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PETITIONER: JACKSON CO-OPERATIVE CREDIT SOCIETY LIMITED

       Vs.

RESPONDENT: CO-OPERATIVE BANKS & SOCIETIES EMPLOYEESFEDERATION & ORS.

DATE OF JUDGMENT31/03/1989

BENCH: THOMMEN, T.K. (J) BENCH: THOMMEN, T.K. (J) DUTT, M.M. (J)

CITATION:  1989 AIR 1398            1989 SCR  (2) 266  1989 SCC  (3)  89        JT 1989 (2)    31  1989 SCALE  (1)965

ACT:     Payment  of  Bonus  Act, 1965--Section  6(d)  and  Third Schedule  Item  No. 4---For rate of  Bonus--Sums  deductible from  gross profits-What are--In respect of  a  Co-operative Society.

HEADNOTE:     The  appellant--Co-operative  Society  has  filed   this appeal  by  special  leave against the  High  Court’s  order passed in a writ petition filed by it whereby the High Court set  aside  the award of the Industrial Tribunal.  The  High Court  in  the  impugned order held that  the  appellant  is liable  to pay to its employees bonus at the rate of 20  per cent  of  its total annual earnings for the  years  1975-76, 1976-77 and 1977-78.     The appellant contends that the High Court went wrong in directing the appellant to pay bonus with regard to  various amounts  invested by it as permitted by the relevant  provi- sions of the Maharashtra Cooperative Societies Act 1960, and the  amounts carried forward to its reserve fund.  According to the appellant, the High Court neither read the provisions of  Sec.  6(d) of the Bonus Act 1965 correctly  nor  was  it justified in relying on the Explanation to the 3rd  Schedule to the Bonus Act.     Dismissing the appeal subject to the modification  indi- cated in the judgment hereinbelow, this Court,     HELD: The expression "capital" is not defined under  the Bonus  Act. It must therefore be understood in the sense  in which  that expression is generally understood.  That  means all  amounts which are classified as capital in contrast  to revenue  must qualify for deduction subject to the limit  of 8.5  per  cent,  provided such capital is  invested  by  the Society  in its establishment as evidenced by its  books  of accounts  at  the commencement of the accounting  year.  Any such capital upto 8.S per cent is thus deductible.  Further- more, all sums which have been carried forward in respect of the  relevant accounting year to a reserve fund as  required under  any law applicable to Co-operative Societies for  the time being in force are also deductible from gross  profits. [269B-D] 267

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   Accordingly  all  such amounts held by  the  Society  as reserve fund in terms of Sec. 66 of the Co-operative  Socie- ties Act must qualify for deduction. [269H]     If  larger  amounts are carried forward to  the  reserve fund in terms of Sec. 66, all such amounts will come  within the  ambit of item (4) of the 3rd Schedule to the Bonus  Act and qualify for deduction. [270A-B]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 4042  of 1988.     From  the  Judgment and Order dated 17.12. 1987  of  the Bombay High Court in W.P. No. 1048 of 1982. S.C. Gupta and M.N. Shroff for the Appellant.     Anil  Dev  Singh, Ms. Nayana Buch,  M.J.  Paul,  Kailash Vasdev, Ms. Subhashini and Mrs. Kitty Kumarmangalam for  the Respondents. The Judgment of the Court was delivered by     THOMMEN,  J. This civil appeal by special leave  is  di- rected  against judgment dated 17.12.1987 of the High  Court of  Bombay in Writ Petition No. 1048 of 1982  instituted  by the  appellant, which is a Co-operative Credit Society.  The 1st respondent is a Federation representing the employees of the appellant amongst others.     Setting aside the award of the Industrial Tribunal,  the High  Court  held that the appellant was liable to  pay  its employees  bonus  at the rate of 20 per cent  of  its  total annual earnings for the years 1975-76, 1976-77 and 1977-78.     The  principal contention urged at the Bar  against  the impugned  judgment  is  that the High Court  went  wrong  in directing  the  appellant  to pay bonus  without  regard  to various amounts invested by it as permitted under the  rele- vant  provisions  of the Maharashtra  Cooperative  Societies Act,  1960  (the  "Co-operative Societies  Act")  and  other amounts carried forward to its reserve fund. The appellant’s counsel contends that the High Court did not correctly  read the provisions of Section 6(d) of the Payment of Bonus  Act, 1965 (The "Bonus Act") and item (4) of the Third Schedule to the  said Act. Counsel further contends that the High  Court was not justified in. placing reliance on the Explanation to the Third Schedule to the Bonus Act as 268 it has no relevance to co-operative societies. The  Explana- tion, he says, is relevant only to items (1), (2) and (3) of the Third Schedule to the Bonus Act.     We shall now read the relevant provisions. Section 6  of the  Bonus Act refers to various sums which  are  deductible from gross profits. It reads:               "6.  Sums deductible from gross  profits.  The               following  sums  shall be  deducted  from  the               gross profits as prior charges, namely:                     (d)  such further sums as are  specified               in respect of the employer in the Third Sched-               ule."     The  employer in question being a co-operative  society, it  is item (4) of the Third Schedule to the Bonus Act  that is applicable. That reads: Item Category of employer    Further sums to be deducted NO. (2)                 (3) 4.   Co-operative Society    (i) 8.5 per cent of the capital                                   invested by such society

