oil Mills Co. Ltd. v. Its Workmen. (2) In that case it was pointed out that- 378           "a return  is allowed  on  the  reserves      used as working capital on the ground that if      these reserves are not used for this purpose,      the concern  would have  to borrow  money and      pay interest on that. This being the basis on      which a  return on  reserves used  as working      capital is  allowed, there  is no reason why,      if there  is in  fact money  available in the      depreciation reserve  and if  that  money  is      actually used  during  the  year  as  working      capital a  return should  not be  allowed  on      such money also." The same  view was  taken by  this Court in Petlad Turkey Red  Dye Works  Ltd. v.  Dyes and  Chemical Workers’ Union,  where it  was emphasised that the balance-sheet did  not by itself prove the fact of utilisation of  reserve as working capital and the law required  that such  an important  fact as the utilisation of a portion of the reserve as working capital had  to  be  proved  by  the  employer  by evidence given on affidavit or otherwise and after giving an  opportunity to  the workmen  to contest the  correctness   of  such   evidence  by  cross- examination. Therefore  the tribunal  in this case was not  right in  excluding  the  amount  in  the depreciation reserve altogether from consideration on  the   ground  that   it  was   a  reserve  for depreciation.      This brings  us to  the question  as to  what amount was actually used as working capital out of the reserve  in the  relevant year.  On that point there was  the evidence  of Shri  M. S. Vartak who was the  Secretary of  the Appellant company. That evidence as  to  utilisation  of  the  reserve  as working capital  was accepted by the tribunal. The statement of  Shri Vartak  shows that  the  amount shown  in  the  revised  calculations  as  to  the working  capital  was  actually  used  as  working capital during  the year.  Thus, according to this statement, Rs.  36.70 lacs  were used  as  working capital and the appellant 379 claims return  on that  amount. It may be accepted that the sum of Rs. 36.70 lacs was used as working

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capital by  the appellant  during the year; but we are of  opinion that the appellant is not entitled to a  return on this entire amount, for the reason that this  amount includes a sum of Rs. 14.56 lacs which was  either borrowed by the appellant or was in deposit  with it,  on which  the appellant  was paying interest.  The appellant  therefore  cannot claim further  interest on  this  borrowed  amount which has been used as working capital, for it has already paid  interest on it to those from whom it was borrowed  and this has been taken into account as expense  in arriving  at the  gross profits. As was pointed  out in The Tata Oil Mills Co.s’ case, the basis  for giving a return on reserves used as working capital is that otherwise money would have to be  borrowed for  that purpose.  Where borrowed money is  used as  working  capital  there  is  no question of  giving any  further  return  on  this borrowed money.  The return  on reserves  used  at working  capital  can  only  be  given  on  moneys belonging to the company which are used as working capital. Therefore,  though Rs.  36.70 lacs  might have actually  been used as working capital in the relevant year,  Rs. 14.56 lacs were borrowed money on which  interest was  paid. There is no question therefore of  any further return on this amount as prior  charge.   Thus  the  amount  on  which  the appellant is  entitled to  the return  on  working capital as  a prior charge is Rs. 36.70 lacs minus Rs. 14.56 lacs, i.e. Rs. 22.14 lacs. The return on this amount  at three  per cent  comes to .66 lacs and the  calculations made  by the  tribunal would have to be corrected accordingly.      Turning now  to the  claim for rehabilitation it is  enough  to  say  that  no  evidence  as  to rehabilitation was  led in  this case.  It may  be that this  was because the appellant expected that the claim  it was  making on  other items of prior charges would  be sufficient  to resist  the claim for further bonus besides one 380 month’s bonus  already paid. The learned Attorney- General therefore submitted that the case might be remanded to  enable the appellant to lead evidence on the  question of  rehabilitation.  The  dispute relates to the year 1954-55 and we think it is too late now  to make  a remand  in order to determine this question.  We should  however like to make it clear  that  the  fact  that  no  evidence  as  to rehabilitation was  led  in  this  year  will  not preclude the appellant from leading evidence as to the amount  which should be allowed to it as prior charge  on   account  of  rehabilitation,  in  any subsequent  dispute   as  to   bonus  relating  to subsequent years. In the present case, however, it is  not   possible  to   allow  any   amount   for rehabilitation as a prior charge.      The final  calculations therefore  after  the corrections made by us are as below:                                           In Lacs                                          --------           Gross Profits                                          Rs. 9.46 Deduct-National normal depreciation...       3.32                                          --------

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                              Balance       6.14 Deduct-income-tax                            2.25                                          --------                                Balance       3.89 Deduct-return on paid up capital             1.33                                          --------                                Balance       2.56 Deduct-return on working capital at 3%        .66                                          --------                      Available surplus       1.90                                          -------- The available surplus therefore for this year must be held  to be  Rs. 1.90 lacs roughly. One month’s wages come to roughly Rs. .64 lacs. It seems to us therefore that  it will  be fair  to allow  1  1/2 months’ wages  as bonus for this year, which would come to about Rs. .96 lacs. The appellant will get some rebate on that from the income-tax 381 department. We  are therefore  of opinion that the workmen are  entitled to  an additional  bonus for half a month for this year.      We therefore  partly  allow  the  appeal  and reduce the additional bonus from one month to half a month.  In the circumstance we order the parties to bear their own costs.                                    Appeal allowed.