05 November 1957
Supreme Court
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THE SREE MEENAKSHI MILLS, LTD. Vs THEIR WORKMEN(and connected appeals)

Case number: Appeal (civil) 217 of 1956


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PETITIONER: THE SREE MEENAKSHI MILLS, LTD.

       Vs.

RESPONDENT: THEIR WORKMEN(and connected appeals)

DATE OF JUDGMENT: 05/11/1957

BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. BHAGWATI, NATWARLAL H. IMAM, SYED JAFFER

CITATION:  1958 AIR  153            1958 SCR  878

ACT:        Industrial Dispute-Bonus-Available surplus-Determination of-        Depreciation  allowable  under  income-tax Act,  if  can  be        deducted  as  prior  charge-Part  of  depreciation   claimed        disallowed-Provision for higher amount of income-tax, if can        be allowed-Appellate Tribunal’s Power of review.

HEADNOTE:        The  workmen  demanded  bonus for the year  1950-5,  on  the        allegation  that the employers had made profits  during  the        relevant  year.   The employers resisted the demand  on  the        ground that        879        there  was a trading loss in the year and as such  no  bonus        was  payable.   To determine the available  surplus  out  of        which  bonus was to be paid, the employers deducted  out  of        their  gross profits an amount for  depreciation  admissible        under   the   Income-tax  Act.   The   industrial   tribunal        disallowed  a  portion of the depreciation  and  found  that        there  were profits in the relevant year and  awarded  three        months  bonus  to  the  workmen.   The  employers  preferred        appeals  to  the  Labour Appellate Tribunal  but  they  were        dismissed.   The  employers then applied  to  the  Appellate        Tribunal  for  a  review  and  the  Tribunal  dismissed  the        application  holding that it had no power to review its  own        decision  and  that even if it had the power  it  would  not        grant the review as no case for review had been made out.        Held,  that the whole of the depreciation  admissible  under        the  Income-tax  Act  is not allowable  in  determining  the        available   surplus.   The  initial  depreciation  and   the        additional  depreciation  are  abnormal  additions  to   the        income-tax  depreciation  and it would not be  fair  to  the        workmen  if these depreciations are rated as  prior  charges        before the available surplus is ascertained.  Considerations        on  which  the  grant  of  additional  depreciation  may  be        justified  under  the  Income-tax  Act  are  different  from        considerations  of social justice and fair apportionment  on        which  the  original  Full Bench formila in  regard  to  the        payment of bonus to the workmen is based.  That is why  only        normal  depreciation including multiple  shift  depreciation        should rank as prior charges.

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      U.P.  Electric  Supply  Co. Ltd. v.  Their  Workmen,  [1955]        L.A.C. 659, approved.        The  Labour Appellate Tribunal had the power to  review  its        own orders.        M/s.  Martin Burn Ltd. v. R. N. Banerjee, [1958] S.C.R .5I4,        followed.        The  method  adopted by the industrial tribunals  in  deter-        mining the trading profits of the employer is an  industrial        dispute, does not conform to the requirements and provisions        of   the  Income-tax  Act,  and  it  would,  therefore,   be        fallacious  to assume that gross profits determined  by  the        industrial  tribunal can be taken to be gross  profits  that        would  necessarily be taxable under the Income-tax Act.   In        determining  the  available  surplus for  payment  of  bonus        provision  for a higher amount of incometax cannot  be  made        merely   because  the  claim  to  initial   and   additional        depreciation  has been disallowed which increase the  amount        of gross profits.

