WORKMEN OF M/S. HINDUSTAN MOTORS LTD. versus M/S. HINDUSTAN MOTORS LTD., & ANR.

WORKMEN OF M/S. HINDUSTAN MOTORS LTD.

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

Norember 2 ~, 1967

!M. HIDAYATULLAH, V. BHARGAVA AND C. A. VAID!ALINGAM, JJ.J

Industrial Dispute-Bo1111s-Rehahilitatio11 surpl;1s, calcu/!:1tio11 oj-Age of machinery-Multiplier-Deductions to be made-Depreciation-Returns 011 H-·orkine caoita/ nr,d oai-1 uo canital--E-ttr-anC'OU'i i11con1c-lnterest on fixed deposits-Home delivery commission paid by foreign collaborator.

The workmen of the respondent company raised an industrial dispute about bonus claimed by them for the year 1960-61. The Industrial Tribunal applying the Full Bench Formula held that the sum needed for rehabilitation of machinery exceeded the surplus otherwise available and therefore no bonus was payable. Against this decision of the Tribunal the workmen appealed to this Court and raised various objections as ft) the manner in which the available surplus was calculated by the Trihu-na I.

HELD : (i) On the facts and .the evidence produced in the case the life· of the respondent company's machinery should be taken at an average of 15 years if the machinery is worked in two shifts. and 10 years if it is ·worked in three shifts.

The artificial rule laid down in the Income-tax Act for calculation of notional depreciation can provide no criterion at all fot determining the life of the machinery, and the Tribunal committed an error in proceed-ing on that basis. [319 HJ

The life Of machinery taken in other ca.s>~s is also net correct basis for fi.xing tLJ· life of machinery in particular case. Various factor< come _in that affect the useful life of machinery. Factors such as the qualitv of the material used in the machines, and the nature of the mate-rial on which the machines are to operate, very materially affect their life. Funher the life. of machine will also depend on the manner in which it is handled in particular factory. Consequently the correct principle is to determine the life of machinery in each case C'ln ·the evidence adduced by the parties. [3 I 9 E-F: 320 DJ

Further what has to be determined is the useful life of the machinerv rather than itS ecoilomic life. In fact one of the very major considera-:ions which should be taken into account is the actual P'"actice of the manufacturers using the machinerv and, if the evidence be available, to find out hov.' long the manufacturers continue to use the machinery as rule. r324 D~Hl ·

The fact that in the Full Bench Formula the br<'kdown value of machinery is taken at 5 % is certainly an aspect to be taken into account. but it cannot be accepted that machinery should be deemed to have useful life until it reaches the st~ge of havin.I! breakdowr valu·e of 5%-No such ahsolut~ rule can be inferred. f328 Al

The Tribunal was wrone in not takinl! into account machinerv instal-led during- the b_onus year itself for making provision for rehabilitation. 1f any machiricry is iristalk.J in th'? bonus yea.r. the company. would h-:

justified in claiming that it must immediately start making provision for 1" ~ohabili'tation, though the period for rehabilitation of that machinery would only start at the end of ·th·o bonus year. [330 A-Cl

(ii) The multipliers given by the company in the schedule originally submitted by the company which were not objected to by the workers \Vere the correct basis for calculation of the rehri.bilitation ·cost and the Tribunal should not have departed' from them. There was no justifica-tion for taking an average of the multipliers submitted at first and those submitted thereafter in second schedule. The Tribunal also was not justified in reducing the multiplier~ on the ground that the new machines which would be purchased to replace the original ones would necessarily have more productive capacity. There was no material .at all from which the Tribunal coulcL justifiably have inferred that the increase in produc-tion would be so material as to attract the principle of apportionment Iafd down by this Court in the case of the Associated Cenu~nt Co1npanies Lid. [331 A-F; 332 D-E]

(iii) Io calculating the rehabilitation requirement for the machinery the depreciation pro\ision .made in accordance with the principles of con1-mercial accounting has to be deducted from the amount that would be required to purchase the new machinery for replacement. The conten-tion tbat deduction shoUid be made onlv of depreciation reserves avail-able to the employer cannot be accepted. Such an interpretation mili-"t'ltes against the very purpose for which rehabilitation provision is allO\\'-ed., namely, to enable the industry to cover the difference between the amount of depreciation which is recouped by making provision for it in accorc1ance with the principles of commercial accounting and the a1nount that would be required to purchase the new machinery for replacement. Therefore, in the present case, the Tribunal erred when in calculatin!} the provision for re,liabilitation it took tlie entire orice of the replace-1nent machinery. as required to be provided, entirely out of profits ~'ith-out reducing tho.;: price to the extent of the depreciation provided for in th·e accounts. r333 E-334 B-FJ

