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PETITIONER: NATIONAL ENGINEERING  INDUSTRIES LTD.

       Vs.

RESPONDENT: ITS WORKMEN

DATE OF JUDGMENT: 06/10/1967

BENCH: SHELAT, J.M. BENCH: SHELAT, J.M. BHARGAVA, VISHISHTHA

CITATION:  1968 AIR  538            1968 SCR  (1) 779  CITATOR INFO :  RF         1968 SC 963  (21)  R          1971 SC2521  (18)  RF         1971 SC2567  (1,10)  RF         1972 SC1954  (16,18,20)  F          1973 SC 353  (38)

ACT: Industrial Dispute-Bonus-Calculation of rehabilitation  cost of  machinery-Use  of  multiplier  whether  necessary   when relevant  quotations of price of  machinery  available-Item- wise   and  block-wise  estimate  when   desirable-Need   of graduated  divisor  when machinery  installed  over  several years-Interest  allowable  on paid up capital, rate  may  be adjusted  reasonably-Life of machinery, estimate  of--Laches may be taken into account in considering claim for bonus.

HEADNOTE: The workmen of the appellant company demanded bonus for  the years 1956-57 to 1959-60.  The Tribunal disallowed the claim for  1956-57 on the ground that it was belated  and  allowed the demand for the rest of the years 1957-58 to 1959-60.  In working out the available surplus for distribution as  bonus the  Tribunal  in general followed the  Full  Bench  formula evolved  by  the  Labour Appellate  Tribunal.   Against  the Tribunal’s award the company as well as the workmen appealed to the Supreme Court by special leave under Art. 136 of  the Constitution.  Both sides raised contentions with regard  to the  rehabilitation  allowances  in  respect  of  plant  and machinery  for  the three years in question and  the  method followed  by  the Tribunal in calculating  them.   The  main question for decision arose out of the company’s  contention that  since  it  furnished  quotations  for  all   machinery including  the  old machinery, the Tribunal  ought  to  have accepted those quotations as equivalent to replacement  cost as  it did in the case of new machinery instead of  adopting the  notional  method of working out  multipliers  and  then arriving at replacement cost by multiplying that  multiplier with the estimated cost to the sellers. HELD:     (i)  The  multiplier is at best  an  approximation arrived  at  from  the  trend  of  price  level  during  the ascertained  intervening  period.   But  when  the  cost  of replacement is ascertained from quotations of prices for the

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year  of  replacement  such  cost s  more  accurate  than  a notional  one  worked  out  from  the  multiplier.   It   is therefore not always necessary to arrive at a multiplier for estimating the probable cost of replacement. [789 C-D]. In  the  present  case  since  the  Tribunal  accepted   the quotations’ and worked out the multiplier in the case of new machinery by dividing the quotations by the original cost it ought  to have followed the same method in the case  of  old machinery as it had before it the cost of the old  machinery as new and the cost of replacement, both unchallenged by the union.   If the rehabilitation cost was calculated  in  this manner there would be no available surplus with the  company and hence no bonus would be payable.’ [787 H-788A; 787 A-B]. (ii) It  is  well  established  that  in  the  case  of  old machinery  the employees cannot insist that  such  machinery should  be replaced by old machinery.  For working  out  the rehabilitation  cost of such. machinery it ’ is the cost  of new  machinery  that is to replace the old which has  to  be taken into consideration. [787 F-G]. (iii).    Whenever  it is possible to estimate itemwise  the probable cost of machinery in the year of replacement such a method  is not only permissible but is more desirable.   The blockwise estimate has. 780 to be resorted to when itemwise estimate is not possible  as when  the industry owns several factories and the number  of plant and machinery is so large that it becomes difficult to make an estimate of replacement cost itemwise. [789 B-C; 788 G-H]. (iv) The  contention  on  behalf of the  workmen  that  the replacement  cost should be worked out on the basis  of  the price  level  during the bonus year could not  be  accepted. The   test  is  the  probable  cost  of   replacement   when rehabilitation becomes due.  If the bonus year and the  year of rehabilitation coincide, the price level during the bonus year would no doubt be the relevant basis.  But when they do not coincide and the due year of rehabilitation is the  year beyond the bonus year that which is relevant is the probable cost of replacement during that year. [790 H; 791 A-B]. (v)  Ordinarily, the Tribunal has to satisfy itself that  no cost  of expansion is injected in the  rehabilitation  cost. In  the  present case, however, it did not appear  from  the record  that  any question of expansion arose as  the  Union accepted  the  quotations as equivalent to  the  replacement cost, [791 F-G]. (vi) The Tribunal was justified in taking the price rise  in respect  of the machinery installed in the bonus,  years  as zero.  Though the prices for such machinery in 1963-64  were available,  considering that its life was 15 years,  it  was too early to find out with any precision the probable  trend of prices during the intervening years. [793 EG]. (vii)     The  Tribunal  was  wrong  in  giving  a   uniform remainder  life of 7 years to old machinery irrespective  of the  year  of  its installation.  Taking  the  life  of  old machinery  to  be 10 years, the old machinery  purchased  in 1950-51 would require replacement in 1960-61 and so on.   In that  case the remainder life in the bonus year  1957-58  of old machinery installed in 1950-51 would clearly be 3 years, of old machinery installed in 1955-56 8 years, of  machinery installed  in 1956-57 9 years and that installed in  1957-58 10 years.  The divisor therefore could not be the uniform  7 for  all  the three years but a graduated one on  the  basis that  the estimated life of the old machinery was 10  years. [793 H; 794 B.] (viii)    The  Tribunal  was  justified,  in  view  of   the

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decision of this Court in     the  South  India  Millowners’ Association’s case, in taking the whole cost   of  the   old machinery  as  depreciation,  but  it  made  a  mistake   in deducting it twice over. [795 B-C]. (ix) The  company  not  being  an  investment  company,  its investments in shares  of other joint state companies  prima facie represented extra  capital  not required  as  working’ capital,  for  otherwise the company could not  have  spared this amount for investment in the stocks of other companies. The  Tribunal  was right in treating this  Investment  as  a capital asset and in refusing to treat the loss therefrom as trading  expenditure.  The Tribunal at the same  time  could deduct this amount from the rehabilitation cost because that amount was avilable to meet the rehabilitation cost. [797 H; 798 A]. (x)  Though  the Full Bench formula provided for payment  of net  interest at 6 per cent annum on paid up  capital.  that rate  is not to be regarded as something inflexible.   While awarding interest if 781 the  Tribunal  were to find that if it were to grant  6  per cent interest on paid up capital. nothing or no  appreciable amount  would be left for bonus, it can adjust the  rate  of interest so as to accommodate reasonably the claim for bonus and  thus  must meet the demands of both  as  reasonably  as possible. [798 G; 799 B]. (xi) In fixing the life of machinery the principle that  the Tribunal  has to bear in mind is that the life of  machinery is  the  period during which it is estimated  to  work  with reasonable efficiency and not the period during which it has actually  been  operated,  that  is,  till  it  becomes  too deteriorated  for  use.  In the present  case  the  Tribunal fixed the period of 15 years after considering the  evidence and the nature of the industry.  There was no reason why its determination should be interfered with. [799 G-H]. (xii)     The  Tribunal was right in not excluding the  cost of  spares  from the price of machinery for the  purpose  of calculating  rehabilitation cost.  In the case of  imported machinery spares are generally included in the purchase  and their  cost  must  be included in the  purchase  price,  the reason being that in case of breakdown the company would not have  to  wait  for an indefinite period  for  ordering  and obtaining the spares. [800 B]. (xiii)    The statutory depreciation and development  rebate allowable under the Income-tax Act are not relevant for  the purpose of calculating rehabilitation requirement.  Only the notional normal depreciation need be deducted. [801 C-D]. (xiv)     The claim for bonus in respect of 1956-57 was made more   than  18  months  after  the  closure  of   accounts. Industrial   adjudication.   ;Is   bound   to   take    into consideration  delay  and laches before it calls,  upon  the other  side  to reopen its accounts closed  long  ago.   The Tribunal was therefore right in rejecting the claim on  the- ground of laches. [801 F-G]. Millowners’ Association.  Bombay v. Rashtriya Mill  Mazdoor, Sangh, Bombay [1950] L.L.J. 1247, Associated Cement Co: Ltd. v.  Its  Workmen [1959] S.C.R. 925, Management  of  Rajendra Mills Ltd. v. Their Workmen [1960] 1. L.L.J. 53, The Workmen v. The National Tobacco Co. [1966] 2 L.L.J. 200, South India Millowners’  Association  &  Ors.  v.  Coimbatore   District Textile Workers’ Union and Others [1962] 1 L.L.L. 223, G. F. Mills  v. Its Workmen., A.I.R. 1958 S.C. 382.   South  India Millowners’  Association  and Ors.  v.  Coimbatore  District Textile  Workers’ Union and Or,,;.,, [1962] Supp.  2  S.C.R. 926, Pierce Leslie & Co. v. Its Workmen, [1960] 3 S.C.R. 194