JUDGMENT:        CIVIL APPELLATE JURISDICTION: Civil Appeal No. 217 of 1956.        Appeal by special leave from the decision date                                    880        December 7, 1953, of the Labour Appellate Tribunal of India,        Madras, in Misc.  Case No. 111-C. 387 of 1953.        A.  V.  Vishwanatha  Sastri  and  S.  Subramanian  for   the        appellants.        M. S. K. Sastri, for the respondents.        1957.   November 5. The following Judgment of the Court  was        delivered by        GAJENDRAGADKAR  J.  These  three appeals arise  out  of  two        industrial  disputes  Nos.  24 and 26 of  1951  between  the        appellants  and their workmen.  Dispute No. 24 of  1951  had        arisen  between  the  management and  workers  of  the  Sree        Meenakshi  Mills  Ltd., Madurai, whereas dispute No.  26  of        1951,  was  between  the  management  and  workers  of   the        Thiakesar  Alai  Manapparai.   Both  the  disputes  were  in        respect  of bonus claimed by the workmen for the year  1950-        51.   The workmen claimed bonus for the year 1950-51 on  the        allegation  that the two mills constituted one unit and  had        made  profits during the relevant year.  On the other  hand,        the  appellants  contended  that  the  two  mills  were  two        different units and the claims for bonus made by the workmen        against  them should not be considered together.   According        to  the  appellants, during the relevant year  there  was  a        trading  loss  and  as  such no bonus  was  payable  to  the        workers.  The Industrial Tribunal rejected the pleas  raised        by the appellants and held that the two mills formed part of        the same unit.  It also came to the conclusion that for  the        year in question there was a surplus of Rs. 2,87,676 against        which the workmen’s claim for bonus was justified.  That  is        why the tribunal awarded three months’ bonus to the workmen.        Against  this decision the appellants preferred two  appeals        Nos. 133 and 134 of 1952 to the Labour Appellate Tribunal of        India at Madras.  In these appeals the appellants challenged        the  findings  made by the tribunal against them  and  urged        that  bonus was not payable during the relevant  year.   The        workmen  also preferred an appeal, No. 168 of 1952,  and  in        this  appeal they claimed a larger bonus than what had  been        awarded by the tribunal below.  The        881        appellate  tribunal  confirmed the finding of  the  tribunal        that the two mills formed part of the same unit.   According

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      to  the  appellate tribunal, the net surplus  available  for        distribution as bonus came to Rs. 2,57,496.  The claim  made        by  the  appellants  in respect of  various  deductions  was        examined  by  the  appellate tribunal  and  deductions  were        substantially,  disallowed  in respect of three  items.   In        respect  of  an  amount  of  Rs.  8,43,927  claimed  by  the        appellants  as depreciation on machinery and  buildings  the        appellate tribunal concurred with the industrial tribunal in        holding  that the claim only for a sum of Rs.  4,00,000  was        admissible;  in  other  words, a  claim  for  deducting  the        balance of Rs. 4,43,927 was disallowed.  It is this  finding        in  particular with which we are directly concerned  in  the        present appeals. it may be pointed out at this stage that in        determining   the  amount  of  net  surplus  available   for        distribution  as bonus, the appellate tribunal  agreed  with        the industrial tribunal that the provision for taxation made        by  the  appellants  to  the  extent  of  Rs.  1,75,000  was        adequate.   In  the  result, the appeals  preferred  by  the        appellants  as  well  as the  respondents  failed  and  were        dismissed  by  the appellate tribunal.   Against  the  order        dismissing  their appeals, the appellants have preferred  to        this  Court by special leave the present Civil Appeals  Nos.        218 and 219 of 1956.        The appellants had also preferred an application for  review        before the Labour Appellate Tribunal, Misc.  Case No. III-C-        387 of 1953 (Review) on the ground that the order passed  by        the   Labour  Appellate  Tribunal  was  patently   erroneous        inasmuch as there was a mistake apparent on the face of  the        record  which  should  be  corrected  under  the   appellate        tribunal’s  powers of review.  The appellate  tribunal  hold        that  it  had no power of review and that,- even if  it  bad        such a power, no case had been made out for the exercise  of        such power because there was no mistake apparent on the face        of the record which could not have been discovered whet) the        order was made in the presence of the parties.  Against this        decision,  the  appellants have preferred to this  Court  by        special leave the present Civil A peal No. 217 of 1956.        882        In  appeals Nos. 218 and 219 of 1956, the main  point  which        has been urged before us on behalf of the appellants is that        the  appellate  tribunal  erred in law  in  disallowing  the        appellants’ claim in respect of depreciation debited by  the        appellants  to  the extent of Rs. 4,43,927.  In  the  appeal        preferred against the order passed by the appellate tribunal        refusing to review its decision, it has been urged before us        by the learned counsel for the appellants that the appellate        tribunal was in error in holding that it had no jurisdiction        to  review  its decision under 0. 47 of the  Code  of  Civil        Procedure.   It has also been argued that on the  merits  it        was  wrong  to have held that the appellants had  failed  to        make out a case for the exercise of the said jurisdiction.        It  may be relevant at this stage to set out  the  financial        position  of  the  appellants during the  relevant  year  as        summed up in the judgment of the appellate tribunal:        "Net Profit as per Ex. M. 1          ... Rs. 2,40,302             Add the sum wrongly debited             as cost of repairs etc.             (Rs. 2,57,793 minus             Rs. 1,00,000)                        ...Rs.1,57,793             Add bonus for the year 1949-50             wrongly debited to 1950-51.       ....Rs.1,49,920             Add bonus paid to clerical staff             for 1950-51                          ....Rs.37,896             Add depreciation debited by the             company:                            ....Rs.8,43,927