(iv) The claim of the workmen that the sum shown in 1he balance-sbeet of the company as development rebate reserve should be deducted from th;:! available sur_olus mn~t be afJoWed. The mere sta'ement of the General Manager on affidavit to the effect that the reserves had been utilised as part of the ~vorking capital could not be accepted as evidence of the fact. When the balance·shePt it1:elf ':ho\ved tha~ cash amounts in the form of fixed deposits were available which were far in excess of the development rebate reserve in question, there would be no iustification for holding that this develooment rebate reserve was not avi.iilable as :i. liquid asset and had been included by the company in the working capi-tal. This development rebate reserve was liquid asset available for rehabilitation and consequently liable to· be deducted when calculating the rehabilitation requirement. [335 A-Gl( v) If some machines have fully run out their lives, they must neces-sarily be replaced out of resources available immedi~tely and -f,herc would be no justification for keeping the available resources in reserve for future rehabilitation while not providing out of those availahle re-sources fur immediate. replaC,zmen'. of machinery. There is also the aspect that an employer in order to claim more and1 more rehabilitation provision \Vil1 have tendencv to keep old blocks of machinerv running and to avoid adoption of such device it would be fair that he is required to utilise ~vailable resources at the vcrv first opportunity when the old blocks of machinerv require renlacement and cl~irn an·nnal provision for future ,1nly in respect of that machinery which will require replacement later

on. Consequently. in the present case the depreciation provision and the available development rebate ·reserve must be taken into account when calculating the annual provision for rehabilitation required for replacement of the earliest installed n1achincrv until i1: \.[1]/aS exhausted, whereafter the annual requirement for the remiiining blocks of machinery Would have to be calculated. ignoring these a\'ailabtc resources. [336 G-H; 337 C-D]

(vi) f.Jr the purpose of \\·orking -..1ut return on \li'Orking capital in the year of bonus the origin of the fund used as working capital is im-material and it cannot be said that the return must be allo\\.'ed only on reserves used as working capital and not on any other funds used as such. Ho\\·ever the fund must be available for investment before claim can he niade by the employer for return on it. [340 E-F]

But, the mere existence of reserves and funds at the beginning of the year, even taken together with their existence at the end of the year cannot lead to any inference that these reserves and funds must have formed part of the working capital during the year and could not form part of oth~r items such as fixed deposits. investments etc. The affidavit filed by the company in this connection did not exclude lhc possibility !hat they \\"ere utilised for purposes other than that of \\·orking capital. In the balance-sheet the amouiits -w·hich represented fixed assets, fixed deposits, investments and other loans and advances could not be classi-fied as part of the working capital. The items representing working capi-0 tal were r.urrent assets, stock-in-trade. sundry debts. bank and cash balances, certain loans and advances and insurance and other claims. The i:ems representing working capital had total valu~ of Rs. 498.02 lacs. Deducting from this the sum of Rs. 377.34 lacs· available from ·subscribed ca.pita! ·or other sources. there remained balance of Rs. 120.68 lacs which must have necessarily come out of the various reserves includinf! the depreciation, and this amount at least must be held to represent re-E sources actually used as working capital during the year by the company, On this amount it would be fair to allow 4% return to the company. [344 F-H; 347 D-El

(vii) The company's claim that half the amount from the fol101?ing sources, namely. (I) the profit in the profit and loss account \\"orked out at the end of the vear, (2) depreciation reserve for the year. (3) develop-ment rebate for· the vear. (4) value of discarded fixed, assets written off should be treated as fund which v.:as available during 1!he bonus year for being available for being utilised as working capital, could not he accepted. There was nothing to show whether any of these amounts be-came available to the companv during the year and if so \vhen thev came available. D47' F!

(viii) In allowing 6% return on paid-up capital in accordance \\[1]ith the Full Bench Formula no question could arise of deducting the amount<; inYested in subsidiary companies from the paidrup capital because the said investment had not be·~n held to have corn·e out of paid-up cani«d f348 Fl

(ix l The income of the con1panv fron1 interest on :fixed deposit.;; was its extraneous income which accrued to the company without any contri-bution by the workmen. This income had therefore to be excluded in -calculating the available surplus. At the same time the company could not on equitable grounds be permitted to claim the interest paid by it 0n its borrowings as business expenditure. Therefore the interest on fixed deposits was to be treated as extraneous income onlv after deducting from it the interest Paid on the borrowings. [349 D-F]

jl%8]2 SCR

t\) fhl' 1ncon1c rccci\'cd by the con1p,lny fro1n its foreign collaho-r;itors a~ comn1i~s.on on sales effected ry the ~aid collaborators of their ov. n cars in India was extraneous income to v.·hich the compan!·'s \\·ork-men made no contribution. lt was not therefore to be taken into account in cak:ul01ti-1lg the availahlc surplus. (349 (~]

