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PETITIONER: WORKMEN OF M/S. HINDUSTAN MOTORS LTD.

       Vs.

RESPONDENT: M/S. HINDUSTAN MOTORS,LTD.,& ANR.

DATE OF JUDGMENT: 21/11/1967

BENCH: BHARGAVA, VISHISHTHA BENCH: BHARGAVA, VISHISHTHA HIDAYATULLAH, M. VAIDYIALINGAM, C.A.

CITATION:  1968 AIR  963            1968 SCR  (2) 311  CITATOR INFO :  R          1971 SC2567  (1,24,10)  R          1972 SC 330  (8)  R          1972 SC1954  (6,23)  RF         1973 SC 353  (31)  R          1973 SC2394  (18,10)

ACT: Industrial Dispute-Bonus-Rehabilitation  surplus,calculation of   Age   machinery-Multiplier-Deductions   to   be   made- Depreciation-Returns   on  working  capital  and   paid   up capital-Extraneous   income-Interest on fixed  deposits-Home delivery  commission paid by foreign collaborator.

HEADNOTE: The  workmen of the respondent company raised an  industrial dispute about bonus claimed by them for the  year   1960-61. The   Industrial  Tribunal applying the Full  Bench  Formula held  that  the sum needed for rehabilitation  of  machinery exceeded  the surplus otherwise available and  therefore  no bonus  was payable.  Against this decision of  the  Tribunal the  workmen  appealed  to this  Court  and  raised  various objections  as to the manner in which the available  surplus was calculated by the Tribunal. HELD: (i) On the facts and the evidence produced in the case the  life  of the respondent company’s machinery  should  be taken  at an average of 15 years if the machinery is  worked in two shifts. and 10 years if it is worked in three shifts. The  artificial  rule laid down in the  Income-tax  Act  for calculation   of  notional  depreciation  can   provide   no criterion at all for determining the life of the  machinery, and  the Tribunal committed an error in proceeding  on  that basis. [319 H] The  life  of machinery taken in other cases is also  not  a correct  basis  for  fixing  the  life  of  machinery  in  a particular  case.  Various factory come in that  affect  the useful life of a machinery.  Factors such as the quality  of the  material  used in the machines, and the nature  of  the material  on  which  the  machines  are  to  operate,   very materially  affect their life.Further the life of a  machine will  also depend on the manner in which it is handled in  a particular  factory.  Consequently the correct principle  is

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to  determine  the  life of machinery in each  case  on  the evidence adduced by the parties. [319 E--F; 320 D] Further what has to be determined is the useful life of  the machinery rather than its economic life.  In fact one of the very major considerations which should be taken into account is  the  actual  practice of  the  manufacturers  using  the machinery and, if the evidence be available, to find out how long  the manufacturers continue to use the machinery  as  a rule.  [324 D--H] The  fact  that in the Full Bench  Formula   the   breakdown value  of machinery is taken at 5% is certainly an aspect to be  taken  into account. but it cannot be  accepted  that  a machinery  should  be deemed to have  useful life  until  it reaches the stage of having a breakdown value of 5% No  such absolute rule can be inferred. [328 A] The Tribunal was wrong in not taking into account  machinery installed during the bonus year itself for making  provision for  rehabilitation.If  any machinery is installed  in.  the bonus year, the company would be 312 justified in claiming that it must immediately Start  making provision   for  its rehabilitation, though the  period  for rehabilitation of that machinery would only start at the end of the bonus year. [330 A--C]             ’     (ii)  The  multipliers  given  by  the  company  in  the schedule originally submitted by the company which were  not objected  to  by  the workers were  the  correct  basis  for Calculation  of  the rehabilitation cost  and  the  Tribunal should   not  have  departed  from  them.   There   was   no justification  for  taking  an average  of  the  multipliers submitted  at  first  and those submitted  thereafter  in  a second  schedule.   The Tribunal also was not  justified  in reducing the multipliers on the ground that the new machines which would be purchased to replace the original ones  would necessarily  have more’ productive capacity.  There  was  no material  at all from which the Tribunal  could  justifiably have  inferred that the increase in production would be  so. material as to, attract the principle of  apportionment laid down  by  this Court in the case of  the  Associated  Cement Companies Ltd. 1331 A--F; 332     (iii) In calculating the rehabilitation requirement  for the machinery the depreciation provision made in  accordance with  the  principles  of commercial accounting  has  to  be deducted from the amount that would be required to  purchase the  new  machinery for replacement.   The  contention  that deduction  should  be  made only  of  depreciation  reserves available  to  the  employer cannot be  accepted.   SUch  an interpretation militates against the very purpose for  which rehabilitation  provision is allowed, namely, to enable  the industry  to  cover  the difference between  the  amount  of depreciation which is recouped by making provision for it in accoromance  with the, principles of  commercial  accounting and  the amount that would be required to purchase  the  new machinery  for replacement. Therefore, in the present  case, the  Tribunal  erred when in calculating the  provision  for rehabilitation  it took the entire price of the  replacement machinery  as  required  to be  provided,  entirely  out  of profits  without  reducing the price to the  extent  of  the depreciation  provided  for in  the  accounts.  [333  E--334 B--F]     (iv) The claim of the workmen that the sum shown in  the balance-sheet  of the company as development rebate  reserve should  be  deducted  from the  available  surplus  must  be allowed.   The  mere  statement of the  General  Manager  on affidavit to. the effect that the reserves had been utilised

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as  part  of the working capital could not  be  aceepted  as evidence of the fact.  When the balance-sheet itself  showed that  cash  amounts  in  the form  of  fixed  deposits  were available which were far in excess of the development rebate reserve  in question, there would be no.  justification  for holding  that  this  development.  rebate  reserve  was  not available  as  a liquid asset and had been included  by  the company  in  the working capital.  This  development  rebate reserve  was a liquid asset  available   for  rehabilitation and consequently liable to be deducted when calculating  the rehabilitation requirement. [335 A--G]     (v)  If some. machines have fully run out  their  lives, they must necessarily be replaced out of resources available immediately and there would be no justification for  keeping the available resources in reserve for future rehabilitation while  not  providing out of those available  resources  for immediate.  replacement  of machinery.  There  is  also  the aspect  that  an employer in order to claim more  and,  more rehabilitation  provision will have a tendency to  keep  old blocks of machinery running and to avoid adoption of such  a device  it  would  be fair that he is  required  to  utilise available  resources at the very first opportunity when  the old blocks of machinery require replacement and claim annual provision   for   future only in respect of  that  machinery which will require replacement later 313 on.Consequently,  in  the  present  case  the   depreciation provision and the available development rebate reserve  must be taken into account when calculating the annual  provision for rehabilitation required for replacement of the  earliest installed machinery until it was exhausted, whereafter  ’the annual  requirement  for the remaining blocks  of  machinery would  have  to  be  calculated,  ignoring  these  available resources. [336 G--H; 337 C--D]    (vi)  For the purpose of working ’out return  on  working capital in the year of bonus the origin of the fund used  as working capital is immaterial and it cannot be said that the return  must  be allowed only on reserves  used  as  working capital and not on any other funds used as such. However the fund must be available for investment before a claim can  be made by the employer for a return on it. [340 E--F]     But,  the  mere existence of reserves and funds  at  the beginning  of  the  year, even  taken  together  with  their existence  at  the  end  of the  year  cannot  lead  to  any inference  that  these reserves and funds must  have  formed part  of the working capital during the year and  could  not form part of other items such as fixed deposits, investments etc.  The affidavit filed by the company in this  connection did not exclude the possibility that they were utilised  for purposes other than that of working capital. in the balance- sheet the amounts which  represented  fixed  assets,   fixed deposits,  investments and other loans and.  advances  could not be classified as part of the working capital.  The items representing working capital were current assets,  stock-in- trade,   sundry  debts,  bank  and  cash. balances,  certain loans and advances and insurance and other claims. The items representing working capital had a total value of Rs. 498.02 lacs.  Deducting  from  this  the sum  of  Rs.  377.34  lacs available  from subscribed capital or other  sources.  there remained  a  balance  of Rs. 120.68  lacs  which  must  have necessarily  come out of the various reserves including  the depreciation,  and  this  amount at least must  be  held  to represent resources actually used as working capital  during the year by the company. On this amount it would be fair  to allow a 4% return to the company.

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[344 F--H; 347 D--E]     (vii) The company’s claim that half the amount from  the following sources, namely, (1) the profit in the profit  and loss  account  worked  out  at the  end  of  the  year,  (2) depreciation  reserve for the year, (3)  development  rebate for  the year, (4) value of discarded fixed. assets  written off should be treated as ’a fund which was available  during the  bonus  year for being available for being  utilised  as working capital, could not  be accepted.  There was  nothing to show whether any of these amounts became available to the company during the year and if so when they came  available. [347 F]     (viii)  In  allowing  6% return on  paid-up  capital  in accordance  with  the Full Bench Formula no  question  could arise  of  deducting  the  amounts  invested  in  subsidiary companies   from  the  paid-up  capital  because  the   said investment    had not been held to have come out of  paid-up capital [348 [348 F]      (ix)  The income of the company from interest on  fixed deposits  was  its extraneous income which  accrued  to  the company  without  any  contribution by  the  workmen.   this income  had  therefore  to be excluded  in  calculating  the available  surplus.  At the same time the company could  not on equitable grounds be permitted to claim the interest paid by it on its borrowings as business expenditure.   Therefore the  interest  on  fixed  deposits  was  to  be  treated  as extraneous income  only after deducting from it the interest paid on the borrowings. [349 D--F] 314      (x)  The  income  received  by  the  company  from  its foreign   collaborators as commission on sales  effected  by the  said  collaborators  of their own  cars  in  India  was extraneous  income  to which the company’s wOrkmen  made  no contribution.  It was not therefore to be taken into account in calculating the available surplus. [349 C]      (xi)  Calculated  in  the above  manner  the  available surplus  came 10 Rs. 30.56 lacs.  The Tribunal was not right in  its decision that the company was not in a  position  to pay bonus at all.  However, though the company had earned  a large amount of profit in the year of bonus it had for quite a  large  number  of  years been running  at  a  loss.   The available  surplus being only Rs. 30.56 lacs, the  workmen’s demand of bonus equivalent to six months’ wages amounting to Rs.  24  lacs was too high. It would be just and  proper  to allow bonus at 20% of their annual wages which would come to Rs. 8.60 lacs. [352 A--E]      Associated  Cement Companies Ltd. Dwarka Cement  Works, Dwarka  v.  Its Workmen & Anr. [1959] S.C.R.  925,  Saxby  & Farmer  Mazdoor  Union,  Calcutta v.  M/s.  Saxby  &  Farmer (India) Ltd. [1955] L.A.C. 707, Workmen M/s. Saxby &  Farmer (India)  Pvt.. Ltd. v. M/s. Saxby & Farmer  (India)  Private Ltd. C.A. 152/64 dr. 12-4-1965, The Millowners’ Association, Bombay  v. The Rashuriya Mill Mazdoor Sangh, Bombay,  [1950] L.L.J. 1247. The Honorary Secretary South India  Millowners’ Association  &  Ors. v. The Secretary,  Coimbatore  District Textile   Workers’   Union. [1962]  2  Supp.   S.C.R.   926, National Engineering Industries Ltd.  v. The Workmen &  Vice Versa,   [1968]  1  S.C.R.  M/s.  Titaghar Paper  Mills  Co. Ltd. v. Its Workmen, [1959] Supp. 2 S.C.R. 1012, Millowners, Association,  Bombay v.  The Rashtriya Mill  Mazdoor  Sangh, [1952] 1 L.L.J. 518,     Tata Oil Mills Co. Ltd. v. It’s Workmen & Ors. [1960]  1 S.C.R.  1, Anil Starch Products Ltd. v.  Ahmedabad  Chemical Workers’ Union & Ors., A.I.R. 1960 S.C. 1346, Khandesh Spg & Wvg.  Mills Co.  Ltd. v. The Rashtriya Girni Karogat  Sangh,