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and Bengai.  Kagazkar Mazdoor Union & Ors. v. Titagarh Paper Mills Co. and Ors. [1963] 2 L.L.J. 358, referred to;

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 356 and 357 of 1966. Appeals  by special leave from the Award of  the  Industrial Tribunal, Rajasthan in Case No. 9 of 1961. Niren  De, Addl.  Solicitor-General, Sobhag Mal fain an(  B. P.  Maheshwari, for the appellant (in C. A. No. 356 of  1966 and respondent (in C. A. No. 357 of 1966). 782 M.   K. Ramamurthi, Shyamala Pappu and Vineet Kumar, for the appellants  (in C. A. No. 357 of 1966) and  respondents  (in C.As. No. 356 of 1966). The Judgment of the Court was delivered by, Shelat,  J. These two appeals by special leave, one  by  the appellant company and the other by, its workmen are directed against  the  award  dated May 4,  1964  of  the  Industrial Tribunal,  Rajasthan  to  which  reference  was  made  under section 10(1)(d) of the Industrial Disputes Act, 1947.   The dispute  referred to the Tribunal related to  the  workmen’s demand  for bonus for the years 1956-57 to 1959-60.  By  the said award the Tribunal disallowed the claim for 1956-57  on the  ground that it was belated and allowed the  demand  for the rest of the years 1957-58 to 1959-60. In  working  out the available surplus for  distribution  as bonus  the  Tribunal  in general  followed  the  Full  Bench formula   evolved  by  the  Labour  Appellate  Tribunal   in Millowners’  Association, Bombay v. Radhtriya  Mill  Mazdoor Sangh,   Bombay(1)  and  approved  by  this  Court  in   the Associated  Cement Co. Ltd. v. Its Workmen.(2) The  Tribunal worked  out first the gross profits for the said  years  and the  prior charges deductible therefrom and arrived  at  the available surplus.  For the year 1957-58 gross profits found were  Rs.  28.29 lacs, Rs. 25.36 lacs for  1958-59  and  Rs. 34.92  lacs  for 1959-60.  There is no dispute  about  these figures.   The Tribunal then ascertained the  prior  charges deductible from the gross profits.  There is no dispute with regard  to  the  figures for  depreciation,  income-tax  and wealth  tax.   As  regards interest  allowable  on  paid  up capital,  the  Tribunal  allowed  6%.  per  annum  tax  free interest  for 1957-58 and 1958-59.  For 1959-60 the  Company remanded interest at the rate of 8.57% by reason of a change in he Income-tax law having been made during the year.   The Union,  on  the other hand, claimed that only 6  %  interest should be allowed.  The Tribunal allowed a mean between  the two,  viz.,  7 1/4.  There was no question  of  interest  on working  ;capital as it was not the Company’s case that  any reserve  was utilised as working capital similarly there  is no  dispute  with regard to the  rehabilitation  charge  for buildings allowed by the Tribunal.  Apart from the question. as  to  interest allowable on paid up capital for  the  year 959-60, the main dispute. in these appeals is with regard to the  rehabilitation  allowances  in  respect  of  plant  and machinery  for  he three years in question  and  the  method followed by the Tribunal in calculating them. (1)  [1950] I.I.J. 1247. (2)  [1959] S.C.R 925.                             783 The Company ever since its commencement has been  purchasing new  and also old reconditioned machinery.  As  regards  new machinery  the Company furnished, (a) cost to  the  Company,

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(b)  the  current  price  during the year  1963-64  and  (c) percentage in the   rise   in  prices.   The  Company   also furnished in respect of reconditioned machinery (a) cost  to the  Company and (b) estimated cost which its vendors  would have  paid if they had purchased it as new in the  years  in which  the Company installed the old machinery.  In  respect of  the  old  machinery  the cost to  the  Company  and  the estimated cost to the sellers according to the Company  were as follows:- ------------------------------------------------------------ Year            Cost to the           Estimated cost to                     Company              the sellers -------------------------------------------------------------                    (In lacs)          (In lacs) Upto 1952-53        13.87               20.05 1953-54 to 1955-56  3.49                 5.23 1956-57             1-40                 2.10 9157-58             1-77                 2.65 ------------------------------------------------------------- Total              20.03                30-03 ------------------------------------------------------------ The  difference  between  the cost to the  Company  and  the estimated  cost  to the sellers thus come to 150%.   No  old machinery  was  purchased during 1958-59 and  1959-60.   The Company  also produced quotations of prices  for  equivalent machinery  current  in  year 1963-64.   The  Union  did  not dispute  (a) the figures of cost to the Company of  the  new machinery as given in its statement Ex.  M2, (b) the figures of  cost of old machinery to the Company and  its  estimated cost to the sellers as given in Ex.  M 3 and (c) the  quota- tions  of  prices received by the Company  in  1963-64  from manufacturers  of these machines, both old and new,  "except in the case of machinery installed, during the bonus years." The Tribunal worked out the rehabilitation requirements  for the years 1957-58 to 1959-60 in a Chart which is Annexure  A to the award.  Since the controversy in these appeals mainly centers  round  the figures of  rehabilitation  requirements allowed  by  the Tribunal it is expedient to  set  out  that Annexure: 784 784(a) Period   Cost   Cost as    Multi- Total    Less    Balance                shown by    plier          break-                Co. in                        down                 EX. M.                       value 5% 1          2      3           4         5       6         7 1050-51- New        16.30  16.30      3.36     54.77   0.81     53.96 Old        13.37  20.05               67.37    Nil     67.37 1951-52- New         1.43   1.43      1.87      2.67   0.07      2.60 1952-53- New         2.18   2.18      1.47      3.21   0.11      3.10 1953-54- New         1.12   1.12       2.28     2.55   0.06      2.49 Old         1.24   1.86       2.28     4.24   . ..      4.24 1954-55- New         3.71    3.71      1.86      6.90   0.19     6.71 Old         1.95    2.93      1.86      5.45   Nil      5.45 1955-56- New         6.93    6.93      2.18     15.11    0.35   14.76 Old         0.30    0.45      2.18      0.98    Nil     0.98      1956-57- New   13.11     13.11    2.35 30.80     0.66 30.14 Old  1.40   2.10    2.35 4.93 Nil   4.93