(xi) Calculated in the above manner the available surplus came to Rs. 30.56 lacs. The Tribunal was not right in its decision that the com· pany \i.-.is n-.Jt in posilion to pay bonus at all. Ho~·..!'vCf. though the • company had earned large amount of profit in tbe year of bonus it had for quite large number of years been running at loss. The aYail- · able surplus being only Rs. 30.56 lacs, the workmen's demand of boJu' equivalent to six months' wages amounting to Rs. ::!4 lacs \vas too hij?.h. Jt \\'ould be just and proper to allov.· bonus at 20'if· of their annual v.·ages \\ hich \\·ould come 10 R .... 8.tio l:1cs. ! 35~ A-El Associated Cement Cotnpanies Ltd. D"·arka Cement Works. J)lrar;a c: v. If\· ll"u1k111en & Anr. 11959] S.C.R. 925. Sa.rhy & J-"cn11er /l.la:door l/11io11. ("11!c11/la \'. 1\1/s, Su.\'hy & Fan11er (/nc/ia) Ltd. {1955) L.A.C. 707, ..ll,.ork111c11 of ,\/.',_ Sa.rhy & F(Jrlll'.'r 1J11Ji(I) P1·t, Lid. v. ,\1:'\. Saxby & Fun1tcr (/udi(.) l'rii·<11e I.lei. C.t\. 152,'64 Jt. 12-4-1965, The A-fil/vwner.\" A,·~oci..1rio11. /Jo1J1bav \'. Tht• Ra\·h1riva Ji;lill Mu:door San;?h, Bo111haY, [1950] I ... L.J. 1247. The ilo11ora11· Secre1Qry South India Millo•[0]11er.~· As5ociatio11 & Ors. v. The Secretary, Coimbatore District Textile ..Vorkers' Union. ~ J 962] 2 Supp. S.C".R. 926. l\'utivna/ J:::nginerrin.i: lncluHri<·~ ltd. v. I) Tlit• Work1r1t'n & Vice. Versa, (1968) 1 S.C.R. M.ts. Tita;?hi:ir Paper .\1ills Co. Lui. '" ii.< Workmen, [1959] Supp, 2 S.C.R. 10~2. Mil/owners. A<.rocia!ion, Bombay v. Tlie Rashtriya Mill Mazdoor Sangh, [1952] 1 L.L.J. 518. I Tata Oil Mills Co. Ltd. v, !rs Workme11 & Ors. [1960] 1 S.C.R. l, Anil Starch.Products Ltd. v. Almudabad Chemical Workers' U11io11 & Ors., A.LR. 1960 S.C. 1346, Kha11desh Sp11 & Wvg. Mi/fr Co. Ltd. v. The RcL<l>triya Girni Kamgar Sangh, Jnlgaon. [1960] 2 S.C.R. 841, Bengal Ka11azknl Mazcloor Unio11 & Ors. v. Titagarh Peper Mills Company, Ltd., 11963] II L.L.J. 358 and Voltas Limit<d v. Its Workmen, [1961] 3 S.C.R. 167, col\sidered.

C1v1L APPELLATE JuR1s01cnoN : Civil Appeal No. 635 of 1965.

Appeal by special leave from the Award dated January 8. 1963 of the First Industrial Tribunal, West Bengal ;., Case No. VJII-354 of 1961.

B. Sen, Janardan Sh"rma, P. K. Ghosh and S. K. Nandy, for !he aopellants.

Niren De, Sulicitor-Grncral, M. Mukherjee and Sa•dar TJohad111'. for res?>ondent No. 1.

The Judgment of the Court was delivered by

Bhal'!lava, J. This appeal by special leave has been filed by the: workmen of Messrs Hindusta11 Motors Ltd. against the deci-' II <ion of the First Industrial Tribunal, West Bengal in dispute relating to payment of bonus for the year 1960-61. The respon-dent. M/s Hindustan Motors Ltd., (hereinafter referred to as ....

·'the Company") was established in the year 1942 and, initially. the work taken up by the Company was that of assembling of motor cars from "omponents imported from foreign countries. Later on, manufacture of components of motor cars was started and gradually the Company developed this work of manufacture of components by increasing the number of components manu-B factured by it until, at the present time, the Company is manufac-turing more than 70% of the components utilised in the cars put on the market by the Company. The work of manufacturing components was taken in hand for the first time in the year 1949, according to the reply of the Company filed on 10th January, 1962, to the statement filed on behalf of the workmen before the Tribunal. At the initial stages of its existence, the Company was running at loss and even, as late as the year 1956, the Tariff Commission's Report 011 the Automobile Industry mentioned that this Company was making loss of Rs. 8 33 per car on the Hindus-tan Landmaster which was the car put on the market by the Company at that time. Even subsequently, for several years. no profit was shown in the profit and loss account and. consequently, no bonus was paid to the workmen until the dispute about it was raised for the first time in respe{;t of the year 1959-60. We were informed that the dispute relating to the payment of bonus for the year 1959-60 is still pending before the Industrial Tribunal. while the dispute with respect to bonus for the next year 1960-61 has been decided and is now hefore us in this appeal. In this year 1960-61, the profit and loss account of the Company showed net profit of Rs. 249.71 lacs. Out of this, sum of Rs. 59.53 lacs was allocated for payment of dividend on ordinury shares @ 12 % and sum of Rs. 27 .55 lacs for dividend on preference shares @8.57%. The total amount allocated for payment of dividends was thus Rs. 87.08 lacs. In view of the fact that, in this year, the Company had earned net profit of over Rs. 249 lacs. the workmen demanded bonus equivalent to six months' wages. The monthly wage bill of the workmen is about Rs. 4 lacs, so that the total amount claimed towards bonus by the workmen came to Rs. 24 lacs. It was also stated on behalf of the workmen that. if this bonus to the extent of Rs. 24 lacs is awarded, the actual amount which the Company would have to pay will only be 55 % of this amount, because 45% representing income-tax on this amount would. be refundable to the Company from the Govern-ment.

