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PETITIONER: JABALPUR BIJLIGHAR KARAMCHARIPANCHAYAT

       Vs.

RESPONDENT: JABALPUR ELECTRIC SUPPLY CO., LTD. & ANR.

DATE OF JUDGMENT09/08/1971

BENCH: MITTER, G.K. BENCH: MITTER, G.K. REDDY, P. JAGANMOHAN

CITATION:  1972 AIR   70            1972 SCR  (1)  60  1971 SCC  (2) 502  CITATOR INFO :  RF         1972 SC2195  (21)  RF         1973 SC2766  (9)

ACT: Industrial Law-Bonus-Principles for awarding festival bonus- Available    surplus   for    distribution-Principles    for calculation of.

HEADNOTE: The employees of the respondent claimed bonus on two  counts festival bonus at IO % of their total earnings as an implied term  of  the contract of employment and as  an  established practice of payment from 1940-41 without any break; and  (2) bonus  out  of the profits quantified at 50 %  of  the  said total  earnings.   The  Industrial  Tribunal  rejected   the claims.  In appeal to this Court, HELD : (1) The criteria to be considered when a question  of customary  or traditional bonus arises are: (a) whether  the payment was uniform and has been over an unbroken series  of years;  (b)  whether  it has been for  a  sufficiently  long period,  the length depending on the circumstances  of  each case  (the  period  may  have to be  longer  to  justify  an inference  of traditional and customary festival bonus  than in the case when the claim for festival bonus is based on an implied  term of employment); (c) Whether it  was  connected with  a festival; and (d) it must be shown that the  payment was  made  even  in a year of loss, that is, it  was  not  a bounty  depending on the earning of profits. [67  G-H;  68A. 70F-G.] In the present case, it was proved that the payment of bonus was  made at 10% for a large number of years and at 11%  for an  intervening  period.  But the payment  was  not  related either  to any festival or to an implied term of  employment between  the parties.  In fact, for tile years from  1940-41 to  1945-46  there was no claim for the  payment  of  either customary  bonus or festival bonus.  On the other hand,  the express claim was made for war bonus.  The major part of the entire period was covered by awards and excepting in one  of those  awards there was no reference to any festival  bonus. The  intervening period was covered by an express  agreement between  the  parties.  Further, the rate was  not  uniform. Consequently,  the  claim made by the  employees  that  they

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should  be  paid 10% either as festival bonus  or  under  an implied term of employment could not be accepted. [71A-D] lspahani Ltd. Calcutta v. Ispahani Employees Unions, [1960]1 S.C.  R.  24,  The  Graha Trading Co.  (India)  Ltd  v.  Its Workmen, [1960] 1 S.C.R. 107, M/s Tulsidas Khimji v.   Their Workmen,  [1963]  1 S.C.R. 675, Vegetable  Products  Ltd  v. Their  Workmen  A  I  R 1966 S.C,  1449  and  Management  of Churkutlam  Tea  Estate  (P) Ltd. v. The  Workmen  [1969]  1 S.C.R. 930, followed.  61 (2)  The  amount of bonus must be computed in terms  of  the Full Bench     formula as accepted by this Court in the case of Associated Cements    Co.   Ltd. v. Its  Workmen,  [1959] S.C.R. 925. [71 D-E] (i)  In the present case, in calculating the net profits the Tribunal should have Included the following three items,  in the gross profits. (a)  The  cost  of coal and fuel shown in  the  ’summary  of technical and Financial Particulars’ for the year,  prepared under  r.  26(3) of the Indian Electricity Rules,  1937  was less than the figure shown by the respondent in its  revenue account.    The  respondent  had  failed  to   explain   the discrepancy.  Therefore the amount of difference between the two, figures should have been added to the gross profits  in the revenue account. [71 H,72A-B,H;73A-B] (b)  There  was no proper explanation supported by  accounts for  the large amount for repairs to furniture as  shown  in the  revenue  account.. Therefore the  much  smaller  amount suggested in the oral evidence should alone have been  taken into account.  The difference between the two figures should also be added to the gross profits. [73F-H] (c)  Although   the   statutory  contigency   reserve   fund investments.  are  not  to  be taken  into  account  in  the statement  of  surpluses and deficiercies  of  profits,  the interest  earned  was  included by  the  respondent  in  the statement of net profits for the calculation of the managing agetns’ commission.  If the managing agents were entitled to claim  a  share of it the workers were equally  entitled  to claim  its inclusion in the revenue account.  The result  is that  the  gross  profits of the company would  have  to  be augmented by this sum also. [74D-G] (ii) The employees’ contention regarding the following  four items should be rejected. (a)  The  rebate to the consumers is not to be  utilised  by the  Electric supply company.  Therefore if  the  respondent could  not  have  the  benefit  of  it,  neither  could  the employees  ask for a share and claim its. inclusion  in  the gross profits. [75F-G] (b)  The respondent claimed that the normal depreciation for the  year  as  pet the assessment order  of  the  Income-tax Officer  and  double shift allowance should  be  allowed  in computing the net profits.  The employees contended that  it was only the lesser amount towards depreciation shown in the respondent’s profit and loss account that should be allowed. But according to the formula propounded by the Full Bench of the  Labour  Appellate Tribunal in U.P.  Electricity  Supply Co.. Ltd. v. Their Workmen, [1955] 2 L.L.J. 431 and approved in the Associated Cement Companies case and in T.T.E. Supply Co. Ltd. v. Its Workmen, [1960] 3 S.C.R. 68 and in Ahmedabad Miscellaneous   Industrial   Workers  Union   v.   Ahmedabad Electricity  Supply  Company Ltd., [1962] 2 S.C.R.  934  the respondent’s claim should be upheld. [75G-H;76A-D E-G] Hamdard  Dawakhana  Wakf  v. Its Workmen,  [1962]  2  L.L.J. (S.C.) 772, followed. (c)  According  to the Full Bench formula to arrive  at  the