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Jalgaon,   [1960]  2  S.C.R.  841,  Bengal Kagazkal  Mazdoor Union  & Ors. v. Titagarh Paper Mills Company, Ltd.,  [1963] II  L.L.J. 358 and Voltas Limited v. Its Workmen,  [1961]  3 S.C.R. 167, considered.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 635 of 1965.     Appeal by special leave from the Award dated January  8. 1963  of the First Industrial Tribunal, West Bengal in  Case No. VIH-354 of 1961.     B. Sen, Janardan Sharma, P.K. Ghosh and S.K. Nandy,  for the appellants.     Niren   De,   Solicitor-General,   M.   Mukherjee    and Sardar Bahadur. for respondent No. 1.     The JUdgment of the Court was delivered by     Bhargava,  J.   This appeal by special  leave  has  been filed  by’  the  workmen of  Messrs  Hindustan  Motors  Ltd. against the decision of the First Industrial Tribunal,  West Bengal  in  a dispute relating to payment of bonus  for  the year  1960-61.  The respondent, M/s Hindustan  Motors  Ltd., (hereinafter referred to as 315 "the  Company")  was  established  in  the  year  1942  and, initially,  the  work taken up by the Company  was  that  of assembling  of  motor  cars from  components  imported  from foreign  countries. Later on, manufacture of  components  of motor  cars was started and gradually the Company  developed this  work  of manufacture of components by  increasing  the number  of  components  manufactured by  it  until,  at  the present time, the Company is manufacturing more than 70%  of the components utilised in the cars put on the market by the Company.  The work of manufacturing components was taken  in hand  for the first time in the year 1949, according to  the reply  of  the Company filed on 10th January, 1962,  to  the statement  filed  on  behalf  of  the  workmen.  before  the Tribunal.   At  the  initial stages of  its  existence,  the Company was running at a loss and even, as late as the  year 1956.  the  Tariff  Commission’s Report  on  the  Automobile Industry  mentioned that this Company was making a  loss  of Rs.  833 per car on the Hindustan Landmaster which  was  the car  put  on the market by the Company at that  time.   Even Subsequently, for several years. no profit was shown in  the profit and loss account and, consequently, no bonus was paid to the workmen until the dispute about it was raised for the first time in respect of the year 1959-60.  We were informed that  the dispute relating to the payment of bonus  for  the year  l  959-60  is  still  pending  before  the  Industrial Tribunal,  while the dispute with respect to bonus  for  the next  year 1960-61 has been decided and is now before us  in this  appeal.   In this year 1960-61, the  profit  and  loss account  of  the Company showed a net profit of  Rs.  249.71 lacs.   Out of this, a sum of Rs. 59.53 lacs  was  allocated for  payment of dividend on ordinary shares @ 12% and a  sum of Rs. 27.55 lacs for dividend on preference shares  @8.57%. The total amount allocated for payment of dividends was thus Rs. 87.08 lacs.  In view of the fact that, in this year, the Company  had earned a net profit of over Rs. 249  lacs.  the workmen demanded bonus equivalent to six months’ wages.  The monthly  wage  bill of the workmen is about Rs. 4  lacs,  so that  the total amount claimed towards bonus by the  workmen came  to Rs. 24 lacs.  It was also stated on behalf  of  the workmen that, if this bonus to the extent of Rs. 24 lacs  is awarded,  the actual amount which the Company would have  to

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pay   will  only  be  55%  of  this  amount,   because   45% representing  income-tax on this amount would be  refundable to the Company from the Government.     Before  the Tribunal, there was no dispute  between  the parties  that, in order to find out whether any surplus  was available  for distribution of bonus, calculations  must  be made on the basis of the Full Bench Formula approved by this Court in The Associated Cement Companies Ltd., Dwarka Cement Works, Dwarka v. Its 316 Workmen & Another(1).  The Tribunal, after making all  other deductions  from  the  surplus  which have  to  be  made  in accordance  with the Full Bench Formula and  without  taking into  account  provision for rehabilitation,  arrived  at  a figure of Rs. 87.80 lacs as the amount of surplus available. Thereafter, the Tribunal held that a sum of Rs. 373.62  lacs every year was needed for rehabilitation purposes and, since this  amount  very  much  exceeded  the  surplus   otherwise available,  there  was no scope for granting, any  bonus  at all.   Consequently,  the  Tribunal  decided  the  reference against  the workmen and held that no bonus was payable  for this  year.  The workmen have come up to this Court  against this decision of the Tribunal.     In  this  appeal  also, there is  no  dispute  that  the principles  to  be  applied  for  working  out  the  surplus available  for distribution of bonus must be those  approved by  this  Court in the case of Associated  Cement  Companies Ltd.(1).   On behalf of the workmen, however, it  was  urged that  the  Tribunal   committed an  error  in  applying  the Formula  in respect of five different items involved in  the calculation. These are: (1) Rehabilitation, (2) Return on reserves used as working capital, (3) Return on paid-up capital, (4) Interest on fixed deposits, and (5) Home delivery commission. Of these items, the most controversial is the first item  of rehabilitation  and  that  is also the  most  material  one, because,  if the figure of annual rehabilitation arrived  at by the Tribunal is accepted, it is clear that no surplus can possibly  remain out of the profits earned during  the  year for   distribution   of  bonus.   In  the   calculation   of rehabilitation, various factors are involved which have been indicated  by  this Court in the case of  Associated  Cement Companies(1).  The factors in calculation of  rehabilitation accepted  by the Tribunal which have been challenged by  the workmen are:                   (i)  the divisor, which depends  upon  the               life  of the plant, machinery  and  buildings,               the  year of their installation  or  erection,               and  the  residuary life which must  be  taken               into account when working out the divisor,                   (ii) the calculation of the multiplier for               arriving  at the replacement cost of  the  old               machinery which requires rehabilitation. and (1) [1959] S.C.R. 925. 317 WORKMEN V. HINDUSTAN MOTORS LTD. (Bhargava, 1.)   317               (iii) the deductions which should be made when               working out the annual rehabilitation. We shall now proceed to deal with these points.     When  the dispute was taken up for adjudication  by  the Tribunal, the Company, on 3 l st May, 1962 filed  statements showing  calculations of rehabilitation  provision  required for  rehabilitating  the  plant,  machinery  and  buildings.

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Amongst  these  statements  was  a  statement  described  as Schedule IA (hereinafter referred to as "the first  Schedule IA")  and in that statement it was claimed on behalf of  the Company  that the average total life of its machinery was  6 years.  On behalf of the workmen, it was urged that the life of the machinery should be taken to be 30 years and on  this basis,  ,after  the arguments were  over  a   rehabilitation cost   calculation  was  filed  on  21st   November,   1962. Thereafter,  in  the course of arguments on  22nd  November, 1962,  some  fresh  statements were filed  by  the  Company. These  statements  in respect of the machinery had  two  new Schedules,  both  marked as Schedule IA.  In  one  of  these Schedules  IA filed on 22nd November. 1962,  the  multiplier taken  for replacement of the machines installed in  various years  was higher than the multiplier in the first  Schedule 1A.   This  Schedule shall be referred to.  as  "the  second Schedule  1A".   At  the same time,  as  mentioned  earlier, another Schedule IA was filed and, in this Schedule IA,  the multipliers were the same as in the first Schedule 1A.  This shall be referred to hereinafter as "the third Schedule 1A". In  none of these Schedules filed, either on behalf  of  the Company  or  on  behalf  of  the  workmen,  was  there   any classification of plant and machinery into precision or non- precision  machinery.   Some statements for the  purpose  of calculation of rehabilitation were again filed on behalf  of the  Company on 28th December, 1962 under the directions  of the  Tribunal and it appears that, taking into  account  the evidence  which  had  been  led  before  the  Tribunal,  the Tribunal  at this stage asked the Company to  give  separate Charts for precision machinery and non-precision  machinery. Consequently,  the statements flied on 28th  December.  1962 classified  the machinery into precision  and  non-preCision machinery.It  seems  that  the  Tribunal,  in  making   this direction  was  also influenced by  the  circumstance  that, under  the  Income-tax  Law,  the  depreciation  allowed  in respect   of  precision  and  non-precision   machinery   is different, from which the Tribunal. inferred that  precision machinery  will  have  a  shorter  life  than  non-precision machinery.In  fact,  the Tribunal was of the view  that  the proportion  between the life of precision and  non-precision machinery  can  be  safely  taken to  be  the  same  as  the proportion  between the depreciation allowed in  respect  of the  two.Proceeding  on  this basis, the  Tribunal,  in  the statements prepared for and annexed as. part of the LISup.C.I./68--6 318 Award,  classified  the machinery into  precision  and  non- precision  machinery and worked out different life  for  the two  kinds of machinery.  In the course of arguments  before us,  it was urged on behalf of the workmen that the  Company not  having claimed that machinery classified  as  precision had  a  shorter  life  than  machinery  classified  as  non- precision  either in the written statements or at the  stage of filing the first Schedule 1A or even the second or  third Schedule IA, there was no justification for the Tribunal to. accept  this.  classification  and   work   out    different periods  of life for different classes. of  machinery.   Mr. Niren  De, counsel appearing on behalf o.f the  Company,  in his  argument before us also urged that the Company  at  no. stage  put  forward the Case that the  machinery  should  be classified  into precision and non-precision  machinery  and different  life should be attributed to the two  classes  of machinery.  According to him, the Company’s. case throughout has been that all machinery installed m the. factory of  the Company  has an economic life of 6 years only, so  that  the

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Company is not prepared to justify the decision given by the Tribunal  on the basis of this classification.   Since  both parties   before   us  challenge  the   adoption   of   this classification by the Tribunal, we consider that it will  be right  to ignore this. classification and to proceed on  the basis  that the total life of the machinery must  be  worked out  on  an average for all the machines  installed  in  the factory  of  the  Company, without  making  any  distinction between precision machinery and non-precision machinery.     As  we have mentioned earlier, the contention on  behalf of  the  workmen was that the life of  the  whole  machinery should  be  taken  to  be 30 years.   Mr.  B.  Sen,  counsel appearing on behalf of the workmen, drew our attention to  a number of cases, in which the life of the machinery came  up for   consideration  either  before  the  Labour   Appellate Tribunal or before this Court in connection with calculation of rehabilitation provision.  The. first case brought to our notice  was Saxby & Farmer Mazdoor Union, Calcutta  v.  M/s. Saxby  &  Farmer (India) Ltd., Calcutta(1),  in  which,  for purposes.  of  calculation of rehabilitation,  the  life  of machinery  was taken to be 30 years.  Another  case  between the   Workmen  of M/s. Saxby & Farmer (India) Pvt.  Ltd.  v. M/s. Saxby & Farmer (India) Private Ltd.(2) in respect of  a subsequent  year came up before this Court.  In  that  case, the Tribunal, in its Award, fixed the life of the  machinery at 20 years and on behalf of the, workmen it was urged  that it  should  have been 30 years as accepted  by  the  Labour. Appellate  Tribunal  in respect of the earlier year  in  the of   Saxby & Farmer Mazdoor Union, Calcutta(1).  This  Court held  that  the life of 30 years. had been taken at  a  time when (1) [1959] L.A.C. 707. (2) Civil Appeal No. 152 of 1964 decided on 12-4-1965. 319 the  machinery was. being worked in two, shifts,  while,  in the  subsequent  case, it was shown that the  machinery  was working  in three shifts, so that it could not be said  that the Tribunal was wrong in fixing the life in this subsequent case  at  20 years.  Relying on these cases, Mr.  Sen  urged that,  in the present case also, we should take the life  of the   machinery   to  be  30  years.   In   The   Millowners Association,   Bombay   v.   The  Rashtriya   Mill   Mazdoor Sangh,Bombay(1),  the  Full Bench of  the  Labour  Appellate Tribunal,  when  laying  down the  formula  that  was  later approved  by this Court, appears to. have accepted the  life of  textile machinery as 25 years, while this Court, in  the case of the Associated Cement Companies Ltd. (2),  proceeded on  the basis that the life of the machinery was  30  years. In   the   Honorary  Secretary,   South   India   Millowners Association and Others v. The Secretary, Coimbatore District Textile Workers’ Union(1), this Court confirmed the  finding of  the  Tribunal  that the estimated life  of  the  textile machinery  of the Company concerned in that case  should  be taken.  to  be  25  years.  It is  on  the  basis  of  these decisions  that the claim was put forward that the  life  of the  machinery in the present case should also. be taken  to be  30  years  or at least 25 years.   In  our  opinion.this argument proceeds on an entirely incorrect basis.  The  life of   a  machinery  of  one  particular  factory   need   not necessarily be the same as that of another factory.  Various factors come in that affect the useful life of a  machinery. There  is,  first,  the  consideration  of  the  quality  of machinery  installed.  If the machinery is purchased from  a country   producing  higher  quality  of  machines,it   will naturally  have  longer life, than the  machinery  purchased

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from  another  country where the quality  of  production  is lower.Again,  the articles on which the machinery  operate.s may  very  markedly  vary the life of a  machine.   If,  for example,  a machine is utilised for grinding of cement,  the strain on the machine will necessarily not be the same as on a  machine  which  operates  on steel  o.r  iron.   We  are, therefore, unable to accept the suggestion that the: life of the machinery in the present case should have been fixed  on the  basis  of  the life accepted in other  cases  in  which decisions were given on bonus disputes either by the  Labour Appellate Tribunal or by this Court.     The  Tribunal, in its decision, worked. out the life  of the   machinery   on  ’the  basis  of  the   percentage   of depreciation   allowed  under  the  Income-tax   Act.    The application of this principle has been attacked before us by both the parties.  It is urged that the artificial rule laid down  in  the  Income-tax Act for  calculation  of  notional depreciation can provide no criterion at all for determining the life of the machinery.  We think that the parties are (1) [1950] L.L.J. 1247.      (2) [1959] S.C.R. 925. (3) [1962] 2 Supp. S.C.R. 926. 320 correct  and  that  the  Tribunal  committed  an  error   in proceeding on this basis.     Though,  in  the case of the Honorary  Secretary,  South India  Millowners’ Association(1), this Court, on the  facts of that case, accepted the life of the textile machinery  as 25 years; the Court also laid down the principle for.finding out the life of machinery in the following words :--                     "We  are not prepared to  accept  either               argument because, in our opinion, the life  of               the  machinery  in  every  case  has  to   be.               determined in the light of evidence adduced by               the parties." (p. 933) Obviously, this is the correct principle, because it is only when  the  life of machinery is determined in the  light  of evidence  adduced by the parties in a particular  case  that the authority determining the life can take into account all the  factors  applicable  to  the  particular  machinery  in question.   As we have indicated earlier,  when  determining the life of a machinery, factors, such as the quality of the material used in the machines and the nature of the material on which the machines are to operate, very materially affect their life.  Further, the life of a machine will also depend on  the.  manner  in which it is  handled  in  a  particular factory.  We, consequently, in this case proceed to  examine the evidence given by the parties. in this behalf.     In  order  to prove the life of  machinery,  one  method usually  adopted by the Companies is to tender  evidence  of experts.   In  the. present case, the  Company  tendered  in evidence  the  statement of an  expert,  Gerald  Waplington, which  was  recorded earlier on 5th November,  1961  by  the Fifth  Industrial Tribunal in a dispute pending  before  it. That  dispute  was also between this very  Company  and  its workmen.  In giving the life of machinery, Waplington  first classified  the machines into two  classes--general  purpose machine   tools  and  special  or  single  purpose   machine tools--and  expressed  the opinion that  a  general  purpose machine tool used for one single operation is likely to have a  shorter  economic  life than special  or  single  purpose machine  tool.  According to him, a general purpose  machine carrying on work of high accuracy will have an economic life of the: order of 2 to 3 years only, while a special  purpose machine  doing  similar work of high  accuracy  working  400 hours  a month will have an economic life of 5 to  6  years.