Before the Tribunal, there was no dispute between the parties that, in crder to find out whether any surplus was available for distribution of bonus, calculations must be made on the basis of the Full Bench Formula approved by this Court in The Associated Cement Companies Ltd., Divarka Cement Works, Dwarka v. It.<

[ 1968) 2 S.C.R.

Workme11 & not her( [1]). The Tribunal, after making all other deductions from the surplus which have to be made in accordance with the Full Bench Formula and without taking into account provision for rehabilitation, arrived at figure of Rs. 87 .80 lacs as the amount of surplus available. Thereafter, the Tribunal held that sum of Rs. 373.62 lacs every year was needed for rehabilitation purposes and, since this amount very much exceed-ed the surplus otherwise available. there was no scope for granting any bonus at all. Consequently, the Tribunal decided the refe-rence against the workmen and held that no bonus was payable for chis year. The workmen have come up co this Coun against ~his decision of the Tribunal.

Jn chis appeal also, there is no dispute that the principles to be applied for working ouc che surplus available for distribution of bonus muse be those approved by chis Coun in the case of Asso-ciated Cement Companies Ltd. ( [1]). On behalf of the workmen. however, ic was urged that the Tribunal committed an error in applying the Formula in respect of five different items involved in the calcul~tion. These arc :

(I) Rehabilicacion,

( 2) Return on reserves used as working capital,

( 3) Return on paid-up capital,

( 4) Inceresc on fixed deposits, and

( 5) Home delivery commission.

Of these items, the most controversial is the first item of rehabili-uaion and that is also the most material one, because, if the figure of annual rehabilitation arrived at by the Tribunal is accepted, it is clear chat no surplus can possibly remain out of the profits earned during the year for distribution of bonus. In Che calcula-F tion of rehabilitation, various factors arc involved which have been indicated by this Court in the case of Associated Cement Companies( [1]). The factors in calculation of rehabilitation accepf-ed by the Tribunal which have been challenged by the workmen are:

( i) the divisor, which depends upon the life of the plant, machinery and buildings, the year of their installation or erection, and the residuary life which must be taken into account when work-ing out the divisor. (ii) the calculation of the multiplier for arriving at the replacement cost of the old machinery which requires rehabilitation, and

(iii) the deductions which should be made when working out the annual rehabilitation.

We shall now proceed to deal with. these points.