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1957-58- Now  3.39 3.39 1    3.39 0.17 3.22 Old  1.77 2.65 1    2.65 Nil  2.65 1958-59- New  12.95     12.95     1    12.95     0.65 12.30 1959-60- New  30.76     30.76     1    30.76     1.54 29.22 784(b)  Minus deprociation      Balance    Divisor   Annual                                               Require-                                                 ment        8                9            10       11                                         (Rupees in lakhs) Total cost as new & old Machy30.03  24.35       7    3.48 Depre-written off upto 31-3-57             48.83               2.60       8     0.32                                 3.10       9     0.34 Investment as on 31-3-57         2.49      10     0.25            18.22                4.24       7      0.61 Total     96-98                 6.71      11     0.61            ..                   5.45       7     0.78                                14.76      12      1.23                                 0.98       7     0.14                                30.14        1    3 2.32                                 4.93        7     0.70                                 3.22        14    0.23                                 2.65         7    0.38 11.39                                12.30        14    0.88 12.27                                29.22        14    2.08 14.35 785 It  will  be  observed from Annexure  A  that  the  Tribunal accepted  as regards new machinery the Company’s figures  of cost and quotations as cost of replacement and dividing  the cost  of replacement by the original cost to the  Company  I worked  out  multipliers  for  each  year.   This   dispute, however, is with regard to the multipliers arrived at by the Tribunal in respect of old machinery. In Annexure A, the Tribunal adopted 3.36 multiplier in  res- pect  of old machinery installed in 1950-51, i.e., the  same multiplier  which it worked out in respect of new  machinery installed during that year.  For the years 1953-54 to  1957- 58  the Tribunal accepted the Company’s figures  which  were agreed to by the Union, viz., of cost to the Company and the estimated cost to their vendors if the latter had  purchased that   machinery   as  new  in  the  respective   years   of installation.   The  Company also produced  quotations  from manufacturers  of machinery itemwise in its Confi-Annex.   I and 2. These quotations were for some machines for  1959-60, for some for 1960-61 and the rest for 1961-62.  It would  be safe to say that the average cost of these machines was  the cost  prevalent in 1960-61.  Though the average cost of  the machinery  was thus available, the Tribunal in the  case  of old machinery worked out multiplier for each of these  years and  then  arrived at the figure of Rs. 85.62  lacs  as  the total replacement cost of that machinery by multiplying  the estimated  cost  to  the seller with  the  multiplier.   The Company’s  contention  was that since the Company  had  fur- nished  quotations  for  all  machinery  including  the  old machinery,  the  Tribunal  ought  to  have  accepted   those quotations  as equivalent to replacement cost as it  did  in the  case of new machinery instead of adopting the  notional method  of  working  out multipliers and  then  arriving  at replacement  cost  by multiplying that multiplier  with  the estimated cost to the sellers. A multiplier is the ratio between the original cost and  the

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cost  of replacement.  It is one of the methods of  arriving at  the hypothetical cost of replacement at a  future  date. But  where  the  cost of replacement  is  available  through quotations  and  these quotations are not  disputed  by  the Union it would not be necessary to resort to a  hypothetical multiplier  or if the multiplier must be ascertained it must be  the ratio of the cost to the employer and the  estimated cost of replacement actually proved through the  quotations. According  to the Company in the case of old  machinery  the multiplier so calculated would be-      1950-51              ....3.98      1953-54              ....7.83      1954-55              ....3.49      1955-56              ....2.47      1956-57              ....4.75      1957-58              ....2.29 786 The total cost of replacement of old machinery on the  basis of  these multipliers or in the alternative on the basis  of the  quotations would then come to Rs. 121.70  lacs  instead Rs.  85.62  lacs, the difference being of  Rs.  36.08  lacs. Therefore,  even if the divisor of 7 uniformly_  applied  by the Tribunal in Annex. A were to be accepted, as correct, Rs. 36.08/7=Rs. 5.16 lacs would  have to be added for rehabilitation requirement for each of the  bonus  years.   If that is done  the  entire  available surplus found by the Tribunal would be wiped out. It will be seen from the Tribunal’s Annex.  A that so far as new machinery is concerned the Tribunal accepted the figures of original cost and the quotations furnished by the Company and worked out multipliers for/all the years from 1950-51 to 1959-60  by simply dividing the quotations by  the  original cost.   The question is, should not the Tribunal  have  also followed  the same method in the case of old machinery  when it had before it the estimated cost to the seller, i.e., the cost  of  old machinery if purchased as new in the  year  of installation and the quotations for that machinery.  If that were  done  there  would be no necessity of  finding  out  a notional  multiplier.   In that event as  seen  above  there would be a difference of Rs. 36.08 lacs which would have  to be  added to the figure of Rs. 85.62 lacs worked out by  the Tribunal  as  total rehabilitation cost in  respect  of  old machinery. Mr.  Ramamurti however argued that though the Union had  not disputed  the quotations those quotations were for the  year 1963-64 when the Tribunal was adjudicating the dispute, that it is always necessary to first find out the multiplier  and then  work out the rehabilitation cost and that the cost  of machinery in the bonus year or years must be reflected while working  out  the rehabilitation cost even if  the  year  of replacement worked out from the average life of machinery is later.   It is now well established that in the case of  old machinery  the employees cannot insist that  such  machinery should  be  replaced  by old  machinery.   For  working  out rehabilitation cost of such machinery it is the cost of  new machinery that is to replace the old which has to be  taken into  consideration.  The Company as aforesaid produced  two kinds  of  figures  both  accepted  by  the  Union  and  the Tribunal:  (1)  the estimated cost to the seller if  he  had purchased  the old machinery as new in the respective  years of  its  installation  and  (2)  quotations  of  prices   of machinery  which would replace it.  The Tribunal had  before it thus the cost of the machinery if it were new in the year of  installation  and  the cost of its  replacement  by  new

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machinery.   There  was therefore no  particular  reason  in distinguishing  the  old  from the  new  machinery  for  the figures of costs and replacements in both the cases were  on the  footing  that  the old  machinery  was  new  machinery. Therefore  since  the Tribunal accepted the  quotations  and worked  out the multiplier in the case of new  machinery  by dividing  the quotations by the original ’cost it  ought  to have 787 followed the same method in the case of old machinery as  it had  before it the cost of the old machinery as new and  the cost or replacement, both unchallenged by the Union. The question still is whether the quotations can be the sole criterion   for  working  out  rehabilitation   cost.    The principle accepted in the Full Bench formula and approved by this Court in the case of Associated Cement Co. Ltd (1)  was that payment of bonus is in recognition of the  contribution of  labour  in  the profits earned by the  industry  and  to assist labour to overcome as far as possible the  difference between the actual wage and the living wage.  The Formula at the  same  time accepted the point of view of  the  industry that   investment  made  by  it  must  imply  a   legitimate expectation  of  securing recurring returns and  that  could only be ensured by machinery being continuously kept in good working order.  Such maintenance would necessarily be to the advantage  of the labour, for, the better the machinery  the larger  the earnings and the brighter the chance of  earning bonus.   It  is on this twin consideration that  the  amount necessary for rehabilitation is recognised as a prior charge on the gross profits when surplus profit for distribution as bonus is being worked out.  It is true that depreciation  is allowed by the tax laws but that is only to the extent of  a percentage on the written down value.  The depreciation fund set apart on that basis would obviously be insufficient  for rehabilitation  and therefore an extra amount would have  to be annually set apart notionally to make up the  deficiency. That  is  the  reason  for the  Full  Bench  formula  having accepted the industry’s claim to rehabilitation in  addition to  the  admissible depreciation.  While  ascertain  in  the claim of rehabilitation the Tribunal has first to  ascertain the  cost  of  the machinery to the  employer  and  then  to estimate its probable future life.  It then becomes possible to  anticipate  approximately the year  when  the  machinery would need replacement and it is the probable price of  such replacement at such future date that ultimately decides  the amount  to  which  the  industry  is  entitled  by  way   of replacement  cost.   The  question is how  to  estimate  the probable  price  of  machinery  at  such  future  date?   As observed  in  the Associated Cement Company’s  case(1)  such probable price can be considered itemwise where the industry does  not  own too many factories and In itemwise  study  of machinery  is reasonably possible.  It is when the  industry owns several factories and the number of plant and machinery is so large that it becomes difficult to make an estimate of replacement cost itemwise that the estimate has to be block- wise.   In  either  case the Tribunal has  to  estimate  the probable   cost  of  replacement  at  the  time  when   such replacement  would  become due.  Such  in  estimate  depends obviously on several uncertain factors.  The estimate of the probable   life   of  machinery  is  itself  a   matter   of anticipation and (1) [1959] S.C. R. 925. L/p(N)7SCI-11 788 the  estimate of the probable trend of price during the  In-