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available surplus it is not the income-tax actually paid  by the respondent that 62 should be deducted but the amount computed nationally at 45% after  making  the  appropriate deductions  from  the  gross profits.   In the present case, the amount of income tax  so calculated  would be greater than the amount allowed by  the Tribunal  because  the gross profits would  be  enhanced  by items (i), (a), (b) and (c). [77F-H] (d)  According to the Full Bench formula return at 6% of the working  capital  should also be deducted to arrive  at  the available surplus for distribution.  The employees contended that  the working capital should be computed  in  accordance with  Schedule  VII  of the  Electricity  Supply  Act.   But according  to  the  T.T.E.  Supply  Company  case,  and  the Ahmedabad  Miscellaneous Industrial Workers Union case  even with respect to an electric supply undertaking in the  field of industrial relations it is not proper to inject  therein, the  provisions  contained in the Seventh  Schedule  to  the Electric Supply Act. [78C,E-F;79,A-B] In  the result the amounts in item (i) (a), (b) and (c)  had to  be added to the gross profits.  The amount in item  (ii) as  was not to be so added.  Depreciation  including  double shift  allowance  was to be deducted as  also  the  notional amount of income-tax at 45 % ’ after making the  appropriate deductions from gross profits.  So far as rating on  working capital  was concerned the computation should be in term  of the  Full Bench Formula and not in accordance with  Schedule VII of the Electricity Supply Act.  In the instant case even ignoring  the said section on working capital there  was  no surplus  left  in  terms of the  Full  Bench  Formula.   The question of payment of bonus did not arise. [79E-H; 80 A-B]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 752 of 1967. Appeal  by  special leave from the Award dated  January  30, 1967  of  the Industrial Court, Madhya  Pradesh,  Indore  in Reference No. 6/MPIR/1961. M.   N.  Phadke,  Gulab  Gupta and  Vineet  Kumar,  fir  the appellant. M.   C.  Chagla,  D.  N.  Mukherjee and  M.  M.  Sapre,  for respondent No. 1. The Judgment of the Court was delivered by Mitter, J. This appeal arises out of an award dated  January 30,   1967  of  the  Industrial  Court  of  Madhya   Pradesh (hereinafter  referred to as the ’Tribunal’).  The  term  of reference to the Tribunal was:               "Whether  the employees of  Jabalpur  Electric               Supply  Company Ltd., have a case for  payment               of  bonus  for  the  year              1960-61               and  what should be its quantum and  terms  of               payment?" 63 The claim for bonus was made under two heads : the first was for bonus out of the profits quantified at 50 % of the total earnings  of the employees; and the second was for  festival bonus  at 10 % of the said total earnings which was  claimed as  an implied term of the contract of employment and as  an established  practice,  having  been  paid  irrespective  of profits or losses before Diwali every year continuously from 1940-41 without any break.  The Tribunal found itself unable to  hold  in  favour of the employees under  either  of  the heads.  The appeal to this Court is by special leave.

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    We propose to take the two heads under which bonus  was claimed  in the order in which the arguments  were  advanced before  us.  The first head of bonus canvassed for  was  the second  mentioned above i.e. at 1O % of the total  earnings. So far as this claim-is concerned, we are not on  uncharted seas  as  the question cropped up in the  past  in  numerous cases  before  this  Court  wherein  certain  well   defined principles  were  formulated.   But  before  we  apply   the principles,  we have to take note of the relevant facts  and circumstances relating to this claim.      It  cannot  be  disputed that the  employees  had  been receiving  at least 10% of their earnings from  the  company from 1940-41 onwards.  This period can be conveniently split up into several parts to mark off the claims made from  time to time and the settlements by mutual agreement or  payments under awards of industrial courts or even made  voluntarily. The  first period relates to the years 1940-41  to  1944-45. The Provincial Government made a reference arising out of  a dispute which led to the award of the Labour Commissioner of C.  P. and Berar in regard, inter alia, to (a) claim by  the employees to a bonus     equal  to three months’  wages  for the year ending 31st March, 1946, and (b) war bonus equal to six months’ wages.  The adjudicator decided that.               (1)  The  company should pay to  each  of  its               employees   1/10th  of  his   total   earnings               including dear food allowance during the  year               ending  31st March 1946 by way of  bonus;  and               (2) The Company should also pay to each of its               employees   as  bonus  1/10th  of  his   total               earnings including dear               64               food allowance in respect of each of the years               1940-41, 1941-42, 1942-43, 1943-44 and 1944-45               against the claim for War bonus." It has to be noted that there was no mention of any festival bonus at that time and so far as the years 1940-41 to 1944-- 45 are concerned, it was given on the footing that it was  a War bonus. The  next  period relates to the years 1946-47 to  1949  50. Admittedly,  the payment for these years was made  under  an agreement between the parties as found by the Tribunal.  The finding of the Tribunal is that a consolidated amount of Rs. 74,850/- was paid by the company on 25th January 1951.   The Tribunal observed that there was               "abundant documentary evidence (Exs.  D-1/A to               D-1/F  wherein  workers agreed to  accept  the               bonus offered as voluntary payment of bonus as               a  compromise  of their claim of 25 %  of  the               Company’s  profits for the period ending  31st               March, 1951." The claim for the years 1951 to 1956 was covered by an award conveniently  described  as Mujumdar Award.  The  E  opening paragraphs of the award show that the employees had  claimed that payment of IO%. of their total earnings by way of bonus had come to be included in their wages and had been paid for about  12 years in the past, that there had  been  agreement between  the employees of the company to refer  the  dispute regarding bonus to Government and thereafter for  subsequent years  10 per cent of their total earnings of the  year  was accepted  by  the employees and finally on  the  failure  of negotiations and conciliations, following service of  notice under  S. 32 of the Industrial Disputes Act, the matter  had been  referred  by  the  Government,  the  employees  having pressed for at least 33-1/8 per cent of their total earnings for the year by way of bonus.