When the dispute was taken up for adjudication by the Tribu-nal, the Company, on 31st May, 1962 filed statements showing calculations of rehabilitation provision required for rehabilitating the plant, machinery and buildings. Amongst these statements was statement described as Schedule IA (hereinafter referred to. as "the first Schedule IA") and in that statement it was claimed on behalf of the Company that the average total life of its machi-nery was 6 years. On behalf of the workmen, it was urged that the life of the machinery should be taken to be 30 years and on this basis, after the arguments were over rehabilitation cost calculation was filed on 21st November, 1962. Thereafter, in the course of arguments on 22nd November, 1962, some fresh state-ments were filed by the Company. These statements in respect of the machinery had two new Schedules, both marked as Schedule IA. In one of these Schedules IA filed on 22nd November, 1962, the multiplier taken for replacement of the machines instal-led in various years was higher than the multiplier in the first Schedule IA. This Schedule shall be referred to as "the second Schedule IA". At the same time, as mentioned earlier, another Schedule 1 was filed and, in this Schedule IA, the multipliers were the same as in the first Schedule lA. This shall be referred to liereiriafter as "the tl}ird Schedule lA". In none of these Schedules filed, either on behalf of the Company or on behalf of the workmen, was there any classification of plant and machinery into precision or non-precision machinery. Some statements for the purpose of calculation of rehabilitation were again filed on behalf of the Company on 28th December, 1962 under the direc-F tions of the Tribunal and it appears that, taking into account the. evidence which had been led before the Tribunal, the Tribunal at this stage asked the Company to give separate Charts for preci-sion machinery and non-precision machinery. Consequently, the statements filed on 28th December, 1962 classified the machinery into precision and non-precision machinery. It seems that the Tribunal, in making this direction, was also influenced by the circumstance that, under the Income-tax Law, the depreciation allowed in respect of precision and non-precision machinery is different, from which the Tribunal inferred that precision machi-nery will have shorter life than non-precision machinery. In fact, the Tribunal was of the view that the proportion between the life of precision and non-precision machinery can be safely taken to be the same as the proportion between the depreciation allowed ih respect of the two. Proceeding on this basis, the Tri-bunal, in the statements prepared for and annexed as part of the L!Sup.C.I.168~6Award, classified the machinery into precision and non-precision machinery and worked out different life for the. two kinds of machinery. In the course of arguments before us, it was urged on behalf of the workmen that the Company not having claimed that machinery classified as precision had shorter life than machinery classified as non-precision either in the written state-ments or at the stage of filing the first Schedule IA or even the second or third Schedule 1 A, there was no justification for the Tribunal to accept this classification and work out dlfferent periods of life for different classes of machinery. Mr. Niren De. counst: appearing on behalf of the Company, in his argument before us also urged that the Company at no stage put forward the case that the machinery should be classified into precision and non-precision machinery and different life should be attributed to the two classes of machinery. According to him. the Company's case throughout has been that all machinery installed in the fac-tory of the Company has an economic. life of 6 years only, so that the Company is not prepared lo justify the decision given by the Tribunal on the basis of this. classification. Since both parties before us challenge the adoption of this classification by the Tribunal, we consider that it will be rig.ht to ignore this classifica-tion and to proceed on the basis that the total life of the machinery must be worked out on an average for all the machines installed in the factory of the Company, without making any distinction between precision machinery and non-precision machinery. As we have mentioned earlier, the contention on behalf of the l\·orkmcn was that the life of the whole machinery should be taken to be 30 years. Mr. B. Sen, cmmscl appearing on behalf of the workmen, drew our attention to number of cases, in which the life of the machinery came up for consideration either before the Labour Appellate Tribunal or before this Court in connection with calculation of rehabilitation provision. The first case brought 10 our notice was Saxby & Farmer Mazdoor Union, Calcutta v, M/s. Saxby & Farmer (India) Ltd .. Calcutta('), in which, for purposes of calculation of rehabilitation, the life of machinery was taken to be 30 years. Another case between the Workmen of M/s. Saxby & Farmer (India) Pvt. Ltd. v. Mis. Saxby & Farmer (India) Private Ltd.(') in respect of subsequent year came up before this Court. In that case. the Tribunal, in its Award, fixed the life of the machinery at 20 years and on behalf of the work-men it was urged that it should have been 30 years as accepted by the Labour Appellate Tribunal in respect of the carl~r year in the case of Saxby & Farmer Mazdoor Union, Calcutta('). This Court held that the life of 30 years had been laken at time when

(I\ (t959] L.A.C. 707.

(2) Civil Appeal No. 152of1964 decided on t2-4-1965.

the machinery was being worked in two shifts, while, in the subse-quent case, it was shown that the machinery was working in three shifts, so that it could not be said that the Tribunal was wrong in fixing the life in this subsequent case at 20 years. Relying on these cases, Mr. Sen urged that, in the present case also, we should take the life of the machinery to be 30 years. In The M illowners' :B Association, Bombay v. The Rashtriya Mill Mazdoor Sangh, Bombay('), the Full Bench of the Labour Appellate Triburtal, when laying down the formula that was . later approved by this Court, appears to have accepted the life of textile machinery as 25 years, while this Court, in the case of the Associated Cement Companies Ltd.("), proceeded on the basis that the life of the machinery was 30 years. In the Honorary Secretary, South India Mil/owners' Association and Others v. The Secretary, Coimbatore District Textile Workers' Union([3]), this Court confirmed the find-ing of the Tribunal that the estimated life of the textile machinery of the Company concerned in that case should be taken to be 25 years. It is on the basis of these decisions that the clain1 was put forward that the life of the machinery in the present case should also be taken to be 30 years or at least 25 years. In our opinion, this argument proceeds on an entirely incorrect basis.· The life of machinery of one particular factory need not necessarily be the sanie as that of another factory. Various factors come in that affect the useful life of machinery. There is, first, the consi-deration of the quality of machinery installed. If the machinery is purchased from country producing higher quality of machines, it will naturally have longer life than the machinery purchased from another country where the quality of production is lower. Again, the articles on which the machinery operates may very markedly vary the life of machine. If, for example, machine is utilised for grinding of cement,· the strain on the machine will necessarily not be the same as on machine which operates on steel or iron. We are, therefore, unable to accept the suggestion that the life of the machiner.y in the present case- should have been filled on the basis of the life accepted in other cases in which deci-sions were given on bonus disputes either by the Labour Appellate Tribunal or by this Court.

The Tribunal, in its decision, worked out the life of the machi-nery on the basis .of the percentage of depreciation allowed under the Income-tax Act. The application of this principle bas been attacked before us by both the parties. It is urged that the artifi-· cial rule laid ciown in the Income-tax Act for calculation of notional depreciation can provide no criterion at ail for determin-H ing the iife of the machinery. We think that the parties are (I) [1950] L.L.J. 1247. (2) (1959] S.C.R. 925. (3) (1962] 2 Supp. S.C.R. 926.

correct and that the Tribunal committed an error in proceeding on this basis.