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tervening period is also to a degree a matter of conjecture. However, the entire process of ascertaining replacement cost is  hypothetical depending largely on expert  evidence.   It would  appear  therefore that whenever it  is  possible.  to estimate itemwise the probable cost of machinery in the year of replacement, such a method is not only permissible but is more desirable.  The block-wise estimate has to be  resorted to when item-wise estimate is not possible.  Where therefore there is clear evidence of the probable price of each  piece of machinery itemwise when replacement is to become due,  it would be more accurate to proceed on the basis of such price and it would not be necessary to find out multipliers,  such multipliers being after all the ratio between the: cost, and the probable cost of replacement, ascertained from the trend of prices during the intervening years.  The multiplier thus is  at  best an approximation arrived at from the  trend  of price  level during the intervening period.  But  where  the cost of replacement is ascertained from quotations of prices for the year of replacement such cost is more accurate  than a  notional  one  worked out from  the  multiplier.   It  is therefore not always necessary to arrive at a multiplier for estimating the probable cost of replacement. In the instant case the Tribunal estimated the life for  old machinery at 10 years and that for new machinery at 15 years after taking into consideration the fact that the  machinery was worked at least since 1955-56 on three shifts a day  and the  fact that it is being used for manufacturing  precision machines.   On  this basis the old  machinery  installed  in 1950-51  became due for replacement in 1960-61 and the  rest of  it installed in succeeding years would become due  after 10 years from the respective years of its installation.   It is  in  evidence  that though the average life  of  the  old machinery  was  exhausted it was still being  worked  though uneconomically.   It  was agreed that the  entire  machinery needed  immediate replacement and this fact was accepted  by the  Tribunal.   It  is well established  that  an  employer cannot be allowed to postpone the date of replacement on the footing  that he has operated the machinery in  fact  beyond its  average  life and thus boost the  cost  of  replacement taking  advantage of the rise in price every year.   In  the instant  case  however  ’that  cannot  be  said  to  be  the position.  As stated earlier, the quotations produced by the Company  represented  an average price as near  as  possible prevailing  during the period for replacement.   Since  they were not disputed by the Union they were the best  available data.   There  was  therefore all the more  reason  for  the Tribunal  to  have worked out the cost of  replacement  from these  undisputed  quotations instead of  working:  out  the multipliers  and  then arriving at the total  re.  placement cost.   On  the  basis  of  these  quotations  even  if  the multipliers  were to be worked out the multipliers  and  the cost of replacement of old machinery would be as follows: 789 ------------------------------------------------------------        Old machinery esti-   Replacement cost     Multiplier Year   mated cost to the     proved byquota-        seller if he had pur- tions disputedby        chased as new in the  the Union        year of its installa-        tion not disputed by           the Union ------------------------------------------------------------                              (Rs. in lacs.)   (Rs. in lacs) 1950-51     20.05                79.72            3.98 1953-54      1.86                14.57            7.83

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1954-55      2.93                10.25            3.49 1955.56      0.45                 1.11            2.47 1956-57      2.10                 9.97            4.75 1957-58      2.65                 6.08            2.29 -----------------------------------------------------------             30.04               121.70 ----------------------------------------------------------- The  replacement  cost thus arrived at would be  Rs.  121.70 lacs  as against Rs. 85.62 lacs as worked by  the  Tribunal. Indeed,  where  the cost of replacement is  proved  itemwise from  price  quotations and they are undisputed  it  becomes difficult  to appreciate how the total cost  of  replacement can be less than the cost proved through quotations. Counsel for the Union, however, urged that while working out the  replacement cost it is the cost during the  bonus  year which  is  relevant  and  therefore  though  the  Union  had accepted  the  quotations  they  would  not  be  the  proper criterion  and the price prevalent during each of the  bonus years  would  be the relevant price.  He also  argued  that. even  if  the  quotations were to be  accepted  as  cost  of replacement  the  prices of only those  machines  which  are required for replacement and not for expansion which can  be the  basis of estimation.  As regards the first argument,  a similar  contention  was raised in Associated  Cement  Co.’s case(1) and was rejected.  At p. 967 of the report the Court said: "What the Tribunal has to do in determining such cost (i.e., probable cost of replacements) is to project the price level into the future and this can Be more satisfactorily done. if the  price  level  which has to be projected  in  future  is determined  not  only in the light of the  prices  prevalent during  the bonus year but also in the light  of  subsequent price levels." The  submission that it is the price level during the  bonus year which is the criterion therefore is not correct,.   The test is the probable cost of replacement when rehabilitation becomes   due,   If  the  bonus  year  and   the   year   of rehabilitation coincide the price (1) [1959] S.C.R. 925. 790 level  during the bonus year would no doubt be the  relevant basis.   But where they do not coincide and the due year  of rehabilitation is the year beyond the bonus year that  which is relevant is the probable cost of replacement during  that year  and the Tribunal therefore would have to consider  all relevant evidence necessary to estimate the cost during that future  year.   Where  there is  tangible  evidence  through quotations  of prices for that year and such quotations  are not in dispute the Tribunal does not have to conjecture what the   trend  of  price  level  would  be  by   taking   into consideration the price level during the intervening  period which would include the bonus year. However  this  does not mean that the Tribunal  must  mecha- nically  accept  the quotations.   The  rehabilitation  cost allowed under C the Full Bench formula is the probable  cost of  rehabilitation which while including modernization  does not   include  expansion.   But  the   distinction   between modernization and expansion may in some cases be subtle  and not  capable of clear distinction.  The  question  therefore would always be whether replacement of one machine by a  new one  is the introduction of modem machinery or one which  is an  item  of expansion.  If it is an item of  expansion  its cost  naturally has to be excluded.  The test is whether  by the  introduction  of  the  new  machinery  the   production capacity is likely to be significantly augmented, If that is

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found  the Tribunal would have to apportion the cost on  the basis  that replacement is partly modernization  and  partly expansion.  On the other hand, E if the increased production is  not significantly on the higher side it would be a  case of modernization incidental to replacement.  The question is on whom is the burden of proving whether a given replacement amounts to.expansion,or modernization.  It seems to us  that since  it is the employer who seeks replacement cost, it  is for  him  to  satisfy the Tribunal as to what  will  be  the overall  cost  of replacement and in doing so it is  he  who must  satisfy that the cost is of replacement only and  does not  include  any expansion of machinery.  Counsel  for  the Union was therefore right in saying that the Tribunal has to satisfy itself that no cost of expansion is injected in  the rehabilitation cost.  In the present case, however, it  does not  appear from the record that any question  of  expansion Garose as the Union accepted the quotation as equivalent  to the replacement cost.  Consequently, the Tribunal  proceeded on the footing that the entire machinery had become due  for replacement  and  the prices proved by  quotations  were  of machines  to be replaced in the process of  replacement  and modernisation  and  not expansion.   According  to  Rajendra Mills  Ltd(1) the employer has to discharge this  burden  by adducing  proper  evidence  and giving the  other  party  an opportunity  to,  test the correctness of that  evidence  by cross-examination  and  merely bringing on  record  balance- sheets,  for  instance, would not be enough. (see  also  the Workmen v. The National Tobacco Co.(2). (1)  [1960] 1 L.L.J. 53. (2)  [1966] II L.L.J. 200. 791 But in the present case there is no question of the  Company not having properly discharged the burden, for, it not  only produced   balance-sheets  but  also  produced   statements, quotations  and  examined two expert  witnesses,  Jones  and Desai.    These   witnesses  were  cross-examined   on   the statements relied on by the Company in regard to the cost to the Company, the estimated cost of replacement, the  average life  of  machinery etc.  The Union  also  the  Confidential Annexs.   1  and  2  which  showed  itemwise  the  cost   of replacement  as  proposed by the Company and  quotations  of prices therefor.  These Annexs. also indicated that where  a machine  was  to be replaced not by the same kind but  by  a modern  one it was to be substituted for two or more of  the old machines.  This was presumably done to avoid  expansion. It is true that in respect of the old machinery installed in 1953-54  and 1956-57 the multiplier calculated on the  basis of the quotations comes to 7.83 and 4.75 respectively  while it  ranges from 2.29 to 3.98 for the rest of the years.   At first sight the multiplier might suggest that there might be an element of expansion in the case of those machines.   But it  was  pointed  out that the prices  of  those  particular machines had gone unusually high and furthermore that in the process  of  replacement the modern machines which  were  to replace  the old ones were in the approximate proportion  of one  for two.  It cannot therefore be validly said that  the Company  had not placed sufficient materials to  enable  the Union  to check up by cross-examination whether this was  a, case of expansion or not. Mr.  Ramamurti’s  contention next was that even  though  the quotations  were not disputed by the Union, taking  them  as the  sole basis for estimating the replacement cost was  not satisfactory as the Union had qualified its acceptance by  a reservation that it did so except for machinery installed in the  bonus  1 years.  This argument does not  appear  to  be