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The concluding paragraph of that award, a copy of which  has been  placed  before  us,  shows that in  the  view  of  the Majumdar Tribunal :               "In  addition to the 100% bonus  already  paid               the Party No. 1 (the company) can easily pay                6 5               additional  20 %, of the earnings of the  year               of  each employee as bonus to him.   Similarly               for  the  year  1951-52 Party No.  1  can  pay               easily additional 10 per cent of the  earnings               of the year as bonus to each of the employees.               For the year 1952-53 no surplus amount is left               with Party No. 1. According to the Full  Bench               formula and the bonus already paid i.e. 10 per               cent  of  the annual earnings of each  of  the               employees  was  sufficient  payment  for  that               year.  For the year 1953-54 5 per cent of  the               earnings  of  the year can easily be  paid  in               addition to the 10 per cent already paid.  For               the  year  1954-55 20 per cent of  the  annual               earnings  can  easily be paid to each  of  the               employee  by  way of bonus and  for  the  year               1955-56  though I only have been able  to  get               the  account for the first six months  I  have               absolutely  no doubt that taking the  average,               of  all these years, the Party No. 1 could  be               able to pay at least 10 per cent as additional               bonus." The said Tribunal further recorded that as the employees had not  received even the 10 per cent usual bonus  for  1955-56 the same should be paid in full before 31st October, 1956. For the year 1956-57 payment was made under an interim award of  Mr. Kher, Judge, Industrial Court.  For the years  1957- 58,  1958-59  and 1959-60 payment was first  made  under  an interim  award of Justice Bhat who finally passed  an  award accepting  the  claim  of the Union for  payment  of  Diwali bonus.   This  award  was the subject matter  of  an  appeal before this Court and on 11th March 1956 the parties to that appeal  arrived  at a compromise and it was  agreed  without prejudice  to their respective contentions that the  company should pay to the employees one per cent in addition to  the bonus already paid by it for the years 1956-57, 1957-58  and 1958-59 but the company should not pay any additional  bonus for the year 1959-60.  It was expressly recorded before this Court that as the point of dispute between the parties which had  been decided by the said Tribunal had not  been  argued before  this Court it would be open to them to  raise  their respective contentions in future should the occasion arise 66 The  above  statement of facts makes it  amply  clear that although the employees received at least 10% of their  total earnings  by way of bonus for the years 1940-41  to  1959-60 there  was no consistency in the claim to  bonus  throughout this  period,  nor was there any uniformity either  in  the amounts  paid or the grounds under which the several  awards of  bonus came to be made.  The only award  which  indicated that  the  bonus was to be regarded ,as a Diwali  bonus  was that of Justice Bhat for the period 1957-58 to 1959-60.  For the period 1940-41 to 1956-57 the Company never paid  bonus as  a  festival bonus on the occasion of  the  Diwali.   The amount  was  mostly  paid under awards but  in  between  the awards  there  was  a period when it  was  paid  by  express agreement between the parties. Strong  reliance  was placed on the fact of  payment  of  at least 10 per cent by way of bonus from the year 1940-41 to

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1959-60  by learned counsel for the appellant in support  of his  argument that as payment had been made for  this long period,  it  had become an implied term of the  contract  of employment  and it was to be regarded as a  festival  bonus. In our view, this contention cannot be accepted ,on the face of a long series of decisions of this Court to some of which alone we propose to refer. In  Isphani  Ltd.  Calcutta v. Isphani  Employees’  Union(1) this  Court  had to deal with the claim of the  workmen  to puja bonus for the year 1953.  Referring to The Mill-owners’ Association,  Bombay  v. The Rashtriya Mill  Mazdoor  Sangh, Bombay(2)  it  was  said that the claim for  puja  bonus  in Bengal  could  be based on either of two  grounds.   It  may either  be  a  matter  of  implied  agreement  between   the employers  and employees creating a term of  employment  for payment of puja bonus, or, (secondly) even though no implied agreement  can be inferred it may be payable as a  customary bonus.   On the facts it was found that "the workmen  when they  were in the employ of Messrs M. M. Isphani  Ltd.  (the predecessor-in-interest  of the appellants) always  used  to get  puja bonus at the rate of one month’s wages.  This  was asserted  by the workmen in their written statement and  the company did not deny it in its reply. (1) [1960] 1 S C.R. 24. (2) [1950] L.L.J. 1247.  6 7 It  was found as a fact that the appellant had  been  paying bonus ever since it came into existence in 1948 up to 1952 v without  any break at the rate of one month’s wages  and  it was  paid even in the years when the company suffered  loss. It was observed by this Court :               "In  the circumstances, it was established  in               this  case that (1) the payment  was  unbroken               and  (2) it was not paid out of bounty due  to               profits having arisen, for it was paid in some               years of loss also." As  to what would be a sufficiently long period  to  justify the inference that it was an implied term of employment  for payment  of  bonus, this Court held that the  appellant  had paid it continuously since its birth and therefore the facts warranted  the finding of an implied term of  employment  to that effect. A similar claim arose in the case of The Graham Trading  Co. (India) Ltd. v. Its Workmen(1).  According to this Court the practice of payment of bonus of the appellant "began in 1940 and  was  unbroken  up to 1950.  In  between  there  was  an adjudication in 1948 in which the company was a party".   In regard to the year 1948 the, company had admitted before the relevant tribunal of’ having paid bonus in the past and  had no intention of discontinuing the practice and thereupon the Tribunal  did  not  adjudicate  on  it.   The  payment   was continued  from  1949 to 1951.  In 1952 after  some  dispute bonus was paid to all the workers.  It was in this case that the  Court laid down certain criteria which  the  Industrial Tribunals  would  have  to  consider  when  a  question   of customary or traditional bonus arose, namely, (i)  whether the payment has been over an unbroken series of years; (ii) whether  it  has been for a sufficiently  long  period, through  the  length  of  the period  might  depend  on  the circumstances of each case; even so the period may  normally have to be longer to justify an inference of traditional and customary  puja bonus than may be the case with puja.  bonus based on an implied term of employment. (1)  [1960] 1 S.CR. 107.