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If  the work taken. from the machines is of  less  accuracy. then,  in  his opinion, a general purpose machine  may  have an,economic  life  up  to 5 years,  and  a  special  purpose machine  an  econoevidence available in this  case.  It  may however, be  noted that (1) [1962] 2 Supp. S.C.R. 926. 321 tinction  between economic life and useful life.   He  twice stated  that economic life of a machine would be only  1/3rd of the useful life of the machine, so that if, on the  basis of  his  evidence,  the useful life of  various  classes  of machines mentioned by him is to be worked out, the member of years  given  for each class by him above will  have  to  be multiplied  by  3.   Thus, according to  his  evidence,  the economic life of a machine will vary from 2 to 3 years as  a minimum to 7 to 10 years at the maximum, and working out the useful life on the basis of his statement that economic life is only 1/3rd of the useful life, the machines would have  a minimum  of  6 to 9 years and a maximum of 21  to  30  years useful life.  We shall consider what inferences can be drawn from  his statement at a later stage when we have  discussed the other evidence available in tiffs case. It may, however, be noted that Waplington is the only expert who can be  held to. be entirely disinterested, because the other two experts examined  are employed as Engineers by the  Company  itself. This independent witness, Waplington, was not asked  whether he  had  seen  the various machines in the  factory  of  the Company,  nor was he at any tune requested to  indicate  how many different machines in the factory of the Company  would fail  in  the various classifications mentioned by  him  for which he has given different periods in respect of  economic life.     The  Other  two  witnesses examined  are  Joseph  Joyce, General  Master Mechanic, and Girish Chandra Bansal,  Master Mechanic,  employed by the Company.  Both of them  have,  in their   statements  given  out  their   qualifications   and experience  which  they.  have in  dealing  with  automobile manufacturing  machinery. According to Joyce,  the  economic life  of  the machinery of the Company cannot  go  beyond  6 years,  and  this statement was. made on the  basis  of  the machines  working 16 hours a. day in two shifts of  8  hours each.  Later on, he added that, applying American  standard, the  life  of the machines can only be 6 to  10  years.   In giving  the life, he qualified that word with "economic"  or "economic  useful",  so that he equated economic  life  with economic useful life and gave the figures on this basis.  In cross-examination, he, however, admitted that useful life of a  machine  is  longer than its  economic  life.   Thus,  if various, statements of his are taken into account and it  is kept in view that he is. an employee. of the Company, it may be  accepted that, according to him, the  maximum  ,economic life of the machinery of the Company will be between 6 to 10 years and the useful life will be longer how much longer, he has  not indicated.  If we were to assume that he  is  using the  expressions  "economic life" and "useful life"  in  the same: sense in which they were used by Waplington,  economic life  would  be 1/3rd of the useful life,  with  the  result that,  on his evidence, useful life of the machinery of  the Company would work out to be 322 anywhere between 18 to 30 years.  The third witness,  Girish Chandra Bansal, estimated the efficient economic life, based on  16  hours  per  day working, at 6  to  10  years,  which Coincides  with  the’  estimate  by  Joyce.   In  his  case, however,  no questions were put to. elicit from him  whether

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he  would make  any distinction between  efficient  economic life and useful life, so. that his evidence does not  appear to carry us any farther than the evidence of Joyce. It may be added that both these witnesses in their  evidence stated  that  the workmen employed by the Company  were  not very  skilled workers and this was a factor that had  to  be taken into account in considering the life of’ the  machines in this company. It is obvious that, if a machine is handled by  a  more skilful worker, it will last longer and  have  a longer  life.   A  Statement was also  made  by  Joyce  that machine.s running at high speed will have shorter life  than those  running at lower speeds; but this  general  statement made by him offers no assistance to us in this case, because he  has not indicated in his evidence how many and which  of the  machines of the Company run at high speed and which  at lower speed.     Apart  from  this evidence of experts, the  Company  has attempted  to  provide  some  other data  which  can  be  of assistance in assessing the life’ of the machinery.  In this connection, Mr. Niren De, arguing the case on behalf of  the Company;  drew our attention to the history of this  Company which showed that, initially, this Company started the  work of  assembly  of  cars  from  parts  imported  from  foreign countries.  some time in the year 1942-43, but,  later,  the policy was. altered and manufacture of components was  taken up  and progressively increased so as to  minimise  foreign. import. He also pointed out that this policy of  progressive production of indigenous parts was pressed Upon the  Company by the Government and, for this purpose, drew our  attention to  the:  first  and  the  Second  reports  of  the   Tariff Commission in the years 1953 and 1956, as well as the report of the lid Hoc Committee on Automobile Industry known as the Report  of the Jha Committee, because Sri L.K. Jha  was  its Chairman.   This report came out in the year 1960.   It  was Urged  by  Mr. De that, due to. this policy  of  progressive increase  in  manufacture  of new  components,  it  was  not possible  for the Company to find money to rehabilitate  old machinery  and,  consequently,  the fact  that  the  Company continued to use old machinery for a number of years  should not  be  taken  as  indicating  that  machinery  ’still  had economic or useful life. It was argued. that the Company per force had to continue use of these ’old machines, because it was  under pressure to expand its activities. by  taking  up manufacture  of components and the Company was running at  a loss.   It has already been mentioned earlier’ that  in  the second  report  of  the Tariff Commission  in  1956  it  was clearly stated that this Company was selling cars at a  loss of 323 Rs. 833 per car.  It is in this background that the evidence given  by the Company should be judged to find out  what  is the life of the machinery possessed by the Company.  He also drew  our  attention  to the principles laid  down  in  this connection  by  the  Full  Bench  of  the  Labour  Appellate Tribunal  in the Millowners’ Association’s case (1), and  by this  Court in the Associated Cement Companies’ case(2).  In the  former  case,  when  laying  down  the  principle  that provision should be’ made for rehabilitation replacement and modernization of the machinery, the  Tribunal  held that:                  "It   is  essential  that  the  plant   and               machinery should be kept continuously in  good               working Order for the purpose of ensuring good               return.  and  such maintenance  of  plant  and               machinery  would also be to the  advantage  of               labour,  for.  the better  the  machinery  the

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             larger the earnings, and the better the chance               of securing a good               bonus." In the latter case, this Court, when examining the scope  of claim for rehabilitation. held that:                  "this  claim  covers  not  only  cases   of               replacement    pure   and   Simple   but    of               rehabilitation   and  modernisation.  In   the               context, rehabilitation is distinguished  from               ordinary  repairs  which go into  the  working               expenses   of   the  industry.  It   is   also               distinguished   from   replacement.   It    is               quite/conceivable   that  certain   parts   of               machines  which  constitute a block  may  need               rehabilitation  though  the block  itself  can               carry  on  for  a number of  years;  and  this               process  of  rehabilitation is in  a  sense  a               continual  process.  Unlike  replacement,  its               date  cannot always be fixed  or  anticipated.               So  with  modernisation and  all  these  three               items   are   included  in   the   claim   for               rehabilitation.   That is why we think  it  is               necessary  that the Tribunals should  exercise               their  discretion  in admitting  all  relevant               evidence which would enable them to’ determine               this vexed question satisfactorily." Proceeding   further  to.  distinguish  between   cases   of replacement. modernisation and expansion, the Court held:                     "If  it appears fairly ’on the  evidence               that  the introduction of the modern plant  or               machine  is in substance an item of  expansion               of  the  industry, expenses incurred  in  that               behalf  have  to be excluded.   On  the  other               hand,  if the employer had to  introduce  the.               new  plant essentially because the use of  the               old plant. though capable (1) [1950] L.L.J. 1247.    (2) [1959] S.C.R. 925. 324               of giving service-was uneconomic and otherwise               wholly  inexpedient,  it  may  be  a  case  of               modernisation.     Similarly;   if   by    the               introduction of a modern plant or machine  the               production  capacity  of  the  industry   has.               appreciably  increased, it would  be  relevant               for the Tribunal to consider in an appropriate               case whether it would be possible to apportion               expenses  on  the basis that it is a  case  of               partial modernisation and partial expansion." It will thus. be seen that, when considering the question of rehabilitation,  what  is  essentially  to  be  taken  into. account  is  that the old plant, though  capable  of  giving service,  was  uneconomic and otherwise  wholly  inexpedient when provision for its replacement and rehabilitation,  even though  it  will   include   modernisation  would  be  fully justified.     In this context, it may be worthwhile examining at  this stage  the difference between economic life and useful  life on which emphasis has been laid by Mr. Sen on behalf of  the workmen.  We  have already indicated earlier that  even  the expert  examined behalf of the Company,  Gerald  Waplington, made  a distinction between economic life of  machinery  and its  useful  life, Further, in giving the life,  he  applied American  standards  which may not be applicable  in  India. This.  Court,  in  various  cases  where  the  question   of rehabilitation  has  been discussed, has  laid  emphasis  on

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useful  life rather than on economic life and, oven  in  the Associated  Cement Companies’ case(1) in the extract  quoted above,  the Court held that modernisation is justified  when the  use of the old plant becomes uneconomic  and  otherwise wholly  inexpedient.  Thus, two tests were laid down, first, that it should be uneconomic and, second, that it should  be also  otherwise wholly inexpedient.  The economic  life,  as envisaged by Waplington, was not, therefore, considered  the appropriate.  test  for  determining when rehabilitation  of the plant and machinery would be justified. In fact, one  of the  very  major considerations, that should be  taken  into account  is the actual practice of the  manufacturers  using the machinery and if evidence be available, to find out  how long  the manufacturers continue to use the machinery  as  a rule. It  may be that, during the last few years of use, the machinery  may.be continued to. be utilised because of  want of resources and compulsion to retain the machinery, because replacement  is not possible at all.  It is in the light  of this.  situation  that we proceed to  examine  the  evidence given  by the Company about the behaviour of  its  machinery and the steps taken by the Company to have the old machinery rehabilitated. (1) [1959] S.C.R. 925. 325     In  this connection, two statements filed on  behalf  of the Company are of significance.  One of these is a list  of obsolete and/or discarded machines prepared on 26th October, 1962  and  marked as Ext. 28.  It is to  be.  noticed  that, though 40 different machines were discarded by 26th October, 1962 when this statement was prepared, none of the machinery discarded  was that installed up to. the year  1947-48.   In fact,  this  situation  is  also  borne  out  by  the  three Schedules IA which have been referred to earlier by us.   In those Schedules 1 A, the machinery discarded and written off from  books  is  shown as being worth Rs.  35,000/-  out  of machinery  of the value of Rs. 89.75 lacs installed  in  the year  1947-48.  Thus, the machinery of that  year  discarded was  nominal  in  value. None  of  the  machinery  installed between ’the years 1948-49 to 1951-52 was discarded.  Again, the  machinery  installed in 1952-53 was  discarded  to  the extent of the nominal value of Rs. 39,000/- out of Rs. 11.06 lacs,  and no machinery installed in 1953-54 was  discarded. The machinery discarded was primarily that installed in  the years 1954-55 to 1957-58, and its value was in the region of Rs.  46  lacs.  Thus, right up to 1962,  the  old  machinery purchased  up to the year 1954 was almost all  continued  in use  and was not discarded, even though machinery  installed in the next four years was considered unfit for further  use and. was discarded or written off,     The second statement is Ext. 21 which bears the  heading "replacement programme condition of machine tools" and which was  prepared  in  March, 1960 in  order  to  claim  foreign exchange  from the Government for replacement of  machinery. That  list contains more than 200 machines, but, again,  the machines  installed  during  the  year  1947-48  or  earlier included in it are only 5 in number, whereas the majority of machines. included in that list are those installed in later years,.   Significance attaches to this factor, because  the machines  ins.tailed in the year 1947-48 were of very  large value,  their  cost being. in excess of Rs.  89  lakhs.   In fact,   that  is  the  year  in  which  the  investment   on installation  of machinery was highest, barring the year  of bonus and the year immediately preceding it.  This statement thus shows that, even though the Company wanted  replacement of a number of machines which had been installed even in the