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tenable.   Exhibit M2 shows that so far as the  bonus  years are  concerned  old machinery was installed in  1956-57  and 1957-58  only.  The cost of such machinery for  1956-57  was Rs. 1,39,871 and that for 1957-58 was Rs. 1,76,730.  On  the basis of the Union’s reservation the Tribunal did not accept the  quotations for machinery installed in those  years  and fixed  the  replacement  cost on the  basis  of  multipliers calculated by it de hors the quotations.  It is difficult to comprehend  such an approach by the Tribunal.  The  Tribunal accepted  the  quotations  in  regard to  the  rest  of  the machinery  and  worked out the multiplier on  the  basis  of those  quotations.   The  Union  did  not  challenge   those quotations and the multiplier calculated therefrom.  If  the quotations  for the new machinery for all the years and  for old  machinery for the years, except the bonus  years,  were accepted  by  the Union and the Tribunal also, there  is  no reason why the quotations for the bonus years could be  said to be unacceptable., No objection to the replacement cost of the  new  machinery was taken even in regard  to  the  bonus years.  As regards the old. machinery the Union accepted the Company’s  figures  both as to cost to the Company  and  the estimated cost to the seller if he had 792      purchased  it as new.  Even if a multiplier has  to  be calculated  it  would  be the ratio  between  the  estimated sellers  cost  and  the probable cost  of  replacement.   So calculated both the old and new machinery stand on the  same footing because it is the seller’s estimated price if he had purchased  it new in the year of its installation  that  was taken by the Tribunal for arriving at the multiplier.   That being  so,  the multiplier in both the cases  would  he  the ratio between the cost in the case of new machinery and  the estimated  cost to the seller in the case of  old  machinery and  the cost of replacement proved by the  Company  through quotations.  If the quotations were acceptable to the  Union in  regard to new machinery and the old machinery  installed in  the  years  except the bonus years it  is  difficult  to understand how quotations for the old machinery installed in bonus years could be questioned especially as the Union  did not  produce  any data, to prove them incorrect.,  In  these circumstances,  we  are  of the view  that  the  multipliers arrived  at  by the Tribunal in the case  of  old  machinery ,were   not  correct.   The  Tribunal  should  have   either calculated  the replacement cost from the quotations  proved by  the  Company  itemwise  or if it had  to  work  out  the multiplier  it should have done so by finding out the  ratio between  the  estimated cost to the seller accepted  by  the Union  and  the  quotations  proved  by  the  Company.   The deficiency in following this method comes to Rs. 36 lacs and odd as stated earlier. Regarding the new machinery purchased during the bonus years the  Tribunal  held that the price rise for  such  machinery cannot  be  taken  to be more than zero.   In  Ex.   M2  the Company has given the quotations for this machinery and  has worked  out therefrom the multiplier for each of  the  bonus years,  viz., 2.35 for 1956-57, 3.37 for 1957-58,  1.48  for 1958-59  and  1.66  for  1959-60.  Presumably  the  Tribunal thought that though the prices for this machinery in 1963-64 were  available, considering that its life was 15  years  it was  too early to find out with any precision the  trend  of prices  during  the  intervening years.   With  the  gradual growth   of   indigenous   production   and    corresponding availability of these machines it would be difficult to  say whether the same trend would continue or not by the time the year for its replacement was reached.  It is not possible to

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say therefore that the Tribunal’s view that the price  rise of such machinery should be taken as zero was  unreasonable. In the case of machinery purchased in 1950-51 and onward its period of replacement would commence from 1965 and  onwards. It was possible from the quotations produced by the  Company to  predicate for such machinery the trend of price but  not so in the case of machinery purchased in very recent  years. In their case the quotations may not be taken for granted as showing any definite trend in price level. As  stated  earlier, the Tribunal has given in Annex.   A  a uniform   remainder  life  of  7  years  to  old   machinery irrespective of the year of its installation.  This. in  our view, is not correct.  Taking 793 the life of old machinery to be 10 years, the old, machinery purchased  in 1950-51 would require replacement  in  1960-61 and so on.  ’In. that case the remainder life in the  bonus year  1957-58  of old machinery installed in  1950-51  would clearly be 3 years, of old machinery installed in 1953-54, 6 years,  of old machinery installed, in 1955-56 8  years,  of machinery installed in 1956-57 9 years and that installed in 1957-58  10 years.  The divisor therefore could not  be  the uniform  7  for all these years but a graduated one  on  the basis  that  the estimated life of old machinery was  10  In estimating  the rehabilitation requirement of each year  the graduated divisor should have been used. The  question  which raises a serious  controversy  is  with regard  to  the  figure  of Rs. 24.35  lacs  found,  by  the Tribunal  as the total cost of rehabilitation in respect  of machinery  both old and new installed in 1950-51.   Dividing this figure by 7 as the remainder life for both the types of machinery  the  Tribunal  allowed  Rs.  3.48  lacs  as   the rehabilitation  requirement for that year.  Counsel for  the Company  objected to the Tribunal’s calculations on  various grounds.   It will be seen from column 7 of Annex.   A  that whereas  the Tribunal accepted the Company’s quotations  for new machinery it did not do so in the case of old  machinery and  calculated instead the replacement cost by means  of  a multiplier.   It is difficult to say on what  principle  the multiplier  3.36 for old machinery was adopted  except  that the Tribunal adopted the same multiplier which it calculated in  the  case  of new machinery by  working  out  the  ratio between the cost to the Company and the price of replacement as  appearing  from  the  quotations.   Since  the  Tribunal adopted that principle for new machinery it would be logical that it should similarly do so in the case of old  machinery also  as  the basic cost adopted was the cost price  to  the seller  if he had bought that machinery as new  in  1950-51. The  total cost of machinery old and new would in that  case be  Rs.  54.77 lacs plus Rs. 75 lacs, i.e. Rs.  133.77  lacs instead  of  Rs. 54.77 lacs less 5 % break  down  i.e.,  Rs. 53.96  lacs for new and Rs. 67.37 lacs for old machinery  as calculated  by the Tribunal.  The figure of Rs.  67.37  lacs was arrived at by multiplying Rs. 20.05, the estimated  cost to  the  seller  by the multiplier 3.36.  According  to  the Tribunal the gross replacement cost would be Rs. 121.33 lacs instead  Rs.  133.77 lacs.  The figure of  Rs.  121.33  lacs arrived at by the Tribunal cannot be sustained as it was not justified  in  calculating  replacement  cost  for  the  new machinery  in  one  way and that for the  old  machinery  in another way. The  next miscalculation said to have been committed by  the Tribunal  was in deducting the depreciation for  the  entire old machinery installed during 1950-51 to 1957-58, i.e., Rs. 30  lacs from the total replacement cost for  1950-51.   The