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6 8 (iii)     The  circumstance that the payment depended upon the  earning  of  profits would have  to  be  excluded  an(] therefore it must be shown that payment was made in the year of loss. After laying down the tests, the Court observed that               "In  dealing with the question of custom,  the               fact that the payment was called ex gratia  by               the employer when it was made, would, however, make no difference in this regard because  of               proof of custom depends upon the effect of the               relevant  factors  enumerated by us;  ...  the               payment  must  have  been at  a  uniform  rate               throughout  to justify an inference  that  the               payment  at  such  and such  rate  had  become               customary  and traditional in  the  particular               concern." In  M/s.  Tulsidas Khimji v. Their Workmen() the  Union  ,of workmen  claimed  profit-sharing bonus at the  rate  of  six months’  wages and traditional or customary bonus at a  rate which  was  not clear but which might be said to  be  either three  months’  wages  or one month’s  wages  plus  dearness allowance on the occasion of the Diwali festival.  The claim was rather nebulous as observed by this Court.  According to the Tribunal the workmen had proved that bonus had been paid at a uniform rate of one month’s basic wages plus  dearness allowance on the occasion of the Diwali festival  throughout the period i.e. 15 years commencing from 1940-41 to 1956-57. Referring  to  the  argument  advanced  on  behalf  of   the appellant  company  that the  four  circumstances  mentioned above  in Graham Trading Co.’s case had not  established  it was remarked:               ".  . . what is more important to  negative  a               plea  for customary bonus would be proof  that               it  was made ex gratia, and accepted as  such,               or  that  it  was unconnected  with  any  such               occasion like a festival as laid down by  this               Court in the case of B.   N. Elias & Co.  Ltd.               Employees  Union  v. B. N. Elias  &  Co.  Ltd.               (2)." (1)  [1963] 1 S.C.R. 675. (2) [1960] 3 S.C.R. 382.  69 In Vegetable Products Ltd. v. Their Workmen (1) "the case of the workmen for payment of puja bonus was that it had become either an implied term of employment between them and  their employer or customary".  The Tribunal came to the conclusion that  payment of one month’s wages before puja as  customary bonus  had  been established through it apparently  did  not accept  the claim that payment of puja bonus as  an  implied condition of service had been proved.  The Tribunal  further found that the circumstances  mentioned  in  Graham  Trading Co.’s case     (2)  had been  satisfied.           Examining the evidence this   Court  found on the facts (see p.  1501) that:               ".....the  Puja bonus was paid for  the  first               time  on the eve of the Puja festival in  1964               at the rate of 10 days’ wages.  In 1955 it was               paid at the rate of 20 days’ wages.  From 1956               to 1961 the payment has been made before  Puja               at  30  days’  wages. ... from  1956  to  1958               payment  was  made  without  any  dispute  and               without  conditions.   But in 1959  a  dispute               arose  as  to payment of Puja bonus  for  that               year  and was settled before the  conciliation

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             officer by a settlement between the  appellant               and  its  workmen.   The first  term  of  that               settlement ... runs thus --               30  days’  wages  will be paid  as  bonus  (ex               gratia) for the accounting year 1957-58 to all               the workmen who will have completed 240  days’               work by the day of payment and will be on  the               rolls of the company on that date." It was observed that the payment for the 1959 was ex  gratia and  accepted as such b, the workmen.  According to  this Court:               "This is not a case where the employer made  a               unilateral declaration that the payment was ex               gratia.   This was a case where the  appellant               said  that the payment was ex gratia  and  the               workmen  accepted  the payment as  ex  gratia.               Besides there was a further condition that the               payment  would be made to those  workmen  only               who had completed 240 days work by the day  of               payment." (1) A.I.R. 1965 S.C. 1499. (2) [1960] 1 S.C.R, 107. 70 The evidence further showed that although for the year  1960 and 1961 payment had been made at the rate of 30 days’ wages the  workmen had given a receipt in terms which stated  that the  payment  was  made as advance to  be  adjusted  against profit bonus for the previous year.  In these circumstances, this  Court found itself unable to hold that there had  been payment  for an unbroken series of years before the  dispute was referred to the tribunal and the finding of the tribunal that payment of customary traditional bonus on the  occasion of the Puja festival was established was set aside. Lastly, we may refer to Management of Churkulam, Tea  Estate (P)  Ltd. v. The Workmen & another (1).  In this case  there was at first an agreement in the year 1946 relating to bonus for  the  years  1947, 1948 and  1949.   The  agreement  was extended  also  for  the  years  1950  and  1961.   A  fresh agreement was entered into in 1955 for payment of bonus  for the  years  1952, 1953 and 1954 and  there  were  subsequent agreement also.  There was no controversy that the appellant had  paid bonus for nine years and it was not at  a  uniform rate.    So  ’far  as  the  year  1952  was  concerned   the appellant’s case was that it had not paid any bonus as such, but  on the other hand it had made an ex gratia  payment  of Rs.  3 to each worker; but the tribunal did not accept  this plea  and held that the said payment must be treated as  one having  been  made towards bonus.  This Court  came  to  the conclusion  that the Tribunal was wrong in holding  that  an inference could be drawn for payment of bonus as an  implied condition of service, in the circumstances of the case, when the payment admittedly was not uniform and was not connected with any festival.  The Court also negatived the plea of the workmen  to  treat the bonus as a customary  or  traditional bonus because apart from the fact that it was not  connected with  any festival, one of the essential  ingredients  viz., that the payment should have been at a uniform rate  through was admittedly lacking in the case. The  above  decisions all go to negative the  claim  of  the appellant before us.  The only fact about which there can be no doubt is that payment was made at the rate of 10 per cent for a large number of years with an (1)  [1969] 1 S.C.R. 930. 71 intervening  period when it was made at the rate of  11  per