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year 1949-50 and some machines installed in later years, the replacement of those machines was given preference over  the replacement of machines installed earlier in the year  1947- 48.   In  this  statement, in the remarks  column,.  it  was mentioned that these machines are to be scrapped. but  there was  no statement that machines which had been installed  in the  year  1947-48 were also in such a condition  that  they required  scrapping.  Thus, these  statements  provide  some indication  of the life of machinery which point both  ways. The  fact  that old machinery of 1947-48, though  of   large value,  was  not 326 considered to be in such a condition as to require immediate replacement in preference to machinery installed later would point towards that machinery having a fairly long life.   On the other hand, there is the factor that machinery installed in  later  years was actually scrapped or was sought  to  be scrapped,  and this necessarily means that  later  machinery was considered as having shorter life.     In  this connection,  another statement of which  notice may  be  taken  is Ext. 29 which  shows  prices  of  certain machines originally purchased by. the Company which is to be rehabilitated,  and the prices of the same  machines,  which were  purchased  in the two years preceding  the  time  when Girish  Chandra  Bansal was examined  before  the  Tribunal. Girish  Chandra  Bansal’s  ,evidence was  recorded  on  14th November, 1962 ’and in his statement before the Tribunal  he stated  that Ext. 29 was prepared to compare the  prices  of same  machines  in earlier years when  they  were  purchased originally and again when similar machines were purchased  a second  time in the past two years.  This statement has  the significance that, though in the past two years the  Company took the step of purchasing machines which would perform the identical functions which the old machines were  performing, the  Company chose to add these machines as new ones,  as  a part  of its  scheme of expansion rather than replace  those old  machines.  In the year 1961-62, therefore, the  Company was still of the opinion that it was preferable to add a new machine of the same type rather than replace an old  machine doing  the-same  work, and an  inference  would  necessarily follow  that  old machine must have been  considered  to  be sufficiently serviceable.  This is the view that the Company appears  to  have  held in respect of  machinery  which  was installed 14 or 15 years earlier.     On  behalf  of the Company, some statements  were  also. filed  to show that there were very frequent break-downs  in the  machinery of the Company and. as an  illustration,  our attention was drawn to the statement for the period January, 1960 to September, 1960. It is true that, if there are  very frequent  break-downs  in  machinery,  this  would  give  an indication of the condition of the machinery and lead to the inference that their useful life is coming to an end.  There is, however, one great difficulty in drawing any  conclusion from  the  statistics  of  number  of  break-downs  of   the machinery put forward on behalf of the Company.  The Company has. no doubt, shown us statements that a number of machines had break-downs during the last few years preceding the year of  bonus.  but no material was brought to  our  notice-from which  it might have been possible to compare how  the  same machinery was behaving in earlier years or within the  first few years after it was installed.  Unless it be possible  to compare the number of 327 break-downs. when their life is claimed to be over with  the number  of break-downs when the machine was almost  new’  or

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’was  running its economic or Useful life, no assistance  is available  for assessing the. life of the machinery  from  a mere  table showing the number of break-downs.  Further,  it was not possible from these statements’ to find out which of the  machines  installed in which year were subject  to  the break-downs,  nor did these statements give us  any  picture about  the  percentage of machines  installed  in  different years   which’   were   included   in   these   ’statements. Consequently,  we  have  felt  handicapped  in  drawing  any inference  from  these statements.     Reliance  was  also placed on  some  statements  showing that, for purposes of granting incentive bonus, a rated time was  prescribed for various machines and progressively  this rated time in respect of a large number of machines has  had to  be  increased  in order to enable the  workmen  to  earn bonus,  because  the  machines themselves  are  not  working efficiently  and.  if the rated time is not  increased,  the workmen  would  fail to qualify for incentive bonus  for  no fault  of  their own and  simply because the   machines   on which  they  were  required  to  work  had  deteriorated  in condition.It is true that the statement given of increase of rated  time gives some indication that the condition of  the machinery  in  this factory has been going down  and  though this.  factor is relevant in determining the useful life  of machinery, it cannot carry us very far, because there is  no evidence’  which would enable us to lay down  a  correlation between the increase in the rated time and the expiry of the useful  life  of the machinery.  It is not possible  on  the evidence to discover how much the rated time is expected  to increase  before  it  can be said  that  the  machinery  has completely run out its useful life.     Mr. De also drew our attention to the statements of some of  the   witnesses who. deposed that machinery  running  at high  speed  has  a shorter life than that  running  at  low speed.    This   general  statement,  however,  is   of   no assistance, because the Company did not attempt to  classify its  machines between high speed and low speed ones and’  to give evidence in that behalf.     Lastly,   it  was  urged by Mr. Sen  on  behalf  of  the workmen  that  another  factor which should  be  taken  into account  is that, according to the Full Bench  Formula,  for calculation  of rehabilitation the machinery is  treated  as scrapped when its value is reduced to 5%, because the break- down  value of 5% is all that is deducted  when  calculating the requirements for rehabilitation.  The argument was  that the fact that the. break-down value is taken at 5% indicates that  the  machinery  ’for  purposes  of  rehabilitation  is treated as still useful unless its value is reduced to  that low figure. 328 This  is, no doubt, another aspect that must be taken  into. account, though we are unable to accept the submission  that a  machinery should be deemed to have useful life  until  it reaches  the stage of having a break-down value of  5%.   No such absolute rule can be inferred. In  this  case,  the Tribunal, in fixing  the  life  of  the machinery,  as  we  have  mentioned  earlier,  proceeded  to calculate it on the basis of the depreciation rate permitted under  the Income-tax Act. That basis was not acceptable  to either  of the parties before us. On behalf of the  workmen, it  was  urged that it was an entirely  wrong  principle  of calculating the life, and even o.n behalf of the Company  no attempt  was  made  to support this method  adopted  by  the Tribunal.    In   the  Honorary   Secretary,   South   India Millowners, Association’s case(1), this Court also  rejected

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the  argument that the calculation of the life may be  based on the depreciation rate permitted by the income-tax Act.     In   these  circumstances,  we  have  to  consider   the cumulative  effect  of the various pieces  of  evidence  and circumstances  which  we have discussed above  and,  on  its basis,  to  estimate what should  be considered  to  be  the useful life of the machinery of this Company.. Reference may briefly be made to the various conclusions  arrived at.  The evidence  of  the  independent expert and  of  the  engineer employees of the Company gives a figure. for useful life. of machinery  which  may  be anywhere between 6  years  to.  30 years.  The lower figures given by them cannot be,  accepted as they relate to economic life in the strict sense of  that expression and are based on American standards. At the  same time,  the maximum life worked out from their evidence is on the hypothesis that the useful life stated by Waplington  to be three times that of economic life is also the useful life in  the  same proportion to economic life as  given  in  the evidence  of Joyce.  Then, there is the evidence  that  this Company itself has been running its old machinery for  quite a  large  number of years and even after 13 or 14  years  of use, the Company in quite a large number of cases preferred, when buying similar machines, to utilise them for  expansion rather  than  for  rehabilitation.   On  the  face  of   it, replacement  of old machinery would have been  preferred  to expansion,  if  the old machinery had really  completed  its useful life. In some cases,  however, machinery purchased in later  years  had  to be rehabilitated  after  much  shorter periods, but no detailed information is available. why  such early  replacement  became  necessary.   No.’  material  was provided  to show the comparative quality of machines  which have  been  run  for a long time  and  machines  which  were replaced  or sought to be replaced after shorter periods  of us. After tak- (1) [1962]  2 supp. S.C.R. 926. 329 ing  into consideration the various factors mentioned by  us above, and on the evidence before us, we think that in  this case, it would. be appropriate to hold that the average life of  the machinery of this. Company in respect  of  different kinds  of  machines obtained from different sources  may  be appropriately  taken  as  15 years. This life  of  15  years arrived  at by us, it may be mentioned is on the basis  that the machines of the Company have been running during most of the.  period, to which the evidence relates, in  two  shifts only.   Girish Chandra Bansal, one of the Engineers  of  the Company, examined as a witness, stated that the machines  in this Company were working in two shifts only, until, for the first time in 1959-60, the factory started to run round-the- clock,  i.e.,  in three shifts.  He added  that the  factory had been working in two shifts from the time it was founded. It  is also clear that; if the. factory had been working  in only  one shift, the life of the machinery would  have  been longer, and we think that in that case lit. would have  been appropriate  to take the life of the machinery as 25  years. On  the other hand, after the machines are being  worked  in three shifts, the Life of the machinery is bound to be lower and,  consequently,  if  the machines  be  worked  in  three shifts,  it  would be appropriate to take the  life  of  the machinery at 10 years. In the present case, however, we  are accepting the; average life as 15 years for all the machines requiring rehabilitation, because the evidence, as mentioned above,  shows  that the machines have been. working  in  two shifts   only  from  the  time  when  the  factory   started functioning,  with  the  exception that, in  the  first  few

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years,  they were worked in only one shift while,  from  the year  preceding the year of bonus, they have been worked  in three shifts.  Consequently, it may be taken that, up to the year of bonus, the machines have been worked on the average, in two shifts. In working out the divisor, however, it  will have  to be kept in view that future life of  the  machinery will have to be calculated on the basis of three shifts and, consequently, on the basis of the  figure of 10 years as the useful  life  of the machinery.  We  may  also  incidentally mention that this Court, in the case of National Engineering ’Industries  Ltd. v. The Workmen & Vice  Versa(1),  accepted the life of the precision machinery of the Company concerned in that case as 15 years, so that the conclusion arrived  at by  us  on  the  evidence in the  present  case  happens  to coincide with the figure of life accepted in that case.     In this connection, we-may also take notice of one point urged by Mr. De on behalf of the Company.  It appears  that, when working out the divisor and finding out what  machinery required  rehabilitation,  the Tribunal did  not  take  into account machinery installed during the bonus year itself for making  provision  for mic life of 7 to 10  years.   In  his evidence, further, he made a dis- (1) Civil Appeals Nos. 356-357 of 1966 decided on 6-10-1967. 330 any machinery is installed in bonus1 year, the Company would be  justified  in claiming that it  must  immediately  start making  provision for its rehabilitation, though the  period for rehabilitation of that machinery would only start at the end of the bonus year. Once machinery has been installed and is in existence. in the bonus year, the Company is entitled. to  say that it will require= rehabilitation in  future  and that  provision  should be made for rehabilitation  of  that machinery   also  and  the  Company  should  start   keeping reserves.  for that purpose from the year of  bonus  itself. Thus,  in the present case, the machinery installed  in  the year 1960-61 should have been included in the rehabilitation statement,  though the divisor in respect of that  machinery will, on our decision given above, be 15 on the basis of two shifts and 10 on the basis. of three shifts, as the machines will  still  have  a  residuary life  of  15  or  10  years, computing  the period from the bonus year which is also  the year of installation.     The   second   factor  entering   the   calculation   of rehabilitation requirement about which there was controversy between  the  parties is the multiplier.   We  have  already mentioned  the  fact  that,  in  the  first  and  the  third Schedules 1A, the Company gave one set of multipliers, while in’  the second Schedule 1A higher multipliers  were  given. The Tribunal took both sets of multipliers into. account and worked  out  the average and accepted that  as  the  correct multiplier, representing the rise in the price: rate of  the machinery   requiring   rehabilitation.    Thereafter,   the Tribunal  held that the machinery which was to  replace  the old one would have a larger production and proceeded to work out  figures for reducing the multipliers on  that  account. The  Tribunal held that it would be justified to reduce  the average multipliers arrived at by 75 for machinery installed up  to’  1951-52, by 55 for machinery installed  during  the years  1952-53  to  1955-56, and by 35  for  that  installed during the years 1956-57 to 1960-61.  Before us, this method adopted by the Tribunal was criticised by counsel’ for  both parties.   On behalf of the workmen, it was  contended  that there  was  no justification for the Tribunal  to  take  the average  of  the  multipliers in the first  and  the  second Schedules  IA  and  that  the  Tribunal  should  only   have