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Tribunal took the whole of the cost of old machinery to  the seller,  i.e., Rs. 30 lacs, as depreciation.  For  that  the Tribunal derived support from the 794 decision in South India Millowners’ Association and Ors.  v. Coimbatore  District  Textile Workers’,  Union  and  Ors.(1) where while dealing with old machinery. this Court has  said that where purchase price is determined but it is  difficult to ascertain the depreciation amount thereafter then at  the highest  the whole of the purchase money would be  taken  as depreciation amount. Assuming  that the Tribunal was entitled to treat the  price of  the old machinery, viz., Rs. 30 lacs as depreciation  it was  not  correct  on  its  part  to  deduct  it  from   the replacement  cost.  The reason is that it also deducted  Rs. 48.8  3 lacs (to which we. shall presently refer  to)  which amount  includes depreciation of Rs. 30 lacs.  The  Tribunal thus  deducted Rs. 30 lacs as depreciation twice over.   The deduction of Rs. 30 lacs was thus clearly an error. Counsel  for  the Company next objected to the  sum  of  Rs. 48.83 lacs having been deducted from rehabilitation cost  in respect  of  machinery, old and new, installed  in  1950-51. The  objection was two-fold: (1) that the Tribunal erred  in deducting  the whole of this amount from the  rehabilitation cost in respect of 1950-51 machinery, and (2) that the  said amount  represents  total deprecation,  i.e.,  the  notional Written  down value of all machinery up to the year  1956-57 and  is shown as such in the balance-sheet for 1956-57.   It was urged that, since this amount represents depreciation on various  kinds  of  assets,  viz.,  bungalows,  plants   and machinery,   cars  and  trucks,  furniture  and  tools   and implements, the whole of this amount should not be  deducted when calculating rehabilitation provision for the  machinery of  1950-51  and should be deducted  only  when  calculating rehabilitation  provision for each item in respect of  which this depreciation has been included in the accounts.  We  do not  think that this submission can be accepted.  No  doubt, the  sum  of Rs. 48.83 lacs represents  depreciation  up  to 31-3-1957 in respect of plant, machinery, buildings, as well as other items of property, but there is no principle  which requires  that depreciation fund in respect of a  particular item must only be utilised in rehabilitating the same  item. The Tribunal held that the entire depreciation fund must  be utilised for rehabilitation of those items of property which require  rehabilitation at the earliest point of time,  that is the machinery of 1950-51 which needed replacement earlier than the other items of property.  We do not think that this decision  of  the Tribunal was in any  way  unreasonable  as would justify interference. As regards the second objection the principle is that  while arriving at the rehabilitation cost deduction should be made of all available funds.  It was argued that an amount  which is a notional depreciation mentioned in the accounts for the purpose only of showing the true Value of fixed assets would not  be a reserve which in point of fact can be said  to  be available for replacement, and that it is on account of this that the decisions mention reserves including (1)  [1962] 1 L.L.J. 223. 765 depreciation  reserve which, if available, are liable to  be deducted  from rehabilitation cost.  The contention is  that this  amount being merely a notional depreciation is a  mere paper  entry and does not represent any  available  reserve. Reliance  was placed on G. F. Mills v. Its Workmen(1)  where the  Court set aside deduction of Rs. 30 lacs;  the  Company

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had raised a debenture loan of Rs. 50 lacs on credits on the ground that that amount was locked up in Pakistan and  could not be brought to India for the Company’s use. it was argued that  the principle thus is that the amount to  be  deducted must   in   reality  be  available  to  the   employer   for replacement. As found by the Tribunal the Company’s fixed assets were  of the value of about Rs. 110 lacs.  The Union’s contention was that as against this amount the Company’s subscribed capital was Rs. 60 lacs; the Company had raised a debenture loan  of Rs. 50 lacs on the security of its fixed assets and thus the subscribed capital and the debenture loan were sufficient to meet the whole cost of the fixed assets.  On this basis  the Tribunal  upheld the Union’s contention that Rs. 48.83  lacs shown  as  depreciation were available  towards  replacement cost  as no part of it could have gone in the investment  of fixed assets.  Counsel for the Company, however, pointed out that the debenture loan was raised in’ 1958-59 and  therfore that  amount  cannot  be said to be available  at  any  rate during  the year 1956-57.  But this fact taken in  isolation does not furnish a correct picture of the fund available  to the Company during the bonus years.  The balance-sheets show that  besides the said loan of Rs. 50 lacs the  Company  had obtained’a,  secured  loan of Rs. 6.50 lacs in  1956-57  and another loan of Rs. 24.68 lacs in 1957-58.  Except producing the balance-sheets the Company led no evidence to show as to how  these  loans  had been  utilised,  whether  as  working capital,  or  in acquiring fixed assets.   Apart  from  this fact, we do not see how the fact that the debenture loan was raised in 1958-59 makes any difference.  Though the life  of a  large part of the machinery had run out the  Company  had not replaced any of it and was carrying on its work with the worn out machinery even though its working was uneconomical. The Tribunal has found and the parties also were agreed that the   entire  machinery  required   immediate   replacement. Therefore, the question was how much rehabilitation cost the Company  would  require.   In  calculating  such  cost   the Tribunal  was  entitled to take note of the fact of  Rs.  50 lacs having been raised as debenture loan on the security of its  fixed assets presumably because that loan was  required for  rehabilitating  the  fixed assets.   Even  so,  Counsel argued,  the question would still be whether Rs. 48.83  lacs represented an available fund for rehabilitation or  whether they  represented a mere paper entry for showing  the  true value  of  machinery in 1956-57.  In our view..  it  is  not necessary for us to go into the question whether a sum shown as notional depreciation without its being shown as  reserve can be treated or (1) A.I.R. 1958 S.C. 382. 796   not  as  a fund available for rehabilitation  nor  whether such depreciation is or is not deductible even if it is  not available as a fund.  The Company produced, Ex.  M-4 showing the,   amount  which  according  to  it  was  required   for rehabilitation  for  the  bonus years.   According  to  that statement  the Company would require Rs. 110.20  lacs, Rs. 127.06  lacs,  Rs. 149.87 lacs and Rs. 155.91 lacs  for  the four bonus years respectively.  In working out these amounts the    Company  itself  deducted Rs.  48.25  lacs  from  the rehabilitation requirement for the year 1956-57 and  pointed out  in  a  footnote that that amount was  comprised  of  an investment  of Rs. 18.22 lacs in stocks and shares  and  Rs. 30.03 lacs as depreciation, taking the entire estimated cost to the seller of old machinery if such seller had  purchased it  as  new.  In face of this admission it is  difficult  to