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cent.   The  facts do not warrant any conclusion as  to  the payment  being  related either to any festival or  under  an implied terms of employment between the parties.  It will be noted  that  for the very first period i.e. the  years  from 1940-41  to  1945-46 there was no claim for the  payment  of either  customary bonus or a festival bonus.  ’On the  other hand, the express, claim was made for War bonus.  The  major part  of  the  entire  period  was  covered  by  awards  and excepting in one of these awards, there was no reference  to any festival bonus.  There was an intervening period  Which, as already noted was covered by an express agreement between the  parties.   The  rate too, as  already  shown,  was  not uniform.  Consequently the claim made by the appellants that they should be paid 10 per cent either as festival bonus  or under an implied term of employment cannot be accepted. With  regard  to the second claim there is no  dispute  that bonus must be computed in terms of the Full Bench formula as accepted  by  this Court in the case  of  Associated  Cement Companies Ltd. v. Its Workmen (1).  Learned counsel for  the appellant  was prepared to accept the gross profits for  the adoption  of the Full Bench formula as shown in the  balance of  the revenue account for the year ending 31st March  1961 subject  to  certain exceptions.  This figure  as  shown  in Schedule   F  to  the  profit  and  loss  account  was   Rs. 8,88,598.29.  This was however subject to the  qualification as to several figures of expenses incurred during the  year. The first related to the figure in the revenue account where the  cost of coal and fuel was shown by the company  as  Rs. 21,12,875.97.  According to the appellant, the document  Ex. P-13  prepared  by the Managing Agents of  the  company  and certified  as  correct  by their  chartered  accountants  on September 28, 1961 showed that the fuel consumed was  54,962 tons  at ’an average cost of Rs. 35 -68.  This according  to the appellant was a solemn document inasmuch as it had to be prepared and submitted under sub-rule (3) of Rule 26 of  the Indian  Electricity  Rules, 1937.  The statement  is  headed "Summary of Technical and Financial Particulars for the year ended 3 1 St March, 1961." If the figures with regard to the quantity of coal (1)  [1959] S.C.R. 925 6-M 1245 Sup CI/71 72 and  the  average  cost in Ex-P-13 be  taken  into  account, instead  of  the  figures Rs. 21,12,875-97  in  the  revenue account  the correct figure would be Rs.  19,55,447/-  which would  swell  up  by the gross  profits  by  the  difference between he two amount’s, viz., Rs. 1,57,4281-. It was seriously contended before us by learned counsel  for the respondent that we should accept the figure given in the balance  sheet as the same is supported by  certificates  of the  same firm of chartered accountants, and  their  letters addressed to the Managing Agents of the Company.   According to the letter Ex.  D-28 dated 20th September 1961 the  books and  records of the Jabalpur Electric Supply  Company  Ltd., for  the  period 1st April, 1960 to 3 1 St  September,  1960 showed the average cost of coal delivered to bunkers  during the  period to be Rs. 37.81 per ton or Rs. 37-21  per  tonne (metric).   The letter Ex.  D-29 which is  similarly  worded shows  that for the period 1st October 1960 to  31st  March, 1961  the average cost of coal delivered to  bunkers  during this  period was Rs. 39 -09 per ton or Rs.  38.47per  tonne. These  two  figures  were  sought to  be  supported  by  the certificates of the chartered accountants dated 18th  April, 1963.   The  above  will show that  there  was  considerable discrepancy as to the value of the coal consumed as reported to the Government and as reported to the Managing Agents  of