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           Add provision for taxation:        .....Rs.1,75,000             Add donation to a College:         .....Rs.40,000                                   Total        ......Rs. 16,44,838               Thus the gross total profit comes to  Rs. 16,44,838.               From this the following deductions have to be made:                   Depreciation allowed :          Rs.4,00,000             Bonus for the year 1950-51 paid             to clerical staff:                    Rs.37,896             Provision for taxation;               Rs.1,75,000             883             Return on capital (preference and             ordinary shares) :.                   Rs. 2,94,500             Return on the reserve used as             working capital at 4 per cent.:       Rs. 2,23,946             Provision for rehabilitation             (Rs. 6,56,000 minus Rs. 4,00,000):    Rs. 2,56,000                                 Total          ...Rs   13,87,342        Thus the net surplus available fordistribution as     bonus        comes to Rs. 16,44,838 minusRs. 13,87,342. Rs. 2,57,496."             Since in the present appeals we areconcerned only        with  the amount of depreciation debited by the  appellants,        it  would be useful to set out the depreciation analysis  as        explained  by  the representative of the appellants  in  the        Court of the Industrial Tribunal. The depreciation analysis,        according to this statement, is made thus as per the Income-        tax Act:                             Normal.       Extra.        Initial.        "(245 days) Madurai. 3,17,331     38,465         2,87,250        (250 days) Usil-     2,23,206    Including               ampatti                                                   extra. 16,077.        " It would be noticed that the total of these amounts  comes        to Rs. 8,82,329.        The  true  nature and character of the workmen’s  claim  for        bonus against their employers is now well settled.  Bonus is        not,  as  its  etymological meaning would  suggest,  a  mere        matter  of bounty gratuitously made by the employer  to  his        employees  ; nor is it a matter of deferred wages.   It  has        been held by this Court in Muir Mills Co. Ltd. v. Suti Mills        Mazdoor Union, Kanpur (1) that " the term ’bonus’ is applied        to  a cash payment made in addition to wages.  It  generally        represents the cash incentive given conditionally on certain        standards of attendance and efficiency being attained." This        decision  is based on the view that both labour and  capital        contribute to the earnings of the industrial concern and  so        it  is  but fair that labour should derive some  benefit  if        there is        (1) [1955] I S.C.R. 991.        112        884        surplus available for that purpose.  Even go, the claim  for        bonus  cannot be effectively made unless two conditions  are        satisfied; the wages paid to workmen fall short of what  can        be properly described as living wages; and the industry must        be shown to have made profits which are partly the result of        the   contribution  made  by  the  workmen   in   increasing        production.        In  determining the question as to whether the industry  has        made  profit, and, if so, how much is the net surplus  in  a        given  year,  provision has first to be made in  respect  of        prior  charges.  This principle has been recognized by  what        is often described as the Full Bench formula as laid down in        the  matter of The -Mill Owners Association, Bombay  v.  The        Rashtriya Mill Mazdoor Sangh, Bombay (1).  According to this        formula,  distributable surplus has to be ascertained  after