Though, in the case of tlze Honorary Secretary, Sowlz India Millowncrs' Associatio11 (1), this Court, on tbc facts of that case. accepted the lifo of the textile machinery as 25 years, the Court also laid down the principle for finding out the life of machinery in the following words :-

"We are not prepared to accept either argument because, in our opinion, the life of the machinery in every case has to be determined in the light of evidence adduced by the parties." (p. 933)

Obviously, this is the correct principle, because it is only when the life of machinery is determined in the light of evidence adduced by the parties in particular case that the authority determining the life can take into account all the factors applicable to the par-ticular machinery in question. As we have indicated earlier. when determining the life of machinery, factors, such as the ~uality of the material used in the machines and the nature of the material on which the machines arc to operate. very materially affect their oife. further, the life of machine will also depend on the manner in which it is handled in particular factory. We. consequently. in this case proceed to examine the evidence given by tile panics in this behalf.

Jn order to prove the life of machinery. one method usually adopted by the Companies is to tender evidence of experts. Jn the present ca>e. the Company tendered in evidence the statement of an expel'!, Gerald Waplington. which was recorded earlier on 5th November, 196 I by the fifth Industrial Tribunal in disput~ pending before it. That dispute was also between this very Com-pany and its workmen. In giving the life of machinery, Wapling-ton first classified the machines into two classes-general purpose machine tools and special or single purpose machine tools-and expressed the opinion that general purpose machine tool used for one single operation is likely to have shorter economic life than special or single purpose machine tool. According to him. general purpose machine carrying on work of high accuracy will have an economic life of the order of 2 to 3 years only, while special purpose machine doing similar work of high accuracy working 400 hours month will have· an economic life of S to 6 vcars. If the work taken from the machines is of less accuracy. ihen, in his opinion. general purpose machine may have an eco-nomic life up to 5 years, and special purpose machine an econo· mic life of 7 to I 0 years. Jn his evidence. further. he made dt>-

tinction between economic life and ·useful life. He twice stated that economic life of machine would be only 1/3rd .of the useful life of the machine, so that if, on the basis of his evidence, the useful life of various classes of machines mentioned by him is to be worked out, the number of years given for each class by him above will have to be multiplied by 3. Thus, according to his evidence·, the economic life of machine will vary from 2 to 3 years as minimum to 7 to l 0 years at the maximum, and work-ing out the useful life on the basis of his statement that economic life is.only 1/3rd of the useful life, the machines would ha\'e minimum of 6 to 9 years and maximum of 21 to 30 years useful life. We shall consider what inferences can be drawn from his statement at later stage when we have discussed the other evidence available in this case. It may, however, be noted that Waplington 'is the only expert who can be held to be entirely dis-interested, because the other two experts examined are employed as Engineers by the Company itself. This .independent witness, Waplington, was not asked whether he had seen the various machines in the factory of the Company, nor was he at any time requested to indicate how many different machines in the factory of the Company would fall in the various classifications mentioned by him for which he has given different periods in respect of eco-nomic life.The Other two witnesses examined are Joseph Joyct:, Genera 1 Master Mechanic, and Girish Chandra Bansal, Master Mechanic, employed by the Company. Both of them have, in their state-ments given out their qualifications and experience which they have in dealing with automobile manufacturing machinery. According to Joyce. the economic life of the machinery of the Company cannot go beyond 6 years, and this statement was made on the basis of the machines working 16 hours day in two shifts of 8 hours each. Later on, he added that, applying American standard, the life of the machines can only be 6 to 10 years. In giving the life, he qualified that word with "economic" or "econo-mic useful", so that he equated economic life with economic use-ful life and gave the figures on this basis. In cross-examination. he, h0wever, admitted that useful life of machine is longer than its economic life. Thus, if various statements of his are taken into account and it is kept in view that he is an employee of the Com-pany, it may be accepted that, according to him, the maximum economic life of the machinery of the Company will be between 6 to 10 years and the useful life will be longer; how much longer, he has not indicated. If we were to assume that he is ;:sing the expressions "economic life" and "useful life" in the same sense in which they were used by Waplington, economic life would be I/3rd of the useful life, with the result that, on his evidence, use-ful life of the machinery of the Company would work out to be