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the  Company  by  the accountants.  This was  sought  to  be explained  in  the  oral evidence of one L.  S.  Mcleod  who stated  that the statement prepared  under  the  Electricity Act  was on the basis of the record maintained by  the  Head Office but the total consumption of the coal during the year was 54,962 tons and the average cost of coal per ton was Rs. 35  -58 per ton.  Oral evidence was also adduced of  one  B. Chatterjee,  an Assistant in the Electricity  Department  of Martin Burn Ltd.  Calcutta who stated that the rate shown in Ex.  P-13 i.e. Rs. 35 -58 per ton was the estimated value of coal received per ton and that this figure has been  arrived at the Power House Jabalpur purely on estimates and that the estimate did not take into account certain liabilities  i.e. certain  suppliers’  bills  which  were  accounted  for  and audited  at the Head Office at Calcutta.  In our  view,  the attempted  explanation cannot be accepted as Ex.  P-13  was made  under  the provisions of an Act.  It was  prepared  in Calcutta long after the period to which it related.  It  was submitted some time  73 after  the Directors’ reports to the shareholders dated  4th September 1961 accompanying the balance sheet and the profit and loss account.  It was for the company to explain exactly how  the discrepancy arose and their failure to explain,  in our opinion, should lead to the grossing up of the amount of difference  already mentioned with the gross profits as  per the revenue account. The  next  disputed  item  relates  to  the  amount  of  Rs. 85,887  .63  as  shown  in the  revenue  account  towards  " miscellaneous  expenses."  The  item  reads   "miscellaneous expenses including Rs. 3,025 -16 for wages and Rs. 4,128 -74 paid  to  Martin Burn Ltd. as guarantors’  commission."  The Company was asked to furnish particulars of the items  which added up-to Rs. 85,887 -63.  According to Ex.  P-18 the said figure  was made up of the following: Rs. 34,584.11 as  cost of printing, stationery and advertisement, Rs. 12,648 -18 as travelling  expenses, Rs. 7,207 -80 as general charges,  Rs. 6,206   -57  bank  charges,  Rs.  4,128.74  as   guarantors’ commission  and Rs. 21,112 -23 as repairs to furniture  etc. It  was  this  last  figure  which  was  challenged  by  the appellant.  Schedule E to the balance sheet for the relevant year  (fixed  capital expenditure) shows that  the  original cost  of furniture and equipment up to 31st March  1960  was Rs.  38,377  -78 and that additions, sales  and  adjustments during   the  year  was  Rs.  5,498  -76  and   the-   total depreciation  written  off  to 3 1 st  March  1961  was  Rs. 29,915-23.  It is difficult to appreciate how furniture  the total  cost  of acquisition of which was Rs.  43,876  54  as shown  in schedule E would require repairs to the extent  of Rs.  21,000  -00  in one year as shown  in  the  particulars supplied.  Mr. L. S. Mcleod admitted that he could not trace any  expenditure having been shown in respect of repairs  of furniture   in  the  summaries  of  receipts   and   monthly expenditure and that his ’estimate of the amounts spent  for repairs  would  be less than Rs. 500/-.  Mr.  B.  Chatterjee said the amount also included the hire charges of the office equipment.   He  did not refer to any books  of  account  to support the statement.  In the absence of proper explanation supported by the books of account of the company, the figure of  Rs.  21,112/- ought not to be accepted and  taking  into account  Rs. 5001- as stated by.  Mr. Mcleod as having  been spent for repairs to furniture, a sum of Rs. 20,612/- should be added to the gross profits. 74   The third item to be added-to the gross profits  according

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to  the appellant was the figure of interest RS.  16,645  53 shown  in  schedule  F for computation  of  net  profits  in accordance  with  S.  349 of the Companies  Act,  1956  with details of calculation of Managing Agents’ remuneration  for the  year  ended 31-3-1961.  This amount  according  to  the appellant  should have found a place in Ex.  D- 11  being  a "Statement  of  surplus/deficiency of profits for  the  year ended  31st March 1961" i. e. the working sheet compiled  by the  company.  This interest accrued to the company  out  of the  statutory  investments  as shown  in  Schedule  to  the balance sheet.  Schedule C gives the statutory contingencies reserve  fund investments, the book value thereof being  Rs. 2,30,880  -37  quoted  on the stock  exchange,  besides  Rs. 50,031 -25 which was not so quoted, the total coming to  Rs. 2,80,911.62. Although the statutory contingency reserve fund investments  are  not  to  be taken  into  account  in  "the statement  of  surpluses and deficiency of profits"  it  was included in the statement of net profits for the calculation of managing agents’ commission and we see no reason why  the same should be left out of, account in Ex. D-11.  Mr. Chagla contended that the workers had done nothing during the  year of  account i.e. 1st April 1960 to 3 t St March  1961  which entitled  them  to  claim  the benefit  of  this  amount  of interest.   While  it  is true that their  claim  cannot  be rested  on any work done by them for the company during  the year  of account there can be no question that the  interest accrued to the company out of the efforts of the workers  in the   past  which  had  not  been  taken  into  account   in calculating bonus.  The managing agents had done nothing  in the year of account to entitle them to take into account the amount  of interest which accrued to the company during  the year of account.  If they were entitled to claim a share  of it the workers were equally entitled to base their claim for its  inclusion in Ex.  D- 11. The result is that  the  gross profits of the company as shown in Ex.D- 11 would have to be augmented  by the sums of Rs. 1,57,428, Rs. 20,612  and  Rs. 16,645 -53. On  behalf of the appellant dispute was also raised  to  the deduction  of  several  items in’ Ex.  D-1  1 namely,  (1) rebate  to consumers Rs. 17,046 00 (2) depreciation  to  the extent  of Rs. 3,55,755, as also double shift  allowance  of Rs. 95,256 (3) income  tax at 45% as per Finance Act  i.  e. Rs. 1,07,052  75 and (4) return of 6% on working capital which was quantified at  Rs. 8,25,243/-.  According to the Tribunal, it  was  not necessary to consider the other two items, return at 6 %  on other reserves employed in the business  Rs. 55,38,296/- and rehabilitation reserve of Rs. 30,15,202 as in his view  even without taking these two last figures the working sheet Ex.- D-11  showed a negative balance, that is to say  absence  of any  surplus resulting out of which the workers could  claim anything by way of profit bonus. With regard to rebate to consumers it was argued before  the Tribunal  that  it was never paid to the  consumers  as  the Sixth   Schedule  to  the  Electricity  Supply  Act,   under paragraph 11(1) went to show that:               "If the clear profit of a licensee in any year               of  account  is  in excess of  the  amount  of               reasonable  return, one-third of such  excess,               not  exceeding five per cent of the amount  of               reasonable return, shall be at the disposal of               the  undertaking.   Of  the  balance  of   the               excess,  one half shall be appropriated  to  a               reserve which shall be called the Tariffs  and