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proceeded  on  the basis that the multipliers given  in  the first  Schedule  IA were proved and were correct  ones.   On behalf of the Company, it was urged that the Tribunal should have  accepted the multipliers given in the second  Schedule IA  and should not have reduced them by taking into  account those  given  in the first Schedule 1A, and,  further,  that there was no justification at all for the Tribunal to reduce the  figures  of the multipliers for the various  blocks  of machinery  by 75, 55 or 35 on the ground that the  machinery to   be  installed  in  replacement  would  have  a   higher production. 331     We  were taken by learned counsel for parties  into  the evidence  tendered  on behalf of the Company  to  prove  the multipliers.   We  nave found that the  correctness  of  the multipliers  shown  in the first Schedule 1A has  been  very satisfactorily  proved.  It appears that those figures  were arrived  at  by comparing the prices of  the  old  machinery installed in various years with similar machinery  purchased in  subsequent   years.   That comparison  was  contained  m statement  Ext. 29.  The Company’s witness Bansal  not  only proved  this  statement, but also clearly  stated  that  the machines  originally  purchased and  those  purchased  later shown  in, that statement Ext. 29 were the  same   machines. In  cross-examination, he further specifically arrested that the  production capacity of these new machines mentioned  in Ext.  29  was  very much the same as that  of  the  original machines  which were to be replaced when they were new.   It is  also,  significant  that these  figures  of  multipliers included  in the first Schedule IA. were not  challenged  on behalf  of the workmen before the Tribunal.  So far  as  the figures contained in the second Schedule 1 A are  concerned, it  was suggested on behalf of the Company that  they  were’ based  on  subsequent quotations  received  for  replacement machinery  which formed part of a series Ext.  31.   Learned counsel  for the Company was, however, unable to  point  out any  statement  in the evidence of any witness  which  would show  that the figures for  multipliers incorporated in  the second  Schedule  IA  were  actually  calculated  from   the quotations contained in Ext. 31.  In fact, no such  evidence was  possible, because the second Schedule IA was  filed  on behalf of the Company after the evidence of parties was over and  that second Schedule IA not being a part of the  record before  the Tribunal when evidence was recorded, it was  not possible  for  any witness to give  evidence  proving  those figures  for multipliers.  In these circumstances,  we  must hold  that  the. Tribunal committed an error in taking  into account the multipliers given in the second Schedule IA  and that  the only figures for multipliers that could have  been and should be accepted are those in the first Schedule 1A.     At the same time, we must also accept ’the contention on behalf   of   the  Company  that  the   Tribunal   had   no. justification fox reducing the multipliers by deducting  75, 55,  and  35  in respect of the three  blocks  of  machinery sought  to be replaced.  As  we have indicated earlier,  the Tribunal proceeded to hold that this deduction was justified on the ground that the new machines which had been purchased and  which  were being compared with the  original  machines sought to be replaced must necessarily have more  productive capacity.  We have not been able to find any evidence on the record  of any witness which would support this  conclusion. It  is true that the statements. made by Company  witnesses, particularly Bansal  show that the new machines were 332 more  efficient  and were likely to produce  better  quality

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goods.  At. no stage, however, in the  cross;examination  of Bansal  was  any statement made admitting  that’  these  new machines,  whose. prices. were being compared with those  of the old machines for rehabilitation, had a larger productive capacity than those original machines.  In fact, as we  have pointed out earlier, in his cross-examination Bansal made  a definite  statement  that these new  machines  will  produce exactly  the same number of pieces as the original  machines when  they  were  new.   This  Court  in  the  case  of  the Associated Cement Companies Ltd.(1) had indicated that it is only  if, by the introduction of a modern plant or  machine, the  production  capacity of the  industry  has  appreciably increased  that  it would be relevant for  the  Tribunal  to consider  in   an   appropriate case  whether  it  would  be possible  to  apportion expenses on the basis that it  is  a case  of partial modernisation and partial  expansion.   If, however,  the increased production is not of  a  significant order.  it may be regarded as incidental to  replacement  or modernisation  and  the question of  apportionment  may  not arise (p. 969).  It is, of course, possible that Bansal,  in stating  that the new machines, the prices of  which  formed the  basis of calculation of multipliers, have  exactly  the same  capacity as the original machines to be replaced,  may not be quite correct; but there was no material at all  from which ’the Tribunal could have justifiably inferred that the increase  in production would be so material as  to  attract the principle ’for apportionment laid down by this Court  in the  case cited above and, consequently, the  Tribunal  fell into  an  error in reducing the multipliers  merely  on  the assumption  that  the new machines must necessarily  have  a larger  production capacity than the original machines.   In these  circumstances,  we  hold  that  the   rehabilitation, provision should have been calculated by the Tribunal on the basis of the. multipliers given by the Company in the  first Schedule 1A, without taking an average of those  multipliers and  the  multipliers given in the second  Schedule  IA  and without  decreasing  the  multipliers by 75, 55  and  35  in respect of various blocks.      The   third   contested   question   with   regard   to rehabilitation  relates to the deductions which have to.  be made  out of the total rehabilitation requirement to  arrive at  the  annual  provision for that purpose  which  must  be allowed   in   working  out  the   available   surplus   for distribution    of   bonus.   In   the   Associated   Cement Companies  Ltd.  case  (1), when approving  the  Full  Bench Formula this Court indicated how the calculations should  be made.  It was held :--                    "Before actually awarding an  appropriate               amount  in respect of rehabilitation  for  the               bonus year certain (1) [1959] S.C.R. 925. 333               deductions   have  to  be  made.   The   first               deduction is made on account of the break-down               value  of  the plant and  machinery  which  is               usually  calculated at the rate of 5 % of  the               cost price of the block in question. Then  the               depreciation   and  general  liquid   reserves               available  to the employer are deducted.   The               reserves  which have already  been  reasonably               earmarked   for  specific  purposes   of   the               industry are, however, not taken into  account               in   this   connection.   Last  of   all   the               rehabilitation  amount  which  may  have  been               allowed  to  the employer  in  previous  years

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             would  also have to be deducted if it  appears               that the amount was available at the time when               it was awarded in the past and that it had not               been  used for rehabilitation purposes in  the               meanwhile.   These are the broad  features  of               the  steps which have to be taken in  deciding               the employer’s claim for rehabilitation  under               the working of the formula."(p.970). The dispute in the present case relates to the deduction  of the depreciation and general liquid reserves.  One aspect in controversy  in this behalf raised on behalf of the  Company is  that even depreciation should not be deducted unless  it is available to the employer for purposes of rehabilitation. The argument was-that in the sentence "Then the depreciation and  general liquid reserves available to the  employer  are deducted"  the word "depreciation" should be read  with  the words   "reserves   available   to   the   employer"    and, consequently,   the  deduction  should  only  be  made   of. depreciation  reserves  available to the employer.   We  are unable.   to  accept  this  submission,  because  the   very principle on which rehabilitation provision is allowed  when making  calculations for awarding. bonus  militates  against this  interpretation.   This  Court, in  the:same  case,  in explaining why rehabilitation is granted, held:                    "We have already noticed that the  object               of providing depreciation  of wasting   assets               in   commercial "accounting is to  recoup  the               original capital invested in  the purchase  of               such  assets; but the amount  of  depreciation               which is allowed under the formula can  hardly               cover the probable cost of replacement.   That               is   why’  the  formula  has  recognised   the               industry’s   claim   for   rehabilitation   in               addition to the admissible depreciation."  (p.               966) It  will  thus  be seen that the purpose  of  providing  for rehabilitation  charges is to enable the industry  to  cover the  difference between the amount of depreciation which  is recouped by making provision for it in  accordance with  the principles  of  commercial accounting and  the  amount  that would  be  required  to  purchase  the  new  machinery   for replacement. Once the price of the new machinery sup.C.1./68--7 334 is known, the rehabilitation amount would, be the difference between  that price and the amount provided as  depreciation of  wasting  assets  in accordance with  the  principles  of commercial   accounting.   The  deduction  of   depreciation provision  made in ,the accounts is not, therefore,  on  the basis  that  amount  must be available  for  purchasing  the replacement  machinery even in the year when  provision  for rehabilitation is being made.  That amount is deducted  from the  price  of the machinery Which will be  required  to  be purchased in order to determine what amount the industry  is going to require for rehabilitation in spite of having  been allowed  depreciation.  In our view, therefore, this  Court, when it later held that the depreciation and general  liquid reserves  available  are to be deducted in  calculating  the rehabilitation  amount, did not intend to lay down that  the depreciation  must also be available in the year  of  bonus. The  words  "available  to the employer"  were  intended  to qualify  the expression "general liquid reserves"  only  and not the word "depreciation".  General liquid reserves are to be  deducted on the principle that if such reserves  are  in the hands of the industry and are not earmarked for  binding

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purposes,  the  industry  must utilise  those  reserves  for rehabilitating  the  old  machinery instead  of  asking  for provision to be made out of profits in the year of bone  and in  future years.  The principle adopted is  that  provision for  rehabilitation is to be made only to the extent of  the difference  between  the price of the machinery  which  will have  to  be paid for replacing the old  machinery  and  the amount  of  depreciation  provision shown  in  the  accounts according  to the commercial system of accounting  and  even that  rehabilitation  requirement must first be met  by  the industry  out  of available liquid reserves rather  than  by asking  for  provision to be made out of  profits.   In  the present  case, the Tribunal, when calculating the  provision for rehabilitation, took the entire price of the replacement machinery as required to be provided out of profits and  did not take into account that price should have been reduced to the extent of the depreciation provided for in the accounts. The  annual  report of this Company for the  year  of  bonus 1960-61 was produced before us and at page 24 it showed that at  the  beginning of the year 1960-61 depreciation  to  the extent of Rs. 325.48 lacs had been provided in the  balance- sheet  of  the Company.  This amount has, therefore,  to  be deducted from the price of the machinery which is to replace the original machinery when rehabilitation is resorted to.     The  second  question  on this  aspect  that  arises  is whether  there  were  any liquid  reserves  available  which should also have been deducted.  In the balance-sheet of the Company  contained  in the Annual Report, various  kinds  of reserves   have  been  shown.  There.  was  a  reserve   for contingencies  to the extent of Rs. 10.00 lacs on  31-3-1960 and a development rebate reserve of Rs. 39.51 lacs on 335 the same date.  On behalf of the workmen, it was urged  that this  amount of Rs. 39.51 lacs should at least  be  deducted when  calculating the requirement for rehabilitation.   From the balance-sheet itself an inference was sought to be drawn that  this reserve existed in the form of a  liquid  reserve available for rehabilitation. For this purpose reference was made to the entries on the assets side of the  balance-sheet which shows a sum of Rs. 220 lacs as lying in fixed  deposit account.   The argument was that if the Company had  such  a large  sum as Rs. 220 lacs in the fixed deposit account,  it could  not possibly urge that the sum of Rs. 39.51  lacs  in respect  of development rebate reserve was not a part of  it and  was  not  available as a liquid  reserve.   It  is  but natural that in the balance-sheet the Company could not show any  correlation.  between the amounts entered  on  the  two sides,  liabilities and’ assets, as that is not required  by any  principle  of commercial accounting.  The  argument  of learned  counsel for the company was ,that this  development rebate  reserve  had been used’ as a part   of  the  working capital of the Company represented by various items shown on ’the  assets side and this fact was proved by the  affidavit of Satya Narayan Murarka, Commercial Manager of the Company, who  categorically  stated that all the  reserves  had  been utilised  as  part of the working capital.  It seems  to  us that  a  mere statement by the Commercial Manager  that  the reserves have been utilised in the working capital cannot be accepted  as  conclusive evidence of that  fact.   When  the balance-sheet itself shows that cash amounts in the form  of fixed  deposits were available which were far in  excess  of the development rebate reserve in question there would be no justification  for  holding  that  this  development  rebate reserve  was not available as a liquid asset and   had  been included  by  the Company in its working  capital.   At  the

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stage it is not necessary, therefore, to go into any-further details  to arrive at the conclusion that  this  development rebate   reserve   was   a  liquid   asset   available   for rehabilitation  and,  consequently, liable to’  be  deducted when  calculating  the rehabilitation requirement  We  shall deal in greater detail with the question of what items  were included  in  the  working capital at  a  later  stage  when dealing  with the controversy relating to the claim  of  the Company for return on working capital which is allowed under the  Full  Bench  Formula,  when  calculating  the   surplus available for distribution of  bonus.      On  the  question  of  calculation  for  provision  for rehabilitation,  the  only  point raised on  behalf  of  the workmen  with regard to buildings was that the Tribunal,  in taking  the  life of the factory buildings at 25  years  and non-factory buildings at 40 years, was not correct and  that the  life  of the two types of buildings  should  have  been taken at 40 years and 50 years respectively.  At the 336       time  of the hearing before the Tribunal, the  Company had claimed  that factory buildings have a normal life of 25 years  only and  non-factory buildings 30 years,  while  the claim  of the workmen  was that the factory buildings had  a life of 40 years and the non-factory buildings 50 years.  In arriving  at its decision, the Tribunal primarily took  into account  the provisions of Rule 9 of the Rules framed  under the  Income-tax Act, 1922 which lays down the principle  for calculation  of  depreciation in respect  of  buildings.That principle,  no doubt, cannot be taken as giving any  correct indication  of  the  life  of  buildings  for  purposes   of calculation of rehabilitation provision, but, in this  case, there  was the difficulty that the Tribunal did  not  accept the  evidence given by  the Company to prove the age of  the buildings as claimed by it,  while no evidence was given  on behalf  of  the workmen in support of their claim  that  the life  of  the  buildings  should be  taken  at  the  figures contended  on  their  behalf.  In the  course  of  arguments before us. all that learned counsel did was to refer to  the decision  of this Court in the Associated  Cement  Companies Ltd.  case(1) at p. 993 where the calculations made  in  the Chart show that the life of the various buildings  concerned in  that case were taken to be between 30 and 35 years.   We do  not think that, in the absence of evidence showing  that the buildings of the Company were similar to those buildings whose  life  came  up for consideration in  the  case  cited above,  it  is possible to derive any  assistance  from  the figures accepted in that case.  In these circumstances,  the position before us is that neither on behalf of the Company, nor on behalf of the workmen is there any reliable evidence brought to our notice on the basis of which we can arrive at a  correct  estimate  of the life of the  buildings  of  the Company  and, consequently, we do not think that there  will be  any justification for us to vary the decision  given  by the Tribunal in this behalf.       The   last  controversy  in  the   calculations    for rehabilitation  provision  is on the  question  whether  the depreciation  and  the liquid reserves available  should  be deducted from the total amount of rehabilitation requirement or whether it should be taken into account at the very first stage when the machinery or the buildings requiring earliest rehabilitation  are taken into consideration and the  annual requirement in respect of them is worked out.  On behalf  of the  workmen,  we  think,  it was  rightly  urged  that,  if depreciation  and  liquid  reserves  available  are  to   be deducted, they must be incorporated in the accounts  against