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appreciate  how  the Tribunal can be said to have  erred  in treating  Rs.  48.83 lacs as available fund.   We  may  also mention  that before the Tribunal the argument was not  that the  amount  of  Rs.  30.03  lacs  was  merely  a   notional depreciation  and  not  a fund  actually  available  to  the Company.  The Company’s contention on the contrary was  that the  whole of Rs. 48.83 lacs was utilised in  fixed   assets and therefore was not available for replacement.  The Tribu- nal  rejected that contention on the ground that except  for the balance-sheet which did not give precise information  as to how that amount-was deployed by it. the Company had  not produced. its accounts to show that that amount was utilised towards acquiring fixed assets.  Counsel argued that if that was the view of the  Tribunal the Company ought to have been given an opportunity of showing its sources of fixed assets. There  is no merit in this contention.  It was  the  Company who  had  the necessary information.  The onus  was  on  the Company to explain from its accounts and other data that the amount of Rs. 30 lacs and odd was not available.  As regards Rs.  18.22  lacs the amount being an  investment  in  liquid assets  it  is  difficult to say why the  Tribunal  was  not justified in treating it as available for rehabilitation. But the Company’s contention was that the investment of  Rs. 18.22  lacs  in shares can either be treated as  a,  trading transaction  carried out in the ordinary course of  business or  as  a  capital asset.  If it was treated  as  a  trading transaction the Tribunal ought to have allowed Rs. 1.72 lacs which  was  the loss in 1957-58 in these shares  as  trading expenditure  and  the  Tribunal ought not  have  added  that amount to the gross profits for that year.  In doing so, the Tribunal  treated  the investment as capital  asset  and  it could  not  therefore  deduct  Rs.  18.22  lacs  as  a  fund available  for  rehabilitation  cost.  We fail  to  see  any contradiction  on  the part of the Tribunal.   The  balance- sheet  for  the year 1956-57 contains two  Schedules-,  Sche dule  A  shows  fixed  assets and  Schedule  B  shows  trade investments  of the value of Rs. 18,21,571 /-.  The  Company not being an investment Company the investment of Rs.  18.22 lacs  in shares of other joint stock Companies  prima  facie represents extra capital not required as working capital for otherwise the Company could not have spared this amount  for investment in the stocks of other 797 companies.    The  Tribunal  was  right  in  treating   this investment  as a capital asset and in refusing to treat  the loss therefrom as trading expenditure.  The Tribunal at  the same  time could deduct this amount from the  rehabilitation cost   because  that  amount  was  available  to  meet   the rehabilitation cost. The investment in shares could  easily, if  the  Company was so minded, be converted into  cash  and utilised for replacement of its worn out machinery.  But  it was said that even if the amount of Rs. 18.22 lacs could  be held  deductible that figure was not correct, for the  value of  investment was ,Rs. 11.23 lacs at the close of the  year 1957-58  as shown in the balance-sheet for that year.   This contention  is not correct.  What appears to have been  done in 1957-58 was that instead of showing the entire investment of  Rs. 18.22 lacs as trade investments as in  the  previous year, the investments, were classified into investments  and current  assets.  The value of investments at the  beginning of the year is shown at, Rs. 18.22 lacs but at the close  of the  year  the shares of companies other than  the  National Bearing Company (Jaipur) Ltd., a subsidiary of the appellant company,  were  regrouped and shown as  current  assets  and their  cost was shown at Rs. 6.57 lacs instead of Rs.  13.71

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lacs  as shown at the close of the preceding  year.   Except producing the balance-sheet for 1957-58 the Company gave  no explanation before the Tribunal as to why these  investments were  re-grouped  and on what footing  they  were  revalued. Besides,  the  figure of Rs. 18.22 lacs does not  appear  to have been disputed before the Tribunal and the Tribunal  was never  told  that  the investments  during  that  year  were reduced  to  ’Rs. 11.23 lacs.  It would  not  therefore  be, right  to  say that the Tribunal erred in taking  Rs.  18.22 lacs as a, fund available for rehabilitation. The  next contention was as to 7 1/4 % interest  allowed  by the Tribunal on paid up capital instead of 8.57% claimed  by the  company.  By the Finance Act of 1959 the  provision  in the  Income-tax  Act that the Income-tax  paid  on  dividend distributed to the shareholders was deemed to have been paid on behalf of the shareholders was abrogated.  The contention was that though the corporation tax was reduced in that year from 51.5% to 45% the Company since 1959 had on the whole to bear at larger burden of tax and therefore the Company would not get a net tax free 6 % interest unless interest at 8.75% was  granted.   It  is true that  the  Full  Bench  formula, provided for payment of net interest at 6% per annum on paid up  capital,  but as pointed out in  the  Associated  Cement Co.’s cave(1) and subsequent decisions of the Tribunals  the rate  of  6 % interest is not to be  regarded  as  something inflexible.   In awarding- interest on paid up  capital  and also  on  working capital the proper approach  is  that  the industry  is entitled to a reasonable return on  investments made in establishing and running concerns it its risk.   At the same time the claim for bonus is no longer treated as an ex-gratia  payment.  It is recognised on  the  consideration that (1) [1959] S.C.R. 925. 798 labour  is entitled to claim a share in the trading  profits of  the  industry as it partially contributes to  the  same. Since  the  industry  and  labour  both  contribute  to  the ultimate  trading profits both are entitled to a  reasonable share.  While awarding interest if the Tribunal were to find that  if it were to grant 6 % interest on paid  up  capital, nothing or no appreciable amount would be left for bonus, it can adjust the rate of interest so as to accommodate reason- ably  the claim for bonus and thus meet the demands of  both as  reasonably as possible.  If the Tribunal were  to  award interest  at a rate lower than 6% after considering all  the relevant  facts  we  do  not think  that  the  employer  can legitimately  claim that it has erred in doing so.   If  the Tribunal has exercised its discretion after consideration of all  the  relevant  facts this Court  would  not  ordinarily interfere with such exercise of its discretion. These  were all- the contentions raised by Counsel  for  the Company in the Company’s appeal To the extent that we Accept as hereinabove the Company’s contentions, Annexure A to  the award  will  have to be modified.  These  modifications  are shown in the charts thereto annexed and collectively "A". We now proceed to consider the Workmen’s appeal. Counsel for the Union argued that the Tribunal ought to have fixed  the  life  of the Dew machinery at  25  years  as  is usually done and not at 15 years.  In some cases, it is true that  Tribunals  have  fixed 25  years  as  the  machinery’s average  life.  There can however no rigidity in fixing  the life  of  machinery,  since  it  differs  from  industry  to industry.  Consequently, there can be no hard and, fast rule applicable to all sorts of machinery. (cf.  The  Millowners’ Association,   Bombay(1)   and   South   India   Millowners’

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Association(2). In the present case the Tribunal had  before it evidence showing that the industry required machinery  of special  precision  and was therefore  not  comparable  with machinery such as that in textile mills for which 25  years’ life was fixed.  In suggesting the life of 25 years for this machinery  Counsel for the Union did not give  any  specific reason  except that 25 years of life has been fixed in  some cases.   He  could  not also show any instance  where  in  a similar  industry life of machinery was fixed for more  than 15  years.  The principle that the Tribunal has to  bear  in mind  is  that the life of machinery is  the  period  during which it is estimated to work with reasonable efficiency and not  the period during which it has actually been  operated, that  is, till it becomes too deteriorated for use.  (Pierce Leslie  & Co. v. Its Workmen.)(3) Since the  Tribunal  fixed the  period of 15 years after considering the  evidence  and the   nature  of  industry  there  is  no  reason  why   its determination need be interfered with. (1) [1950] L.L.J. 1247.  (2)  [1962] Suppl, 2 S.C.R. 926. (3)  [1960] 3 S.C.R. 194 at 200. 799 Counsel’s next contention was that the Tribunal ought not to have  accepted the quotations which were for 1963-64 as  the basis  for calculating the total rehabilitation  cost.   But the  quotations were never disputed by the Union.  Even  so. argued  Mr.  Ramamurti, they contained the  cost  of  spares which  at any rate ought to have been excluded.  We  confess it  is  difficult to appreciate this part of  the  argument. The  machinery  in  question  is in  a  large  way  imported machinery.  It is common knowledge that when such  machinery is purchased spares are generally included in such  purchase and  their cost must be included in the purchase price,  the reason being that in case of breakdown the Company would not have  to  wait  for an indefinite period  for  ordering  and obtaining,  the  spares.   It was then  said  that  the  new machinery  which  would replace the old might  well  contain items of expansion which the Tribunal ought to have reckoned and  excluded.  While dealing with the Company’s  appeal  we have  already  dealt with this aspect and  for  the  reasons stated  there  this argument must be rejected We  must  also reject  the argument that the Tribunal had  disregarded  the increasing trend of indigenous manufacture of machinery.  In fact; Confidential Annexs.  1 and 2 produced by the  Company contain quotations wherever possible of a number of machines of indigenous manufacture. The  next contention related to old machinery and the  argu- ment  was  that the Company had  discarded  machinery  worth about Rs. 18 lacs in respect of which the Company ought  not to  get  any rehabilitation cost.  The argument  appears  at first  sight attractive but loses its force when the  actual position  is  ascertained.  The balance-sheet for  the  year 1959-60  shows  that  machinery worth  Rs.  17.62  lacs  was discarded during that year.  Similarly tools and  implements of the value of Rs. 8.57 lacs were also discarded.  To  that extent  deductions  were made in the total  value  of  fixed assets.  In showing depreciation of plant and machinery  Rs. 10.91  lacs. being the depreciation of these  machines  were also  deducted from the total depreciation so far  shown  in the previous balance-sheets.  The result was that the  total depreciation  including  depreciation  for  machinery  added during the year was brought down from Rs’ 48.37 lacs to  Rs. 44.20 lacs.  The evidence of Desai shows that the  machines’ Ledger  maintained  by the Company shows only  the  list  of machines in actual operation-, which means that the  discar- ded  ones  are  ’not  shown in  that  list.   The  machinery