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             Dividends  Control Reserve and ’the  remaining               half  shall either be distributed in the  form               of   proportional   rebate  on   the   amounts               collected  from  the sale of  electricity  and               meter  rentals  or  carried  forward  in   the               accounts  of the licensee for distribution  to               the  consumers in future, in such  manner  as-               the State Government may direct." This goes to show that the rebate to the consumers is not to be  utilised by the company except for distribution  to  the consumers  as may be directed.  If the company  cannot  have the  benefit  of  it, it stands to reason  that  the  worker cannot  ask for a share and the claim of the  appellant  for inclusion of this sum must be rejected. It  was  next  argued on behalf of the  appellant  that  the Tribunal  should not have allowed depreciation in excess  of the figure which was shown in the profit and loss account of the company, viz., Rs. 2,51,405 -80.  The Tribunal  accepted the   depreciation  to  the  extent  of  Rs.  3,55,755   but disallowed the claim with regard to double shift  allowance. The  judgment  of  this  Court  in  The  Associated   Cement Companies’ (supra at P. 959) shows that this Court 76 accepted  the  formula propounded by the Full Bench  of  the Labour  Appellate  Tribunal  in U. P.  Electric  Supply  Co. Ltd., v. Their Workmen (1).  In U. P. Electric Supply Co., s case  the  Full Bench of the Labour Appellate  Tribunal  had stated (see p. 440) that:               "Upon a careful consideration of the matter we               are of the view that only normal depreciation,               including multiple shift depreciation, but not               initial  or  additional  depreciation,  should               rank  as a prior charge in applying  our  Full               Bench formula," This  case came up for consideration again in T.T.E.  Supply Co., Ltd. v. Its Workmen (2) and The Ahmedabad Miscellaneous Industrial  Workers Union v. The Ahmedabad  Electricity  Co. Ltd.  (3) and was approved of in both.  That Rs.  3,55,755/- was the normal depreciation for the year is amply borne  out by  the assessment order of the Income-tax Officer  for  the relevant  year which is Ex.D-20 in this case.   The  company further filed statements of depreciation in respect of  each of  the  assets  from 1948 to 1961 and  the  totals  of  the figures add up to the exact sum of Rs. 3,55,755/-. With  regard to the claim of double shift allowance  Mr.  B. Chatterjee, the Company’s witness, stated that the amount of Rs. 95,256/- represented the double shift allowance but they did not claim it in the income-tax assessment inasmuch as if they  had  done so in the year of account, this  would  have increased their burden of tax in the subsequent years and it was  to regulate the stability of profits that they did  not claim  double  shift in the income-tax returns.  We  see  no reason  to reject the evidence of Mr. Chatterjee.  The  fact that  in  the  balance sheet the  company  showed  only  Rs. 2,51,405  -80  was  not conclusive on  the  question.   What amount  of  depreciation the company will  claim  under  the Income-tax.   Act  in  order to allow  some  profits  to  be distributed among the shareholders is a concern entirely  of the company, so long as they do not claim anything more than what  the law allows.  It is significant to note  that  this Court pointed out in The Ahmedabad Miscellaneous  Industrial Workers’ Union case (supra) that the Income-tax Rules should be applied in (1)  [1955] 2 L.L.J. 431. (3) [1962] 2 S.C.R. 934.