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the   replacement  cost  of  those  items   which   required replacement  earliest in time.  It is obvious that if  funds in  the  form  of depreciation provision  and  other  liquid reserves  are available, the Company claiming provision  for rehabilitation must utilise them in rehabilitating those (1) [1959] S.C.R. 925. 337 machines  and buildings which require rehabilitation at  the earliest  point of time.  There is no principle at all  that the  depreciation in respect of a particular machinery  must be deducted when calculating the rehabilitation  requirement in respect of that machinery itself.  The Full Bench Formula approved by this Court only recognises the industry’s  claim to  make  provision  out of profits  for  rehabilitation  of machinery  which  might require replacement even  in  future only on the ground that the industry may not be able to meet those replacement cost out of funds available in its  hands. The provision for future requirement of rehabilitation  must at  any time depend upon what is immediately  available  and what  is going to be required in future.  If  some  machines have  fully  run out their lives, they fast  necessarily  be replaced  out of resources available immediately  and  there would   be  no  justification  for  keeping  the   available resources  in reserves for future rehabilitation, while  not providing  out  of those available resources  for  immediate replacement  of  the machinery.  Then, there is  the  second aspect  that  an employer in order to claim  more  and  more rehabilitation  provision, will have a tendency to keep  old blocks of machinery running and to avoid adoption of such  a device  it  would  be fair that he is  required  to  utilise available  resources at the very first opportunity when  the old blocks of machinery require replacement and claim annual provision for future only in respect of that machinery which will  require  replacement later on.  It appears  that  this Court  in  The  Associated  Cement  Companies  Ltd.  case(1) proceeded   on   this  very  basis  when   calculating   the rehabilitation  requirement, though without discussing  this question in detail.  In that case, reserves to the extent of Rs.  311  lacs were found to be  available.   The  machinery which  required  to be rehabilitated was divided  into  four blocks, the earliest block consisting of machinery installed up   to  1939  in  respect  of  which   the   rehabilitation requirement was Rs. 1172.76 lacs.  In respect of three later blocks,  the rehabilitation requirement was Rs. 70.40  lacs, 270.37 lacs and Rs. 768.50 lacs. The total requirements  for rehabilitation  in respect of all the four blocks  was  thus Rs.  2282.03 lacs.  When calculating the annual  requirement the Court  did not deduct the sum of Rs. 311 lacs in respect of  available  reserves ’out of this total  of  Rs.  2282.03 lacs, but instead deducted this amount from the cost of  the machinery  required to replace the pre-1939 block for  which the amount arrived at was Rs. 1172.76 lacs.  After deducting this  amount of reserves from the replacement cost  of  that block,  the balance was divided by the divisor 7  which  was treated  as  the  remainder life of  the  machinery  falling within  that block.  This calculation adopted in that  case, therefore,  fully bears out our view that  the  depreciation and  available  reserves  must be taken  into  account  when calculating the annual (1) [1959] SC. R, 925. 338 provision  in  respect  of that  machinery  which   requires earliest  replacement and should not be deducted out of  the total  rehabilitation cost as urged by learned  counsel  for the. Company.

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   Mr.  De  in  this connection drew  our  attention  to  a decision of the kabour Appellate Tribunal in Saxby &  Farmer Mazdoor  Union, Calcutta(1) at pp. 711-712.  In  that  case, the  Tribunal first worked out the total rehabilitation  and replacement  cost of ’the machinery at Rs. 43.81 lacs.  From this amount were deducted a sum of Rs. 14.75 lacs in respect of  available reserve, a sum of Rs 9, 03 lacs as  the  total depreciation  on the plants and machinery and a sum  of  Rs. 0.737  lac  in  respect  of  the  break-down  value  of  the machinery at 5 % of the cost price, leaving a balance of Rs. 19.364  lacs  as the rehabilitation requirement.   Then  the Tribunal noticed that, on the basis of total requirement  of Rs.  43.81  lacs  over  the  several  periods  during  which rehabilitation and replacement was to take place, the annual requirement  was worked out at Rs. 8.04 lacs.  Applying  the simple  arithmetic  of  ratio, the Tribunal  held  that  the proportionate annual requirement would be Rs. 3.54 lacs,  if the  total requirements are reduced to Rs. 19.364 lacs.   In that  case, thus, the Tribunal proceeded on the basis  which has been canvassed on behalf of the Company before us.   The total rehabilitation requirement was first worked out, while the  annual requirement was also worked out on the basis  of that   requirement,.   without  taking  into   account   the depreciation,  available liquid reserves and the  break-down value   of  the machinery to be replaced.   Thereafter,  the total rehabilitation requirement was reduced. by the  amount of  depreciation, liquid reserves available  and  break-down value  of  the  machinery, and the  annual  requirement  was reduced  in respect of each block of machinery in  the  same proportion  as the proportion between the total  requirement and  the  net amount available arrived at,  after  deducting depreciation,  ,available  liquid  reserves  and  break-down value.   We do not think that the principle adopted  by  the labour   Appellate  Tribunal  was  correct  and  should   be accepted.  On the face of it, it introduces a very anomalous position.   In  a  case where  some  machinery  may  require immediate  replacement in the year of bonus in question  and resources  may  be  available for meeting the  cost  of  the entire  machinery  required  to replace  it,  the  principle adopted by the Tribunal would still permit the industry  not to  replace that machinery, but claim future  provision  for its  replacement on the basis that the  available  resources are  to be proportionately allocated to machinery which  may require  replacement in much later years.  We hold  that  in approving  this  course,  the Tribunal  did  not  adopt  the correct  principle according to which calculation should  be made, when applying the, Full Bench (1) [1955] L.A.C. 707. 339 Formula  for  calculation of bonus.   Learned  counsel  also referred us. to the decision of this Court in M/s.  Titaghur Paper Mills Co. Ltd. v. Its Workmen(1) to show that, in that case,  this Court also, when calculating the  rehabilitation provision,  deducted  the entire depreciation  and  reserves available from the total rehabilitation requirement and  did not  adopt the course of deducting it from different  blocks of machinery requiring rehabilitation.  That case,  however, does  not  support the view taken by  the  Labour  Appellate Tribunal,  because in that case this Court had accepted  the decision of the Tribunal that all the machinery in whichever year it may have been installed had a uniform residuary life of   10  years,  so  that  all  the  machinery  was  to   be rehabilitated  simultaneously  during  the  next  10  years. There  was,  therefore,  no  distinction  between  machinery installed  in  one year and that installed  in  other  years

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insofar  as  the  year in which it was to  be  replaced  was concerned.It  is true that, in some cases  while  describing the  Full  Bench Formula,this Court has mentioned  that  the total depreciation  and liquid reserves available are to  be deducted from the total  rehabilitation  requirement,but  we do not think that it was intended to lay down in those cases that  the  method  of deduction to be adopted is  that  laid down  by the Labour Appellate Tribunal in Saxby  and  Farmer Mazdoor  Union, Calcutta(2).  On the other hand as  we  have already  indicated  this  Court, in  The  Associated  Cement Companies Ltd. case(a), very clearly proceeded to apply  the principle   which   we   are   accepting   in   this   case. Consequently, we hold that the depreciation provision of Rs. 325.48 lacs and available development rebate reserve of  Rs. 39.51 lacs must be taken in to account when calculating  the annual provision for rehabilitation required for replacement of  the earliest installed machinery until it is  exhausted, whereafter  the annual requirement for the remaining  blocks of  machinery  will have to be  calculated,  ignoring  these available resources.     The  next  contest between the parties  in  this  appeal relates  to the claim of the Company to return  on  reserves and  other  funds used as working capital during  the  bonus year when calculating the surplus available for distribution of bonus.  That a Company is entitled to return on  reserves used as working capital was recognised by the  Full Bench of the   Labour   Appellate   Tribunal   in   The   Millowners’ Association’s(4)  case,  when laying down  the  formula  for calculation of available surplus which was approved by  this Court  in  the case of The   Associated   Cement   Companies Ltd.(a).  In the latter case in dealing  with this aspect of the  matter, the Court pointed out that no  distinction  has been  made  by Tribunals between reserves  used  as  working capital and depre- (13  [1959] Supp. 2 S.C.R. 1012 at p. 1042. (2)  [1955] L.A.C. 707. (3) [1959] S.C.R. 925. (4)  [1950] L.L.J. 1247. 340 ciation  fund  similarly  used.   The  Court  approved   the decision of the Labour Appellate Tribunal in The Millowners’ Association  Bombay v. The Rashtriya Mill Mazdoor  Sangh(1), where  the  objection  of the labour  to  depreciation  fund earning any return, even if it was utilised for or about the business  of  the  year, was  ovre-ruled  and  the  Tribunal observed that "no essential difference could be made between the  depreciation fund and any other fund belonging  to  the Company which could be invested so as to earn return.’   The Court further held:                      "It is thus clear that what is material               is not the origin of the fund.  It is the fact               that the fund in the hands of the concern  has               been  used as working capital  that  justifies               the  claim  for an adequate return on  it.  We               think  it is common-sense that if the  concern               utilises  liquid funds available in its  hands               for   the  purpose  of  meeting  its   working               expenses  rather  than  borrow  the  necessary               amounts,   it  is  entitled  to   claim   some               reasonable  return  on the funds  thus  used."               (pp. 964-65).     In  this appeal, it is not disputed that the Company  is entitled  to claim a return on reserves which were  actually utilised  as working capital during the year of  bonus,  but Mr. Sen on behalf of the workmen urged that this return must

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be allowed only on reserves used as working capital and  not on  any other funds used at such, ,On the face of  it,  this argument cannot be accepted in view of the decision of  this Court  in  the  case  of  The  Associated  Cement  Companies Ltd.,(2)  where  it   has  been  clearly   held   that   the origin   of  the  fund  is  immaterial,  though   with   the qualification that the fund should be one which is available for  investment before a claim can be made by  the  employer for  a  return on it. This principle has  been  affirmed  or followed  in a number of cases subsequently decided by  this Court, but we do not consider it necessary to refer to  them in  view of the fact that Mr. De on behalf of  the  employer conceded  that  this is the settled law and  only  contended that,  in this case, the Company has in fact discharged  the burden  of  proving  that  all the  reserves  shown  in  the balance-sheet  for the year of bonus were actually  utilised as  working  capital.  Consequently, we proceed  to  examine this submission made on behalf of the Company.     Mr.  De,  in  support  of  this  submission,  drew   our attention  to the affidavit of Satya Narayan Murarka who  is the Commercial ’Manager of the Company.  In this  affidavit, Murarka  stated.  that all the sums shown  as  reserves  and surpluses  in  the balance-sheet ’were available  for  being utilised as working capital and were, in (1) [1952] 1.L.L.J. 518, 522.     (2) [1959] S.C.R. 925. 341 fact,  so  utilised.  Murarka was also tendered  for  cross- examination,  so  that the workmen hand  an  opportunity  of testing  the correctness of his evidence by  cross-examining him.  It was urged by Mr.. De that there was nothing in  the cross-examination  of Murarka which would justify  rejection of the statements made by him in his affidavit that all  the reserves  and surpluses available had been employed as  part of  the  working  capital  of  the  Company,  and,  in  this connection,  drew  our attention to some decisions  of  this Court where the evidence given on behalf of the employer  on affidavit  has  been accepted by this  Court  as  sufficient proof.  The  first case cited by him is The Tara  Oil  Mills Co.,  Ltd. v. IIts Workmen and Others(1).  In that  case,  a question arose whether the Company concerned was entitled to claim return on the amount of depreciation reserves used  as working capital.   Dealing with this claim, the Court held:                   "An  affidavit was made on behalf  of  the               Company  that  it had used its  reserve  funds               comprising premium on ordinary shares, general               reserve,   depreciation  reserve,    workmen’s               compensation  reserve,   employees’   gratuity               reserve,  bad and doubtful debt  reserves  and               sales  promotion reserve as  working  capital.               The Tribunal, however, allowed return at 4 per               centum on a working capital of Rs. 31.88 lacs.               This  excluded  the depreciation  reserve  but               included all other reserves which were claimed               by  the  company  and  having  been  used  for               working capital." Proceeding further, the Court held :-                   "It is enough to say that the affidavit of               the  Chief Accountant filed on behalf  of  the               company   was   not  challenged   before   the                             Industrial   Tribunal   on   behalf of    the               respondents.    It   would,   therefore,    be               impossible   for  us  now  to  overlook   that               affidavit, particularly when the Tribunal gave               no reason why it treated  the  working capital