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      providing  from the gross profits for (1) depreciation,  (2)        rehabilitation, (3) return at 6% on the paid-up capital, (4)        return  on  the working capital at a lesser  but  reasonable        rate,  and  (5) for an estimated amount in  respect  of  the        payment  of income-tax.  It is common ground before us  that        the question as to whether the workmen’s claim for bonus  is        justified  or not must be decided in the light of this  Full        Bench Formula.        The  appellants concede that in determining the question  as        to  whether  they  have made a  trading  profit  during  the        relevant  year  the industrial tribunal is not  required  to        adopt  the same basis as under the Income-tax Act.   It  is,        however,  urged that in dealing with this question there  is        no  justification  for  not giving effect  to  the  relevant        provisions of the Incometax Act in respect of  depreciation.        Section 10 of the Income-tax Act provides for three kinds of        allowances  in  respect of depreciation.   Section  10  (vi)        deals   with  allowances  in  respect  of  depreciation   of        buildings,  machinery,  plant  or  furniture  used  for  the        purposes  of  the  business,  being  the  property  of   the        assessee,  of  a sum equivalent to such  percentage  on  the        original cost thereof to the assessee as may in any case  or        class of cases be prescribed and in any other cases, to such        percentage on the written-down value thereof as may in        (1)(1950) 2 L. L. J. 1247.        885        any case or class of cases be prescribed.  This allowance is        in  respect  of what is described  as  normal  depreciation.        Section  10 (vi) further provides for what is  described  as        initial depreciation in cases where the buildings have  been        newly  erected  or the machinery or plant  being  new,  (not        being machinery or plant entitled to the development  rebate        under el. (vi-b)), has been( installed after March 31, 1945,        a  further  sum (which shall however not  be  deductible  in        determining  the written-down value for the purpose of  this        clause)  in respect of the year of erection or  installation        as prescribed by cls. (a), (b) and (c) of s. 10 (vi).   Then        s. 10 (vi-a) provides for allowances of what is described as        additional depreciation.  This is in respect of depreciation        of  buildings newly erected or of machinery or  plant  being        new which has been installed after March 31, 1948.   Section        10  (vi-b)  also  provides  for  allowance  "in  respect  of        machinery or plant being new, which has been installed after        the  31st day of March, 1954, and- which is wholly used  for        the  purposes of the business carried on by the assessee,  a        sum  by way of development rebate in respect of the year  of        installation  equivalent  to twenty-five per  cent.  of  the        actual cost of such machinery or plant to the assessee: Pro-        vided  that  no allowance under this clause  shall  be  made        unless the particulars prescribed for the purpose of  clause        (vi) have been furnished by the assessee in respect of  such        machinery or plant." The question which arises for  decision        is  whether, in determining the question as to  whether  net        surplus  is  available for distribution by way of  bonus  or        not,  it is obligatory on the industrial tribunals to  allow        the  whole  of the depreciation admissible  under  the  said        provisions of the Income-tax Act.        Before  dealing  with this question, it may be  relevant  to        mention  one  fact on which both the  tribunals  below  have        placed emphasis in the present case.  It appears that,  when        the proceedings were pending before the industrial tribunal,        an  application  was  made by  the  workmen  requesting  the        tribunal  to  direct  the appellants to  allow  the  workmen        inspection  of accounts.  The Tribunal passed an  order  for        inspection and inspection