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                                in its establishment as                                   evidenced from its books                                   of accounts at the                                   commencement of the                                   accounting year;                  (ii)  such sums as has been                        carried forward in res-                        pect of the accounting                        year to a reserve fund                        under any law relating                        to co-operative societies                        for the time being in force. 269     In  column  (3) of item (4), two types  of  amounts  are deductible from the gross profits as prior charges. Firstly, 8.5  per  cent  of the capital invested  by  a  co-operative society  in  its  establishment  is  deductible.   Secondly, amounts carried forward to a reserve fund in compliance with any provisions of law relating to co-operative societies are also  deductible. (The expression ’capital’ is  not  defined under  the Bonus Act. It must, therefore, be  understood  in the sense in which that expression is generally  understood. That  means all amounts which are classified as  capital  in contrast  to revenue must qualify for deduction  subject  to the limit of 8.5 per cent, provided such capital is invested by  the  society in its establishment as  evidenced  by  its books  of  accounts at the commencement  of  the  accounting year. Any such capital upto 8.5 per cent is thus deductible. Furthermore,  all  sums which have been carried  forward  in respect of the relevant accounting year to a reserve fund as required under any law applicable to co-operative  societies for  the time being in force are also deductible from  gross profits.)  This means that reserve fund created in terms  of Section  66of the Co-operative Societies Act  is  deductible under  item  (4)  of the Third Schedule to  the  Bonus  Act. Section 66 reads.               "66.  (1)  Every society which does,  or  can,               derive  a profit from its  transactions  shall               maintain a reserve fund.               (2)  Every society shall carry at  least  one-               fourth  of  the net profits each year  to  the               reserve  fund; and such reserve fund may  sub-               ject to the rules made in this behalf, if any,               be used in the business of the society or may,               subject  to the provisions of section  70,  be               invested,  as  the  State  Government  may  by               general or special order direct, or may,  with               the previous sanction of the State Government,               be used in part for some public purpose likely               to  promote  the objects of this Act,  or  for               some  such purpose of the State, or  of  local               interest:               Provided  that,  the  Registrar  may,   having               regard to the financial position of any socie-               ty or class of societies, fix the contribution               to  be  made to the reserve  fund  under  this               sub-section  at  a lower rate, but  not  lower               than  one-tenth  of  the net  profits  of  the               society or societies concerned."     Accordingly,  all  such amounts held by the  society  as reserve  fund  in terms of Section 66  of  the  Co-operative Societies  Act must qualify for deduction. The  minimum  re- serve fund that is required to be 270 maintained  by Section 66 of the Co-operative Societies  Act

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is  one fourth of the net profits of each year.  (If  larger amounts are carried forward to the reserve fund in terms  of Section  66, all such amounts will come within the ambit  of item (4) of the Third Schedule to the Bonus Act and  qualify for  deduction.) Accordingly, we hold that 8.5 per  cent  of the capital invested by the society in its establishment  as disclosed  by its books of accounts, together  with  amounts carried forward to a reserve fund in compliance with Section 66  and other provisions of the Co-operative  Societies  Act read  with  the rules made thereunder (See Rule  54  of  the Maharashtra  Co-operative Societies Act, 1954) will  be  de- ductible in terms of Section 6 of the Bonus Act.     We must, however, point out that the High Court was  not justified in placing any reliance on the Explanation to  the Third  Schedule  to the Bonus Act for that has,  as  tightly pointed  out by the appellant’s counsel, no relevance  to  a co-operative society.     In  this connection, we place on record that counsel  on both sides agree that reference to 20 per cent in  paragraph 11 of the judgment was wrong in respect of the year 1975-76. They  agree that for that year, the correct figure is  18.78 per cent. Accordingly, we hold that reference to 20 per cent in  paragraph  11 of the impugned judgment must be  read  as 18.78 per cent for the year 1975-76 and 20 per cent for  the succeeding two years.     Subject  to what we have stated above, we hold that  the High  Court was right in directing the appellant society  to pay  bonus  to its employees. The society is liable  to  pay bonus  at the rate of 20 per cent for the years 1976-77  and 1977-78 and 18.78 per cent for the year 1975-76.     In  the circumstances, the appeal must fail and  is  ac- cordingly dismissed. The parties shall bear their respective costs. Y.  Lal                                         Appeal  dis- missed 271