anywhere between 18 to '.lo years. The third witness. Girish Chandra Bansal, estimated the efficient economic life. based on 16 hours per day working, at 6 to I 0 years, which coincides. with the c'tunate by Joyce. In his case, however, no questions were put to elicit from him whether he would make any distinction between efficient economic life and useful life, so that his evidence <loes not appear tc carry us any farther than the evidence of Joyce. It may be added that both these witnesses in their evi:Jence st:i.ted that the workmen employed by the Company we;e not very skilled workers and this was factor that had to c. taken into account in considering the life of· the machine.< in this Company. It is obvious that, if machine is handled ry more skilful worker. it will last longer and have longer life. statement was also made by Joyce that machines running at high speed will have shorter life than those running at k'wer speeds; but this general statement made by him ofter~ no as'lstance to us in this case, because he has not indicated· in his ·~vidence how many and which of the machines of the Company run at high speed and which at lower speed.Apart from this evidence of experts, th.: Company has attempt-ed to provide some other data which can be of assistance in asse.»-ing the life of the machinery. In this connection, Mr. Niren De. arguing the case on behalf of the Company, drew our attention to the history of this Company which showe<l that, initially, this Company star.led the work of assembly of cars from parts imported from foreign countries some time in the year 1942-43, but, later, the policy was altered and manufacture of components was taken up and progressively increased so as to minimise foreign import. He also pointed out that this policy of progressive proauction of indigenous parts was pressed upon the Company by the Govern-ment and. for this purpose. drew our attention to the first and the second reports of tho Tariff Commission in the years 1953 and 1956, as well as the report of the Ad Hoc Conunittre on Automo-bile Industry known as the Report of the Jha Committee. because Sri L. K. Jha was its Chairman. This report came out in the year 1960. It was urged by Mr. De that, due to this policy of progressive increase in manufacture of new components. it was not possible for the Company to find money to rehabilitate old machi-nery and. consequently. the fact that the Company continued to use old machinery for number of years should not be taken as indicatin" that that machinerv still -had economic or useful life. It was argued that the Company per force had to continue use of t:1ese old machine'. because it was under pressure to expand its activities by taking up manufacture of components and the Com-pJny was running at loss. It has already been mentioned earlier that in the ~ond report of the Tariff Commission in 1956 it was clearly stated th~t this Company was selling cars at loss of

Rs. 833 per car. It is in this background that the evidence given by the Company should be judged to find out what is the life of the machinery possessed by the Company. He also drew our attention to the principles laid down in this connection by the Full Bench of the Labour Appellate Tribunal in the Mil/owners' Association's case('), and by this Court in the Associated Cement Companies' case("). In the former case, when laying down the principle that provision should be made for rehabilitation replace-ment and modernization of the machinery, the Tribunal held that :

"It is essential that the plant and machinery should be kept continuously in good working order for the purpose of ensuring good return, and such maintenance of plant and mach;nery would also be to the advantage of labour, for the better the machinery the larger the earnings, and the better the chance of securing good bonus.''

In the latt~r case, this Court, when examining the scope of claim for rehabilitation. held that :

"this claim covers not only cases of replacement pure and simple but of rehabilitation and modernisation. In the context, rehabilitation is distinguished from ordi-nary repairs which go into the working expenses of the industry. It is also distinguished from replacement. It is quite conceivable that certain parts of machines which constitute block may need rehabilitation though :be block itself can carry on for number of years; and this process of rehabilitation is in sense continual process. Unlike replacement, its date cannot always be fLxed or anticipated. So with modernisation; and all these three items are included in the claim for rehabili-tation. That is why we think' it is necessary that the Tribunals should exercise their discretion in admitting all relevant evidence which would enable them to determine this vexed question satisfactorily."

Proceeding further to distinguish between cases of replacement, modernisation and expansion. the Court held :

.. If it appears fairly on the evidence that the intro-duction of the modern plant or machine is in substance an ·itein of expansion of the industry, expenses incurred in that behalf have to be excluded. On the other· hand, if the employer had to introduce the new plant essen-tially because the use of the old plant-though capable

(2) [1959] S.C.R. 925.

(ll [1950] L.L.J. 1247.

of giving service--was uneconomic and otherwise wholly inexpedient, it may be case of modernisation. Simi-larly, if hy the introduction of modern plant or machine the production capacity of the industry has appreciably increased. it would be relevant for the Tri-bunal to consider in an appropriate case whether it would be possible to apportion expenses on the basis that it is case of partial modernisation and partial expansion."

It will thus be seen that. \vhen considering the question of rehabi-litation, what is esscmiallv to be taken into account is that the old plant,. though capable o{ giving service, was uneconomic and otherwise wholly incxpeclicnt when provision for its replacement and rehabilitation, even though it will include modernisation. would he fully justified.

In this context. it may be worthwhile examining at this stage the difiercncc between economic life and useful life on which emphasis has been laid by Mr. Sen on behalf of the workmen. We have already indicated earlier that even the expert examined on behalf of tqe Company, Gerald Waplington, made distinc-tion between economic life of machinery and its useful life. Further, in giving the life, he applied American standards which may not be applicable in India. This Omrt, in various cases where the question of rehabilitation has been discussed, has laid emphasis on useful life rather than on economic life and, even in the Associated Cement Companies' case( [1]) in the extract quoted above, the Court held that modernisation is justified when the use of the old plant becomes uneconomic and otherwise wholly in-expedient. Thus. two tests were laid down, first, that it should be uneconomic and, second, that it should be also otherwise wholly inexpedient. The economic life, as envisaged by Waplington, wa' not, therefore, considered the appropriate test for detennining when rehabilitation of the plant and machinery would be justified. l n fact, one of the very major considerations that should be take11 ir.<o account is the actual pract'.:.:e of the manufacturers using the machinery and if evidence he available, to frnd out how long the manufacturers continue to use the machinery as rule. It may be that, during the last few years of use. the machinery may be continued to be utilised because of want of resources and compul-sion to retain the machinery, because replacement is not possible at all. It is in the light of this situation that we proceed to exa-mine the evidence given by the Company about the behaviour of its machinery and the steps taken by the Company to have the uld machinery rehabilitated.