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(2) [1960] 3 S.C.R. 68.  7 7 calculating  depreciation  under the Fall Beach  Formula  in preference to the provisions of the Seventh Schedule to  the Electricity Supply Act as this would work for uniformity  in all  industrial concerns.  A contention similar to  the  one put  forward by the appellant in this case was  rejected  by this  Court  in Hamdard Dawakhana Wakf v.  Its  Workmen  The notional  normal depreciation there claimed by the  employer and  which would be allowable under the Income-tax  Act  was Rs.  2,22,867 but the Tribunal allowed only Rs. 1,06,785  as this  figure had been shown by the appellant in  its  profit and loss account.  This Court observed that:               "   In the profit and loss account, it is  the               actual  depreciation that would be  shown  and               not  the notional normal depreciation and  so,               the fact that the former depreciation has been               shown  in the profit and loss account can  not               be held to be a factor against the appellant." It  was also remarked that the accountant of  the  appellant had produced the figures of depreciation in various exhibits and  his  statement  had  not  been  challenged  in   cross- examination  and therefore there was no reason  to  disallow the claim of depreciation of Rs. 2,22,867/-. On reasoning similar to the above it was argued on behalf of the  appellant  that  there was  no  justification  for  the Tribunal’s disregarding the income-tax actually paid by  the company  as per the assessment order, viz., Rs. 53,896  -80. But this in our opinion cannot be accepted as the  available surplus  has  to be found out by working on the  Full  Bench formula  of the Labour Appellate Tribunal.  There can be  no question that income-tax has to be nationally computed at 45 % after deduction from the gross profits, the expenses shown in  Ex.  D- 11 ending with notional normal depreciation  and double   shift  depreciation.   The  Tribunal  allowed   Rs. 1,07,052 but the result of the addition to the gross  profit of Rs. 8,88,598 (1) the difference in the value of the  coal consumed,  (2)  the amount disallowed out of  the  furniture repairs  and  (3) the interest amount of  Rs.  16,645/-  the income  tax to be allowed in the working sheet would be  Rs. 1,94,435/- in place of Rs. 1,07,052/-. (1)  [1962] 2 L.L.J. 772. 78 The  last item disputed by the appellant was the  return  on working  capital which was shown as Rs. 8,25,243/in Ex.   D- 11.   The  evidence given on this head was that  of  Mr.  B. Chatterjee.   He referred to various exhibits viz., D-22  to D-27 in this connection.  Ex.  D-22 was a statement compiled for showing reserves available as working capital.  Exs.  D- 24  and D-25 went to show that at the relevant  period,  the company  was borrowing moneys from the United Bank of  India Ltd.   The  Tribunal accepted the company’s  case  that  Rs. 8,25,243/- should be taken to be the working capital of  the company  for  the  relevant year and return at  6  per  cent should  be deducted to arrive at the available  surplus  for distribution.  The evidence on this head was furnished by B. Chatterjee  who  said that the sum had  been  calculated  as shown  in Ex.  D- 11 in accordance with clause xvii  (e)  of the  Sixth  Schedule to the Electricity Act,  and  this  sum being the lesser of the two was incorporated in Ex.  D- 1 1. The  details of the requirement of liquid funds to  run  the undertaking   was  given  in  Ex.   D-16.   In  his   cross- examination  Chatterjee said that besides the item shown  in Ex.  D-22 (statement of reserves) and other funds which  had been  used as working capital, the company had to  take  the

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loan in spite of these reserves which were already  employed in the business as working capital. Mr. Chagla contended that the working capital as computed in accordance  with Schedule VII of the Electricity Supply  Act being  a statutory computation could be taken  into  account even  for the working out of the Full Bench Formula  of  the Labour  Appellate  Tribunal.  In our view, this is  not  the correct position in law.  In T. T. Supply Company’s case (1) the  question considered by this Court was whether the  Full Bench  Formula  should  be applied  to  an  electric  supply undertaking in preference to the provisions of the different clauses  of  paragraph  xvii of the Sixth  Schedule  to  the Electricity  Supply  Act and this Court concurred  with  the view expressed by the Labour Appellate Tribunal that even in such  a case the Full Bench Formula should be  applied.   In the Ahmedabad Miscellaneous Industrial Workers’ Union’s case (2)  where  one  of  the questions  before  this  Court  was whether. depreciation should be calculated according to  the provisions  of  the  income-tax Act  and  the  rules  framed thereunder or accord- (1) [1960] 3 S.C.R. 68. (2) [1962] 2 S.C.R. 934.  79 ing to the provisions contained in the Seventh Schedule  the Electricity  Supply  Act, it was held that  the  rates  pre- scribed under the rules framed under the Income -tax Act lay down the proper measure of depreciation to be allowed as  in the view of this Court the field of industrial relations  in connection with which the Full Bench Formula was evolved, it was not proper to inject therein the provisions contained in the Seventh Schedule to the Electricity Supply Act. There can be no dispute that a good portion of the  reserves must  have been utilised in running the company inasmuch  as it  was  obliged  to borrow moneys from  the  bank  and  pay interest thereon. it is highly unlikely that a company which had  reserves as disclosed by its balance sheet  and  profit and  loss account would borrow moneys from a bank unless  it was  utilising  the  reserves  for  some  other  and   more’ remunerative purposes.  The balance sheet and the profit and loss  account  negative such a view and  no  evidence  which throws light on the question was recorded. We  are  however not called upon in this case to come  to  a finding  as  to how much of the reserves  were  utilised  as working capital in view of the fact that even without taking this  item into account, there is no available surplus  left in  terms  of the working sheet which forms  the  basis  for determining the available surplus. The  working  sheet  according to us should  be  altered  as follows: To the figure Rs. 6,88,905 shown as surplus in  Ex. D-11 after the deduction of various items of expenses should be added three figures i.e. (1) coal and fuel Rs. 1,57,428/- (2)  furniture  account  Rs. 20,612  and  (3)  interest  Rs. 16,545/- making a total of Rs. 8,83-490/- as gross  profits. From  this will have to be deducted Rs. 4,51,011  being  the sum  of  notional normal depreciation of  Rs.  3,55,755  and double  shift  depreciation  Rs. 95,256/-.   This  leaves  a balance of Rs. 4,32,479.  From this will have to be deducted the income-tax of 45 % which in view of the addition of  the items  regarding coal, furniture and interest should be  Rs. 1,94,615  in place of Rs. 1,07,052 as shown in Ex.   D-1  1. Deducting  this  from Rs. 4,32,479 the balance left  is  Rs. 2,37,864.   From  this  has to  be  deducted  the  statutory contingencies  reserve  and the s   statutory  development reserve  and  6  per  cent  on  the  share  capital  of  Rs. 22,49,850/ there

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80 being  no dispute as to these  figures.  The result is  that from  the figure of Rs. 2,37,864 there has to be deducted  a sum  of of Rs. 2,38,585 which leaves a negative  balance  of Rs.  72  1.  The  case, of  the  appellant  for  showing  an available surplus for distribution therefore disappears. In the result, the appeal fails both on the point of  custo- mary  or festival bonus or implied term of the  contract  or profit bonus, and will be dismissed with costs. V.P.S.                                   Appeal dismissed 81