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             as Rs. 31.88 lacs only." The  Court,  thus, accepted the evidence of  the  affidavit, though  it was added that it will be open to the workmen  in future to show by proper cross-examination of the  Company’s witnesses or by proper evidence that the amount shown as the depreciation  reserve was not available in whole or in  part to  be  used  as working capital and that  whatever  may  be available  was  not in fact so used in the  sense  explained above.      In Anil Starch Products  Ltd.  v.  Ahmedabad   Chemical Worker’s  Union and Others(2) this Court, dealing  with  the ques- (1) [1960] 1 S.C.R. 1 at p. 10. (2)  A.I.R. 1963 S.C, 1346 at p. 1348. 342 tion  of  proof that depreciation reserve had been  used  as working capital, held:                      "It is enough to say in that connection               that an affidavit was filed by the manager  of               the  company  to  the  effect  that  all   its               reserves  including the depreciation fund  had               been  used  as working capital.   The  manager               appeared  as a witness for the company  before               the Tribunal and swore that the affidavit made               by him was correct.  He was cross-examined  as               to  the  amount required  for  rehabilitation,               which was also given by him in that affidavit;               but  no. question was put to him to  challenge               his  statement  that the  entire  depreciation               reserve had been used as working capital.  The               Tribunal  also  did not go into  the  question               whether   any  money  was  available  in   the               depreciation   reserve  fund  and   had   been               actually   used   as  working   capital.    It               dismissed   the  claim  for  return   on   the               depreciation  reserve  on  entirely  different               grounds.   In  the  circumstances,   we   must               accept  the affidavit so far as.  the  present               year  is concerned and hold that  the  working               capital was Rs. 34 lacs.  It will, however, be               open  to  the  workmen in future  to  show  by               proper  cross-examination  of  the   company’s               witnesses.  or  by proper  evidence  that  the                             amount  shown as depreciation reserve  was  not               available  in  whole or in part  as  explained               above  to be used as working capital and  that               whatever  was  available was not  in  fact  so               used."     In Khandesh Spg. & Wvg. Mills Co. Ltd. v. The  Rashtriya Girni  Kamgar Sangh, Jalgaon,(1) this Court,  again  dealing with  the question of proof of working capital, referred  to the earlier cases and held:                     "This judgment again reinforces the view               of  this Court that proper opportunity  should               be   given   to  the  labour  to.   test   the               correctness of the evidence given on affidavit               on  behalf of the management in regard to  the               user of the reserves as working capital." On the basis of these views expressed by this Court, it  was urged  that, in the present case, the affidavit  of  Murarka should  be accepted as sufficient evidence in proof  of  the company’s claim that all the reserves and funds mentioned in the affidavit were in fact used as working capital, so  that the company  is  entitled claim a return on them.

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   It  appears to us that the affidavit of Murarka  in  the present  case  is  not  such that it can  be  held  to  have discharged the burden (1) [1960] 2 S.C.R. 841 at p. 850. 343 which  lay upon the Company to prove that all  the  reserves and  other  funds  had, in fact, been  utilised  as  working capital.  In the affidavit, Murarka referred to the balance- sheet  and stated that the various funds claimed  as  having been used as working capital were shown at the beginning  of the  bonus  year  as in existence and  the  further  entries indicated that those amounts were still intact at the end of the  bonus year and were carried forward to the  next  year. Such  a statement was made by him in respect of reserve  for contingencies amounting to Rs. 10 lacs, forfeited  dividends amounting  to Rs. 450 lacs, profit and loss account  balance amount   to  Rs.  3.63  lacs,  provision  for   depreciation amounting to Rs. 325.48 lacs, and development rebate reserve amounting  to Rs. 39.51 lacs.  It is to be noticed that  the fact  that these amounts were shown as in existence  at  the beginning  of the bonus. year as well as at the end of  that year can certainly lead to a reasonable inference that these funds  were all available to the company for being  utilised in its business during the year; but the mere fact of  these entries  showing  the  existence  of  these  funds  at.  the beginning and at the end of the year cannot be the basis for a  conclusion  that these funds must have been  utilised  as part  of  the working capital of the Company.  In  order  to claim a return, it is not enough for a Company to show  that the  amounts  were  available  during  the  year  for  being utilised  as  working capital.  The Company has  further  to discharge  the  burden of proving that those funds  were  in fact  so utilised.  This principle was clearly indicated  by this  Court in Bengal Kagazkal Mazdoor Union and  Others  v. Titagarh Paper Mills Company, Ltd. and Others(1).  It was in that  case  that this Court gave an indication  of  how  the availability of reserves and other funds for use as  working capital  can  be inferred from the  balance-sheet.   It  was said:                     "What  is usually done is to  take  into               account  the’ liquid assets of  various  kinds               available  at  the beginning of  the  relevant               year and the total of such assets available at               the  beginning  of the year is  considered  as               working  capital  for that year, if  there  is               evidence  that  it  has.  been  actually  used               during the year.  But when we come to the  end               of the year and look at the balance-sheet,  we               have  to find out the liquid assets  available               at  the end of the year from which the  amount               available as working capital for the next year               may  be  arrived at.  But  the  liquid  assets               available at the end of the year will  usually               be  of two kinds firstly, there will  be  cash               assets  in the various reserves and  secondly,               there  will  be  assets in the  shape  of  raw               materials, etc., and both together become  the               available  working capital for the  next  year               subject (1) [1963] 11 L.L.J. 358 at p. 364. 344               to  necessary adjustments and also subject  to               the  evidence that they were actually used  as               working capital." Proceeding further, the Court, while dealing with the  bonus

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year 1955-56, held :-                   "Now  the  working  capital  is  generally               arrived  at  by finding  the  liquid  reserves               available  on  1st April, 1955.  These  liquid               reserves  may  be in the form of  reserves  of               various  kinds, i.e.,  depreciation  reserves,               general  reserve, renewal reserve, and so  on,               and also in the form of investments,  advances               and  raw materials, etc. in stock.  All  these               have  to be taken into account in arriving  at               the    working   capital    after    necessary               adjustments.  As we have already pointed  out,               the amount of working capital thus arrived at,               if there is evidence that it was actually used               as  working  capital  for  the  year,  may  be               allowed  interest in accordance with the  Full               Bench Formula." In that case, thus, the two steps necessary for proving  the claim were separately indicated.  The first step in  proving that  reserves   and other funds have been used  as  working capital  is to show that they were available by proving  the balance-sheet in which those reserves and funds are shown in existence  at the beginning of the  year.  The  second  step indicated  is  that evidence must be given   to  prove  that these  reserves and funds were actually utilised as  working capital  during the year.  Obviously, this proof is  needed, because,   even  though  the  reserves  and  funds  may   be available,  they may not be utilised as part of the  working capital  and  may   form part of cash amounts  kept  by  the Company or may be  utilised for purposes other than that  of working  capital.   The mere existence of the  reserves  and funds at the beginning of the year, even taken together with their existence at the end  of the year, cannot lead to. any inference  that these reserves and funds  must  have  formed part  of the working capital during the year and  could  not form   part   of  other  items  such  as   fixed   deposits, investments,  etc.   Murarka in his affidavit,  as  we  have indicated  above,  gave  his  conclusion  that  the  various reserves  were used as part of the working capital  only  on the  basis that these reserves and funds were  in  existence both  at  the  beginning and at the end of  the  year.   The conclusion drawn by Murarka had, therefore, no basis at all. The facts on which he relied could only justify an inference that these reserves and funds were available, but they could not  exclude the possibility that  they were   utilised  for purposes other than that of working capital.  The  affidavit of  Murarka  in  this  case cannot  thus  be  held   to   be sufficient proof of this second ingredient that the reserves and 345 funds  were in fact utilised as working capital.  So far  as the  cases  referred to by learned  counsel  are  concerned, which  we  have  discussed  earlier, they  do  not,  in  our opinion,  lay  down the principle that, if in  an  affidavit filed  on behalf of the employer a broad statement is  ’made that  all reserves and other funds were used as part of  the working  capital,  that  statement  must  be  accepted   as. sufficient proof, even when the statement is coupled with an admission that it is based on an inference from the balance- sheet  only  and no other proof is furnished  to  show  that these  available reserves and funds were in fact brought  in as  working  capital  by the employer  during  the  year  in question.  In these circumstances, even though in the cross- examination  of  Murarka on behalf’ of the  workmen  nothing very material was elicited on this question, we have to hold

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that  the  affidavit  given by  Murarka  is  not  sufficient discharge the burden which lay on the Company to prove  that all the reserves and other funds shown in the  balance-sheet as in existence at the beginning and at the end of the bonus year in question were utilised as working capital.     The  balance-sheet,  it appears to us, itself  gives  an indication.  that this claim made on behalf of  the  Company cannot be fully justified.  In the balance-sheet, the assets of the Company are shown under various heads and it seems to us  that  items  falling under certain  heads  only  can  be treated  as working capital of the Company during the  year, while others have to be excluded. The items which cannot  be treated as part of the working capital are: fixed assets  of the  value of Rs. 411.08 lacs, investments of the  value  of Rs. 14.48 lacs, fixed deposit amount of Rs. 220 lacs,  loans and advances recoverable in cash or in kind or for value  to be  received  or pending adjustment amounting to  Rs.  11.74 lacs,   and  loans  and  advances  from  Trust   and   other authorities amounting to Rs. 8.09 lacs.  On the other  hand, the  working capital would consist of current assets of  the value of Rs. 31.34 lacs, Stock in Trade of the value of  Rs. 337 lacs, sundry debts of the value of Rs. 69.82 lacs,  bank and cash balances of the value of Rs. 37.98 lacs, loans  and advances  of the value of Rs. 14.27 laes, and insurance  and other  claims  of the value of Rs. 7.61 lacs. Thus,  in  the present case, the balance-sheet gives an ’indication that  a sum of Rs. 498.02 lacs was the amount shown at the beginning of the year against items of assets which can be  classified as part of the working capital, whereas the remaining sum of Rs.  665.38  lacs represent fixed  assets,  fixed  deposits, investments  and  other loans and advances which  cannot  be classified as part of working capital.      Similarly,  an examination of the items entered on  the side of liabilities in the balance-sheet shows what were the sources  from which moneys became available for  acquisition of these assets. 346 Amongst  these, the reserves shown are only Rs. 10 lacs  for contingencies  and  Rs.  39.51 lacs  as  development  rebate reserve.  Though the balance-sheet does not itself show  the depreciation  fund,  it  is also  clear  from  the  Schedule attached  to the balance-sheet that, up to the beginning  of the  year,  a depreciation provision had been  made  to  the extent  of  Rs.  325.48 lacs.  In order not to  show  it  as available development reserve or fund in the  balance-sheet, what  the Company did was to show the depreciated  value  of the capital assets at Rs. 411.07 Iacs instead of the  actual value  of Rs. 736.56 lacs which was the amount paid in  cash for  acquiring those fixed assets.  For purposes of  dealing with  the question whether any reserve was used  as  working capital, we must, therefore, proceed on the basis that there was  a  depreciation reserve of Rs. 325.48 lacs,  while  the investment  on the fixed assets was Rs. 736.56 lacs and  not merely  Rs.  411.07 lacs. Taking this  depreciation  reserve also  into account, it would thus appear that  the  reserves available at the beginning of the year Were of the amount of Rs.  374.99  lacs.   The  subscribed  capital  and   capital available from forfeited shares was Rs.  819.57 lacs.  Funds available  from  other resources, such as  profit  and  loss account  balance, unsecured loans, current  liabilities  and provisions,  provision for taxation, proposed dividends  and contingent  liabilities  not provided for, amounted  to  Rs. 294.33  lacs.  The question that arises. is how  much  money from  each  of  these’ sources had  gone  into  the  working capital  and how much into fixed assets or  other  items  of