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      886        was allowed.  Thereupon an application was made on behalf of        the  workmen on February 28, 1952, for particulars  relating        to  the amount of Rs. 8,44,000 claimed by the appellants  by        way of depreciation.  The appellants promised to supply  the        information on March 8, 1952 ; but ultimately, on behalf  of        the  appellants,  it  was stated to the  tribunal  that  the        appellants  were  not able to give the details  called  for.        The industrial tribunal and the appellate tribunal have both        adversely  commented on this conduct of the  appellants  and        they  were presumably disposed to draw an adverse  inference        against   the  appellants  in  respect  of  the  amount   of        depreciation  in question.  Mr. Viswanatha Sastri,  for  the        appellants,  however,  contended before us that  though  the        tribunals below may have been justified in commenting on the        default  of the appellants to supply the  particulars,  that        itself  would not justify a drastic reduction in the  amount        of  depreciation claimed by the appellants.  He argues  that        the balancesheet of the appellants has been duly audited and        it  was not reasonable for the tribunals to have  disallowed        such  a  large  amount as Rs. 4,43,927 under  the  claim  of        depreciation.   It  is fairly conceded by him  that  if  the        tribunals   below  were  not  bouns  to  grant  claims   for        depreciation on what is described as initial and  additional        depreciations, then he could not challenge the propriety  or        correctness of the decision of the tribunals in  disallowing        the  items appearing in the depreciation account in  respect        of  these depreciations.  It is in the light of these  facts        that   the  question  raised  by  the  appellants  must   be        considered.        This question has been decided by a Full Bench of the Labour        Appellate Tribunal in U.P. Electric Supply Co. Ltd. v. Their        Workmen  (1).  It is true that the question of bonus had  to        be considered in this case in the light of the provisions of        the U. P. Electricity (Supply) Act, 1948.  Nevertheless  the        Full   Bench   has  dealt  with  this  matter   on   general        considerations  and has set at rest the divergence of  views        expressed  by  different  Benches of the  tribunal  on  this        point.  According to this decision, the initial depreciation        and additional depreciation        (1)  [1955] L.A.C. 659.        887        are  in  a  sense  abnormal  additions  to  the   income-tax        depreciation  and  they  are  designed  to  meet  particular        contingencies   ’and  for  a  limited  period.   It   would,        therefore,  not  be  fair  to the  workmen  that  these  two        depreciations   are  rated  as  prior  charges  before   the        available  surplus  is ascertained.  It is likely  that,  in        many cases, if these two depreciations are allowed as  prior        charges  no  surplus would be left even though  workmen  may        have  laboured during the year to the best of their  ability        and  the concern was for all purposes prosperous.  In  other        words,  according to this decision, considerations on  which        the grant of additional depreciation may be justified  under        the  Income-tax  Act are different  from  considerations  of        social justice and fair apportionment on which the  original        Full Bench formula in regard to the payment of bonus to  the        workmen  is  based.   That  is  why,  in  the  result,  this        subsequent  Full  Bench held that only  normal  depreciation        including  multiple shift depreciation, but not  initial  or        additional  depreciation,  should rank as  prior  charge  in        applying the Full Bench formula as to the payment of  bonus.        If it cannot be disputed that in industrial adjudication  it        is  not  obligatory  to adopt the  very  same  procedure  as        prescribed  by  the Income-tax Act  for  ascertaining  gross