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discarded during this year was thus taken out from the fixed assets as if it did not exist.  The depreciation in  respect of  it  was also deducted from the  total  depreciation  and therefore  no rehabilitation was in  fact claimed  for  such machinery. Mr.  Ramamurti  next urged that the Tribunal ought  to  have allowed only 30% of rehabilitation cost for old machinery as was done in South India Millowners’ Associations’s  Case(1). That case (1) [1962] Spp. 2 S.C.R. 926. 800 does  not  lay down any such rule. 30% only was  allowed  in that case as an ad-hoc figure because the Association  there had  failed to produce materials showing the original  price and  subsequent  depreciation  and  this  Court  refused  to interfere  with  that figure as the Tribunal  had  no  other alternative  except  to adopt an ad-hoc  basis.   The  Court however made it clear that in the case of old machinery  the cost  price of such machinery must be ascertained  and  this can be done by enquiring for how much the machinery could be originally  purchased  when  new.   There  is  therefore  no warrant for saying that only 30% of the rehabilitation  cost can be allowed in the case of old machinery. We  cannot also agree with Mr. Ramamurti’s  contention  that the  Tribunal in calculating the rehabilitation  requirement for  the bonus years was wrong in taking only  the  notional normal  depreciation  and  not  the  statutory  depreciation including  development rebate permissible under the  Income- tax  Act.  In Associated Cement Co.’s Case(1) at p. 994,  in the  Chart prepared by this Court only. the notional  normal depreciation   was   deducted   while   the   rehabilitation requirement.   It was when the Court calculated the  Income- tax  payable by the Company that it deducted  the  statutory depreciation  from  the  gross  profits  (see  also   Bengal Kagazkal  Mazdoor Union & Ors. v. Titagarh Paper  Mills  Co. Ltd. & Ors.(2) The  last contention was that the Tribunal should  not  have rejected the bonus claim for 1956-57.  The balance-sheet for the  year  1956-57  was  published  in  December  1957,  the Company’s accounts were closed and appropriations of profits for  that  year were made latest by the end  of  1957.   The claim for bonus was raised for the first time by the Union’s resolution  of July 24, 1959, that is, more than  18  months after  the closure of accounts.  The claim for  1956-57  was thus clearly belated and the Tribunal was right in  refusing to compel the Company to reopen its accounts and to readjust appropriations  made long before the demand was raised.   It has to be remembered that a claim, for bonus is not one  for deferred wages.  Its recognition in industrial  adjudication is based on the desirability of a balance of adjustments  of the   different  interests  concerned  in   the   industrial structure  of a country in order to promote harmony  amongst them  on  an ethical and  economic  foundation.   Industrial adjudication  therefore is bound to take into  consideration delay  and  laches before it calls upon the  other  side  to reopen  its accounts closed long ago.  We do not think  that the Tribunal was in any error in rejecting the claim on  the ground  of  laches.  The principle that aches are  fatal  to such a claim has long been accepted in a series of decisions both by the Tribunals and by this Court. (1)  [1959] S.C.R. 925. (2)  [1963] II L.L.J. 358 801 Calculation of annual requirement for rehabilitation of  old machinery

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801(a) Period    Cost Cost as   Multi-    Total    Less  Balance                shown by  plier     Break-                Co. in              down                Ex. M.              Value                                     5% 1          2      3       4         5        6      7 1950-51  13.37  20.05    3.97     79.72     1.00   78.72 1953-54   1.24  1.86    7.85      11.57     0.0914.48 1954-55   1.95       2.93     3.50 10.25      0.15     10.10 1955-56   0.30   .45     2.47        1.11       0.02    1.09 1956-57    1.40    2.10     4.75      9.97       .11   9.96 1957-58   1.77    2.65   2.29   6.08      .13      5.95 801(b) Deductions              Balance         Divisor       Annual                                                      Require-                                                      ment 8                           9             10           11 (i) 48.83 Depreciation     11.67           3           3.89 (ii)18.22 Available           Resourcess     67.05                            14.48           6           2.41                            10.10           7           1.44                              1.09           8           0.14                              9.86           9           1.10                               0.95                        10 0.59                                           Total         9.57 802 (a) Period    Cost   cost as  Multi-   Total     Less    Balance                  shown by  plier             Break                  Co.in                   down                  Ex.M.                         value                                               5%   1        2       3        4              5        6      7 1950-51  16.30  16.30    3.36          54.77  0.81  53.96 1951-52   1.43    1.43    1.87           2.67    0.07   2.60 1952-53   2.18    2.18    1.47           3.21    0.11   3.10 1953-54   1.12   1.12    2.28           2.55    0.06  2.49 1954-55   3.71    3.71    1.96           6.90   0.19  6.71 1955.56   6.93    6.93   2.18         15.11     0.35  14.76 1956.57  13.11  13.11    2.35         30.80    0.66   30.14 1957-58   3.39   3.39    1         3.39   0.17    3.22 1958-59   12.95  12.95    1           12.95   0.65   12.30 1959-60   30.76   30.76    1           30.76  1.54   29.22 802(b) Deductions          Balance       Divisor          Annual                                                    Require-                                                    ment     8                  9            10               11                    53.96            8              6.75                     2.60            9              0.29                     3.10          10               0.31                     2.49          11               0.23                     6.71          12               0.56                    14.76          13               1.14                    30.14          14               2.15                     3.22          15                0.21                    12.30          15                0.82                    29.22          15                1.95 802(c) TOTAL ANNUAL, REQUIREMENT FOR OLD) AND NEW MACHINERY                       Old           New             Total 1957-58......        9.57          11.64            21.21

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1958-59......      (additional)    0.82            22.03 1959-60.....       (additional)     1.95           23.98 803(a)      Years                   Machinery              Building Total      1957-58             21.21            0.72           21.93 1958-59            22.03             0.77        22.80 1959-60            23.98              0.82        24.80 803(b)           (Figures in lacs) National Normal Depre-               Balance to be  provided ciation allowed during               out of profits      the year to be deducted          9.10                                12.83          9.00                                13.80          10.83                               13.97 803(c) Detailed  Calculations  of available surplus for  the  three bonus years                                    (Figures in lacs)                                   1957-58  1958-59  1959-60 Gross Profits                      28.34    25.36     34.92 Less Notional Normlal Depreciation  9.10     9.00     10.83                                    19.24    16.36     24.09 Less Income tax                     8.18     7.48      7.31                                     11.06    8.88     16.78 Less Wealth Tax                      0.28    0.29      .. ..                                     10.78    8.59      16.78 Less return on paid up capital       3.60    3.60       4.35                                      7.18     4.99     12.43 Less  additional  provision for  rehabilitation  for  plant, machinery and buildings           12.8313-8013.97 vailable Surplus                     Nil       Nil       Nil 804 The,  Chartst showing calculations of available surplus  for the  A  three bonus years show that in all  these  years  no surplus  remains available for distribution of  bonus  after making  provision  for  rehabilitation.  As  a  result,  the appeal by the Company must be allowed and the direction made by  the Tribunal for payment of bonus for these three  years has to be set aside.  In the circumstances of this case, the parties will bear their own costs.  The appeal by the  Union is dismissed.  There will be no order as to costs. G.C.                     Appeal dismissed. 805