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assets  indicated by us above.  In examining this  position, the  value of the fixed  assets  has  to  be  taken  as  Rs. 736.56  lacs which was the actual amount spent in  acquiring ’those  assets  and not at the written down value  of  those assets  at Rs. 411.08 lacs.  It seems to us that this  being the  position,  there was no justification  for  Murarka  to claim  that  all the amounts available in reserve  had  gone towards  the  working capital and did  not  represent  other assets,  such  as  the fixed deposit of  Rs.  220  lacs  and similar  other items.  In these circumstances, we  have.  to hold  that  no reliance can be placed on  the  affidavit  of Murarka  that all the reserves, including  the  depreciation reserve and the  contingent anti development rebate  reserve were  actually  used as part of the working  capital  during this year.     The question that next arises on this conclusion of ours is  whether  any  return at all should  be  allowed  to  the Company  on reserves or other funds claimed as  having  been utilised  as  working capital during this year.   The  exact figure on which the Company could claim return has not  been proved by it, but it seems to us that at least some part  of the  reserves  must necessarily have been  utilised  in  the working  capital.  The-Company had a paid up capital of  Rs. 819.57  lacs  and  it  can  safely  be  assumed  that  ’this money:was  utilised for acquiring the fixed assets, as  that will 347 be the primary purpose of obtaining capital from the share- holders.   A  sum of Rs. 736.56 lacs must,  therefore,  have gone  in cash into the fixed assets out of this sum  of  Rs. 819.57  lacs, leaving a balance of Rs. 83.01 lacs.  The  sum available  from other resources was Rs. 294.33  lacs  which, together  with  the balance of the subscribed  capital  left over, gives a figure of Rs. 377.34 lacs.  Consequently,  for purposes  of  the working capital, a maximum amount  of  Rs. 377.34  lacs could have been available from  the  subscribed capital  or  other resources and the balance of  the  amount must  necessarily  come out of the reserves.  The  items  of assets classified as representing the working capital, as we have indicated above, have a total value of Rs. 498.02 lacs. Deducting  from  this  amount the sum  of  Rs.  377.34  lacs available from subscribed capital or other resources,  there remains  a  balance  of  Rs. 120.68  lacs  which  must  have necessarily come out of the various reserves, including  the depreciation reserve, and this amount at least must be  held to represent reserves acually used as working capital during the   year  by  the  Company.   We  think   that,since   the information  available from the balance-sheet  itself  shows that  at least Rs. 120.68 lacs out of the reserves did  form part of the working capital of the Company, it would be fair to  allow the Company 4% return on this amount, even  though we  are not inclined to accept the evidence of  Murarka  and have  to hold that the Company on its part failed  to  prove that this amount or the whole of the amount of reserves  had been  utilised as part of them working capital  during  this year.  Consequently,  the  amount  which the Company has  to be allowed as return on reserves utilised as working capital comes to Rs. 4.83 lacs. In  this connection, we may also take  notice of  the  claim made  by the Company that return should also be  allowed  on certain other sums. used as working capital which have  been described  as working income.  The Company claimed  that  it had  money  available  from  four  different  sources.   The details given were Rs. 249.71 lacs from profit as worked out in  the Profit and Loss Account at the end of the year,  Rs.

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63.07  lacs as reserve for depreciation for the  year.   Rs. 36.00 lacs as development rebate for this year and Rs.  4.71 lacs  as value of discarded fixed assets written  off.   The claim was that at least half the amount represented by these figures  should  be treated as a fund  which  was  available during  the  bonus  year  for  being  utilised  as   working capital.This submission, in our opinion, cannot be accepted. There is nothing to show whether any of these amounts became available  to  the Company during the year and if  so,  when they became available.  In fact, the profit as worked out in the  Profit and Loss.   Account can be held to have  accrued to  the  Company only when the Profit and Loss  Account  was worked out at the end of the year.  We have already referred to the decision of this Court in 348 Bengal  Kagazkal  Mazdoor Union and Others(1) where  it  was held that amounts shown as liquid assets at the beginning of the  year  are  the only amounts which can  be  held  to  be available  for utilisation as working capital in that  year. Amounts  which accrue during the year or at the end  of  the year cannot be held to be available, unless evidence is  led on  the basis of which a positive finding can  ’be  recorded that  those  amounts became available on a  particular  date during  the  year and were thereafter actually  utilised  as part  of  the  working capital.  Profit  for  the  year  and reserve  or  development  rebate for the  year  in  question cannot  be  proved to have accrued on  any  particular  date during  the year and, therefore, it is also not possible  to hold that they were utilised as part of the working  capital during that very year.  This claim which is a novel one  put forward  on  behalf  of the Company for the  first  time  in applying the Full Bench Formula for calculation of available surplus  for  distribution  of bonus,  must,  therefore,  be rejected.     A  point that was raised on behalf of the  workmen,  but which  was  not  seriously argued before us,  was  that  the return on paid up capital should not be allowed at least  to the  extent  to  which  money  had  been  invested  in   the subsidiary or other companies. The amount in question is Rs. 14.48  lacs already noticed by us earlier when dealing  with the question of proof of utilisation of reserves as  working capital.   In  dealing with that question, we  have  already proceeded  on the basis that the paid-up capital was  either invested in fixed assets, or must have been utilised as part of the working capital, and have not accepted the plea  that this  sum  of Rs. 14.48 lacs of investment came out  of  the paid-up  capital.   Consequently, no question can  arise  of reducing this amount from the paid-up capital when  allowing 6% return on it in accordance with the Full Bench Formula.    Another  deduction, while calculating the surplus out  of the  profits available for distribution of bonus, which  has been  challenged  on behalf of the workmen  relates  to  the income  from home delivery commission.  From the  facts,  it appears   that  this  Company  was  manufacturing  cars   in collaboration with a foreign concern and the arrangement was that,if that foreign concern sold any of its goods in India, the  Company  would be entitled to its commission  on  those sales,  even  though the Company may not be a party  to  the transactions   of  those  sales.   This   arrangement   thus recognised the exclusive right of the Company in respect  of sale  of its cars and to reimbursement in case  the  foreign collaborator  entered  into  transactions  infringing   that right.  It seems to us that the income thus accruing to  the Company  has  to be treated as extraneous income  which  was earned by the Company without

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(1) [1963] 2 L.L.J. 358. 349 any   activities  in  which  the  workmen  participated   or contributed  their labour.  Learned counsel for the  workmen referred  us to the decisions of this Court in the Tata  Oil Mills Co. Lid. Q) and Voltas Limited v. Its workmen(1).  The situations   that  were  discussed  in  those   cases   were different.   In  those cases, the principle  laid  down  was that,  if any income was earned in the course of the  normal business  of  the  Company in which the  workmen  were  also engaged, that income must be included  in  the  profits  for calculation of surplus available for distribution of  bonus. None  of the instances that came up for  consideration  were similar to the one before us.  The home delivery  commission earned in the present case did not require any  contribution of work or labour on the part of the workmen, and accrued to the Company simply because of its agreement with the foreign collaborator’  which  entitled  the  Company  to  claim  the commission   without   going   through   any   process    of manufacturing  or selling the cars or their components.   In the  circumstances,  the  deduction  of  the  home  delivery commission from the profits was fully justified.     The  last point urged related to the interest  on  fixed deposits  earned by the Company during the bonus  year.   We have  already indicated earlier that a sum of Rs.  220  lacs was in fixed deposit account and the profit and loss account shows  that a sum of Rs. 5.17 lacs was received as  interest on  it  by the Company. This has also to  be  excluded  when calculating the available surplus, because this income  also accrued to the Company without any contribution on the  part of  the  workmen.  It was not the regular  business  of  the Company  to keep money in fixed deposits and  earn  interest thereon.’  At  the  same  time, however,  we  feel  that  on equitable  grounds,  the Company should not be  entitled  to claim  the  sum of Rs. 2.16 lacs as an  expenditure  of  the business of the Company in respect of interest paid to  bank and others. When the Company was receiving interest on fixed deposits,  it  would  be proper to hold that  at  least  the interest  paid  by  the.  Company should  come  out  of  the interest  earned by it.  There seems to be no  justification for  permitting a Company to keep money in a  fixed  deposit and treat the interest accruing on it as extraneous  income, while,  at  the  same time permitting the  Company  to  take loans,  pay  interest and treat that  interest  as  business expenditure.   Consequently, in this case, when  calculating the available surplus, a sum of Rs. 5.17 lacs minus Rs. 2.16 lacs  Rs.  3.01  lacs only will be  deducted  as  extraneous income  which was earned without any contribution  from  the workmen  and which cannot therefore, be taken  into  account when calculating available surplus.     On  the  basis of these decisions, we  have  worked  out Charts bowing the amount of annual rehabilitation  provision which (1) [1960] 1 S.C.R. 1.     (2) [1961] 3 S.CR. 167. LISupCl/688 350(a)                       CHART Year      Original Cost    Discarded   Price       Replace-                            and         Factor      ment Cost                             written     or Multi-                             off from    plier                             books 1                   2        3           4            5 1942-43 to 1946-47             2.17      ..         2.80        6.08

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1947-48             89.75     0.35       2.80      250.32 1948-49             44.77     ..         2.50      111.93 1949-50             37.60     ..         2.30       86.48 1950-51              5.29     ..         2.40       12.70 1951-52             14.63     ..         2.70       39.50 1952-53             11.06     0.39       2.50       26.68 1953-54              9.09     ..         1.50       13.64 1954-55             38.65     24.33      1.90       27.23 1955-56             30.05     8-01       1.80       39.69 1956-57             34.47     5.95       1.60       45-63 -1957-58            75.32     7.79       2.00      135.06 ]958-59             53.74     ..         1.25       67.17 1959-60            140.15     ..         1.15      161.17 1960-61             98.52     ..         1.10      108.37 350(b) (All figures in lacs of rupees) Less 5 %  Balance   Deduct       Balance   Resi-  Annual Cost                deprecia-    require- duary   Rehabili-                     tion & other   ment     Age  tation                     reserve                      require-                      available                   ment 6             7         8           9        10     11 0. 11       5.97     364.99        Nil   Immaterial  .. 4.47     245.85   359.02          Nil         "     .. 2.24     169.69   113.17          Nil         "     .. 1.88      84-60    3.48           81.12     3       27.04 0.27      12.43                   12.43     3        4.14 0-45      13.19    ..             13.19     5        2.64 0-72      26.51                   26.51     6        4.42 1.43      44.20                   44.20     7        6.31 3.37     131.69   ..            131.69     8       16.46 2.69      64.48                   64-48     9        7.16 7.01     154.16                 154.16     9       17.13 4.93      103.44                 103.44    10       10.34                                                     -----                                                     116.70 351                          CHART II                             (All figures in lacs of rupees) ----------------------------------------------------------- Annual Requirement for Rehabilitation for all the Machinery                                       116.07 Less Depreciation Provision for the Year of Bonus 1960-61                                         63.07 Net Requirement for Rehabilitation of Machinery in the Year 1960-61                                   53.00 Requirement for Rehabilitation of Buildings           11.97 Total Rehabilitation Requirement                      64,97                            CHART III                             (All figures in lacs of rupees) Profit as per Profit&Loss Account                    249’71 Add : Provision for Depreciation            63.07 Reserve for Development Rebate        36.00 Charity and Donation                   0.35 Expenses pertaining to previous years (Sales tax)                            0,01                                     ---------                                       99-43        99,43                                                   349,14 Less: Income pertaining to previous years and Provisions no longer required                          5.70 Surplus on Sale of Fixed Assets          0,09

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Home Delivery Commission                 1.03 Interest on Fixed Deposits               3,01 Normal Notional Depreciation            69,26 Income-tax Liability for the year      112,37* 6% Return on Ordinary Share Capital     29,77* 8.57% Return on Preference Share Capital                                 27,55 4%Return on Working Capital              4,83 Provision for Rehabilitation            64,97                                       ---------                                         318.58    ---------                                                    318,58                                                   --------- Net Surplus Available for Payment of Bonus            30.56                                                    --------    *These  figures  have  been  corrected  by  us.  In   the statement filed by the Company they were wrongly entered  as 12.18 lacs and 129’ 89 lacs respectively. 359. must  be  allowed  to  the Company  and,  taking  that  into account, the amount of surplus available out of the  profits for  distribution  as  bonus.   Chart  1  shows  the  annual rehabilitation requirement for machinery which works out  at Rs.  116.07  lacs.  Chart II gives the calculation,  on  the basis  of  this  figure,  of the  net  amount  required  for rehabilitation  during the year of bonus for  the  machinery and  buildings, after taking into account  the  depreciation provision  for  the year of bonus.  This net amount  is  Rs. 64.97  lacs. Chart 111, based on these figures and on  other figures  arrived at by us in our judgment, shows that a  net amount of Rs. 30.56, lacs would be available as surplus  for payment  of  bonus  during this  year.   The  Tribunal  was, therefore,  not right in arriving at its decision that  this Company was not in a position to pay bonus at all.     As  we have indicated earlier, the workmen have  claimed bonus equivalent to 6 months’ wages which would amount to  a sum  of Rs. 24 lacs.  We do not find any  justification  for granting bonus at such a high rate.  Though the Company  has earned a large amount of profit during the year of bonus, it is  to be noticed that, for quite a large number  of  years, the Company has been running at a loss.  The Company has  an expanding business and the total amount of surplus available for  allocation  between the capital and the labour  is  Rs. 30.56 lacs.  In all these circumstances, we consider it just and  proper that bonus should be paid to the workmen.  20% of their annual wages, so that a total sum of Rs. 9.60  lacs out  of this surplus will be paid out as bonus, leaving  the balance  of  Rs.  21.03  lacs with  the  Company  for  being utilised for other purposes.     The  appeal is, consequently, allowed, the  decision  of the Tribunal is set aside and it is hereby ordered that  the Company shall pay to the workmen a total amount of Rs.  9.60 lacs  as bonus, representing 20% of the annual wage  of  the workmen.   In  the  circumstances of this  case,  we  direct parties to bear their own costs of this appeal. G.C.                                        Appeal allowed. 353