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      profits  and  then  determining the amount  of  net  surplus        available, it is not easy to accept the appellants’ argument        that  in respect of depreciation alone industrial  tribunals        must  necessarily  and  in every case  follow  the  relevant        provisions  of  the  Income-tax Act.  If that  be  the  true        position, then we see no reason why, in respect of one  item        of debit only the technical provisions of the Income-tax Act        must  be followed in industrial adjudications in respect  of        workmen’s claim for bonus.  On the whole, the reasons  given        by  the appellate tribunal in the case of The U.P.  Electric        Supply Co. Ltd. (1) appear to us to be satisfactory ; and so        we are not prepared to accept the appellant’s argument  that        the appellate tribunal in the present case has erred in  law        in  not  allowing  the appellant’s  claim  for  initial  and        additional  depreciations.  In our opinion,  therefore,  the        main  point urged by the appellants in Appeals Nos. 218  and        219 of 1956        (1)  [1955] L.A.C. 659.        888        cannot succeed.        That  takes  us  to  the two  other  points  raised  by  the        appellants in Appeal No. 217 of 1956.  The first point which        has  been raised in this appeal by the appellants about  the        jurisdiction  of  the appellate tribunal to review  its  own        orders in appropriate cases under O. 47 of the Code of Civil        Procedure.  This Court has recently had occasion to consider        the  question about the applicability of the Code  of  Civil        Procedure  to  the proceedings before the  Labour  Appellate        Tribunal  in  Mills.   Martin Burn Ltd. v.  R.  A.  Banerjee        (Civil  Appeal No. 92 of 1957).  Section 9(1) and s.  10  of        the  Industrial Disputes (Appellate Tribunal) Act, 1950,  as        well  as the relevant rules and orders framed under the  Act        were  considered  and  it was held that the  Code  of  Civil        Procedure  applies to the proceedings before  the  appellate        tribunal  with  the result that the appellate  tribunal  can        exercise  its powers under O. 41, r. 21 as well as under  s.        151 of the Code.  It is true that in this case there was  no        occasion to consider the applicability of the provisions  of        O. 47 of the Code but that does not make any difference.  If        the  Code  of  Civil Procedure applies  to  the  proceedings        before  the Labour Appellate Tribunal, it is clear that  the        provisions of O. 47 would apply to these proceedings as much        as   s.151 of the Code or the provisions of O. 41.  We  must        accordingly hold that the appellate tribunal erred in law in        coming  to  the conclusion that it bad  no  jurisdiction  to        review  its own order under the provisions of O. 47  of  the        Code.        As  we have already pointed out, the appellate tribunal  has        also  held  that even if it had jurisdiction to  review  its        decision or judgment, in the present case it would not grant        the  appellants’ request because it had not been shown  that        the order or decision suffered from any mistake which  could        not  have been known when the order was pronounced  in  open        court  in  the presence of both the parties in  the  present        proceedings.   Mr.  Viswanatha Sastri, for  the  appellants,        argues  that  this view is obviously wrong  and  -should  be        reversed.   In support of his argument, the learned  counsel        has invited our attention to the fact that, when the appeal        889        was  pending before the appellate tribunal, a statement  had        been filed by the appellants showing that the provision  for        income-tax  had  to  be  revised in  view  of  the  findings        recorded  by  the industrial tribunal.   According  to  this        statement, no surplus was available for payment of bonus  to        workmen even on the assumption that the findings recorded by

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      the  tribunal were correct.  The appellants pointed  out  in        this  statement  that  if  an amount  of  Rs.  4,43,927  was        disallowed by way of depreciation that would necessarily add        to  the  amount  of gross profits  and  in  consequence  the        provision  for income-tax would have to  be  proportionately        increased.The   appellants’case   was   that   instead    of        Rs.1,75,000  which  had  been  allowed  by  the   industrial        tribunal  by  way of provision for income-tax, it  would  be        necessary to allow an amount of Rs. 4,75,582 in that behalf.        The appellants’ grievance is that though this statement  was        filed before the appellate tribunal, the appellate  tribunal        has not considered it at all.        On  the  other  hand, it appears from the  judgment  of  the        appellate  tribunal  that this point was not raised  by  the        appellants  before it in their arguments.  No grievance  was        made and no higher amount was claimed by them to be reserved        for taxation.  The appellate tribunal has also observed that        the point raised by the appellants in their review  petition        did  not  show that any new and important  matter  had  been        discovered which, after the exercise of due diligence, would        not  have been discovered by the parties at the time of  the        hearing of the appeal.  Besides, the appellate tribunal also        held  that there was no mistake apparent on the face of  the        record.   Technically  there  may  be  some  force  in   the        observations  made by the appellate tribunal; but we  cannot        overlook  the fact that a written statement had  been  filed        before  the  appellate tribunal expressly  and  specifically        raising this point.  That is why we propose to deal with the        merits  of the argument and not to reject it on  the  ground        that this argument had not been urged at the proper stage.        On  the  merits, the argument is that, if out of  the  total        amount  of  Rs.  8,43,927  debited  by  the  appellants   to        depreciation, an amount of Rs. 4,43,927 is disallowed,        890        that  must  inevitably  add to the  total  amount  of  gross        profits  and  if  the  total amount  of’  gross  profits  is        increased,  logically  provision  for  a  higher  amount  of        income-tax  must  be made.  Thus presented the  argument  is        simple and at first blush appears to be attractive; but  the        difficulty  in  accepting  the argument is  that  the  total        amount  of gross profits determined by Industrial  Tribunals        in  these proceedings is not and cannot necessarily  be  the        taxable  gross  profits of the employer.   We  have  already        observed  that  in determining the trading  profits  of  the        employer  in  such  disputes,  the  method  adopted  by  the        industrial   tribunals   does  not  conform   to   all   the        requirements and provisions of the Income-tax Act, and so it        would  be  fallacious  to  assume  that  the  gross  profits        determined by the industrial tribunal should be taken to  be        gross  profits that would be necessarily taxable  under  the        Income-tax  Act.  Besides, it would be relevant to  remember        that the provision for taxation in question has been made by        the appellants themselves and presumably it is based on  the        appellants  anticipation as to how much  approximately  they        will have to pay by way of income-tax.  But, apart from this        consideration,  there  can be no doubt that  the  appellants        would  get  exemption  from the  payment  of  income-tax  in        respect   of   the  amounts  of   initial   and   additional        depreciation also as shown in their books of accounts.  That        is a right which has been conferred on the appellants by the        relevant provisions of s. 10 of the Income-tax Act; and  the        benefit  which the appellants are entitled to get under  the        said  section cannot be ignored in deciding whether  or  not        the  provision  of  the sum of  Rs.  1,75,000  for  taxation        purposes is adequate or not.  We think it is not open to the

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      appellants to contend that though for the amounts covered by        the  normal and additional depreciations they would  not  be        required  to  pay income-tax, nevertheless  they  should  be        allowed to provide for the payment of income-tax in  respect        of  these  two  items merely on the  ground  that  they  are        disallowed by the industrial tribunal and have thus added to        the  total of gross profits as determined by  the  tribunal.        The adequacy        891        or   otherwise   of  the  provision  for   income-tax   must        necessarily  be  judged in the light of the  income-tax  Act        since it is under the said Act that the liability to pay tax        would ultimately be determined.  Besides, if the appellants’        argument is accepted and an amount notionally payable by way        of income-tax in respect of disallowed items of depreciation        is  added to the estimated amount of income-tax provided  by        the appellants, the very object of disallowing the two items        of  depreciation  would be substantially defeated.   On  the        other hand, the rejection of the appellants’ argument  would        not  mean any hardship because the additional amount  sought        to  be added by them in the provision for  income-tax  would        definitely not have to be paid by them.  We are,  therefore,        satisfied that the grievance made by the appellants  against        the  order  passed by the appellate tribunal on  the  ground        that  it suffers from a mistake apparent on the face of  the        record is not well founded.        It would now be necessary to refer briefly to the  decisions        of  industrial courts to which our attention has been  drawn        by the learned counsel for the appellants.  In Model  Mills,        etc.   Textile Mills Nagpur v. Rashtriya Mill Mazdoor  Sangh        (1),  the  implications  of  the  Full  Bench  formula   for        ascertainment of bonus have been explained.  It is  observed        that " the formula did not purport to direct what a  concern        should do or should not do with its own moneys.  In evolving        the formula the rights and liabilities of the parties  inter        se  in notional satisfaction of their legitimate  claims  as        two  co-operating  units  in the venture were  tried  to  be        equated.   Opinions might differ as to the weightage  to  be        attached to the various components constituting the formula.        But the formula has to be taken as a whole in order that  an        equitable  balance between the rights of capital and  labour        might be achieved for the ascertainment of bonus."        It  may  incidentally  be pointed  out  that  this  decision        recognizes that income-tax calculated on the trading        (I) (1955) I L. L. J. 534.        113        892        profits for the year must be deducted as a prior charge from        the  profits even though exemption under the Income-tax  Act        is   granted   for  the  year  in   question   taking   into        consideration  the  past year’s losses.  The same  view  has        been expressed by the appellate tribunal in Mahalaxmi Wollen        Mills  Ltd. v. ’Their Work-Workmen(1)  In this case, it  has        been held that "even if a  concern is allowed exemption from        the levy of incometax because of prior losses or  unabsorbed        depreciation,  etc.,  that  by  itself  is  no  ground   for        preventing  the concern from claiming the amount of  income-        tax it would have been liable to pay if the profits made  in        the relevant year alone had been taken into account.  Hence,        in  calculating the amount of available surplus, the  amount        of  income-tax  payable  for  that trading  year  is  to  be        deducted  irrespective  of the fact whether the  company  in        fact  pays tax for the year or not ". Similarly  in  Bennett        Coleman  and  Company, Ltd. v. Their Workmen(2)  the  Labour        Appellate  Tribunal has held that " unabsorbed  depreciation

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      and loss incurred during prior years are allowed under s. 24        (2) of the Income-tax Act to be adjusted against the profits        of  a  future year.  Where the company  claim,-,  either  to        adjust  this amount against gross profits or to deduct  such        amount  of income-tax as would be payable on the profits  if        the said two items are not to be adjusted, labour cannot  be        permitted  to refuse relief resting on unabsorbed  loss  and        depreciation  and  at the same time try to get  benefit  for        itself  by refusing provision for tax resting on those  very        items  which are permitted to be adjusted by the  income-tax        authorities  which will result in reduced income-tax  or  no        tax  at all." It would thus appear from the decisions  cited        before us that industrial tribunals have consistently  taken        the  view that income-tax calculated on the trading  profits        for  the  relevant year must be deducted as a  prior  charge        from  the  gross  profits even though the  employer  may  be        entitled to claim exemption under the Income-tax Act in view        of the fact that he had suffered losses during the  previous        year.  Prima        (1)(1956) I L. L. J. 305.        (2)(1955) 11 L. L. J. 6o.        893        facie  it  may  be said that, if  the  essential  basis  for        deciding  the workmen’s claim for bonus in a given  year  is        the existence of the net surplus available for that year, it        may  not  be permissible to question the propriety  for  the        provision for income-tax made by the employer solely on  the        ground that in view of his previous year’s losses he may not        be  called  upon  to  pay  income-tax  during  the  year  in        question.   After all, in this connection  the  calculations        are  made  by  reference to the financial  position  of  the        employer  during  the  particular year  only  and  in  these        calculations  considerations relevant under  the  Income-tax        Act in regard to the financial losses of the employer in the        previous  year would not be allowed to enter.   However,  in        the  present appeals we are not called upon to consider  the        correctness  of the view taken by the Appellate Tribunal  in        these  oases  and  so  we need not  pursue  the  matter  any        further.        Mr.  Viswanatha  Sastri has strongly relied  on  two  labour        decisions  reported in B. E. S. T. Workers’ Union v.  Bombay        Suburban  Electric Supply Ltd. (1), and Greaves  Cotton  and        Crompton  Parkinson,  Ltd. v. Its Workmen  (2).   These  two        decisions no doubt support the appellants’ arguments  before        us but, for the reasons which we have already given, we must        hold that these decisions are not sound or correct.        The  last case to which our attention has been drawn by  Mr.        Viswanatha  Sastri is the decision of the  Labour  Appellate        Tribunal in Bengal Chemical & Pharmaceutical Works, Ltd.  v.        Their  Workmen (3).  This case decides that "  in  providing        for income-tax the tax payable by the concern on its  income        earned  in  the  year for which bonus  is  claimed  must  be        ascertained.  The amount of income-tax actually paid  during        the year which is the tax of the income of the previous year        should  not  be  taken  into account."  In  this  case,  the        tribunal has observed that "for the purpose of  ascertaining        the income-tax which may be payable by the employer for  the        year in question, the figures        (1) (1957) 2L. J. II 2.        (3) (1954-53) 6 F. J. R. 590.        (2) (1956) 1 L. L. J. 486.        894        appearing  on  the expenditure side of the profit  and  loss        account  of that year have to be marshalled  and  examined."        This  case  is not of much help in deciding the  point  with

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      which we are concerned.        In  the result, the appeals fail on the merits and  must  be        dismissed  with -costs.  There will, however, be one set  of        costs in all these appeals.                             Appeals dismissed.        895