In this connection, two statements filed on behalf of the Com-pany are of significance. One of these is list of obsolete andi or discarded machines prepared on 26th October, 1962 and marked as Ext. 28. It is to be noticed that, though 40 different machines were discarded by 26th October, 1962 when this statement was prepared, none of the machinery discarded was that installed up to the year 194 7-48. In fact, this situation is also borne out by the three Schedules lA which have been referred to earlier by us. In those Schedules lA, the machinery discarded and written off from books is shown as being worth Rs. 35,000/- out of machinery of the value of Rs. 89.75 lacs installed in the year 1947-48. Thus, the machinery of that year discarded was nominal in value. None of the machinery installed between the years 1948-49 to 1951-52 was discarded. Again, the machinery installed in 1952-53 was discarded to the extent of the nominal value of Rs. 39,000/- out of Rs. 11.06 lacs, and no machinery installed in 1953-54 was dis-carded. The machinery discarded was primarily that installed in the years 1954-55 to 1957-58, and its value was in th~ region of Rs. 46 lacs. Thus, right up to 1962, the old machinery pur-D chased up to the year 19 54 was ahnost all continued in use and was not discarded, even though machinery installed in the next four years was considered unfit for further use and was discarded or written off.

The second statement is Ext. 21 which bears the heading "replacement programme conditior; of machine tools" and which was prepared in March, 1960 in order to claim foreign exchange from the Government for replacement of machinery. That fot contains more than 200 n:achines, but, again, the machines instal-led during the year 1947-48 or earlier included in it are only 5 in number, whereas the majority of machines included in that list are those installed in later years. Significance attaches to this factor, because the machines installed in the year 194 7-48 were of very large value, their cost being in excess of Rs. 89 lakhs. In fact, that is the year in which the investment on installation of machinery was highest, barring the year of bonus and the year immediately preceding 'it. This statement thus shows that, even. though the Company wanted replacement of number 0f machines .G which had been installed even in the year 1949-50 and some ma-chines installed in later years, the replacement of those machines was given preference over the replacement of machines installed earli\:r in the year 1947-48. In this statement, in the remarks column, it was mentioned that these machines are to be scrapped. bJlt there was no statement that machines which had been installed in the year 1947-48 were also in such condition that 'they requir-ed scrapping. Thus, these statements provide some indication of the life of machinery 'l"hich point both ways. The fact that oid machinery of 1947-48, though of large value, was not

considered w be in such condition as to require immediate re-placement m preference to machinery installed later would point towards that machinery ha\'ing fairly long life. On the other hand, there is the factor that machinery installed in later years was actually scrapped or was sought to be scrapped, and this necessa-rily means that that later machinery was considered as having shorter life.

In this connection. another statement of which notice may be taken is Ext. 29 which shows prices of certain machines originally purchased by the Company which is to be rehabilitated, and the prices of the same machines which were purchased in the two years preceding the time when Girish Chandra Bansal was examined before the T1ibunal. Girish Chandra Bansars evidence wa< re-corcl~ on 14th :-.lovembcr, 1962 and in his statement before the Tribunal he stated that Ext. 29 was prepared to compare the prices of same machines in earlier years when they were pur-chased originally and again when similar machines were purchased second time in the past two years. This statement has the sig-nificance that, though in the past two years the Company took the step of purchasing machines which would perfonn the identical functions which the old machines were performing, the Company chose to add these machines as new ones as part of its scheme of expansion rather than replace those old machines. In the year 1961-62, therefore, the Company was still of the opinion that it was preferable to add new machine of the same type rather than replace an old machine doing the same work, and an inference would necessarily follow that that old machine must have been considered to be sufficiently serviceable. This is the view that the Company appears to have held in respect of machinery which was installed 14 or 15 years earlier.

On behalf of the Company. some statements were also filed to show that there were \'Cry frequent break-downs in the machinery of the Company and. as an illustration. our attention was drawn to the statement for the period January, 1960 to September, 1960. It is true that. if there are \'ery frequent break-downs in machi-nery, this would give an indication of the condition of the machi-nery and lead to the inference. that their useful life is coming to an end. There is, however, one great difficulty in drawing any conclusion from the statistics of number of break-downs of the machinery put forward on behalf of the Company. The Company has, no doubt. shown us statements that number of machines had break-downs during the last few years preceding the year of bonus, but no material was brought to our notice fro.n which it might have been possible to compare ho;, the same machinery was behaving in oarlier year.; or within the first few years after 1t was installed. Unless it be 1xissible to compare the number of

break-downs when their life is claimed to be over with the number of break-downs when the machine was almost new or was running its economic or useful life, no assistance is available for assessing the life of the machinery from mere tahle showing the number of break-downs. Further, it was not possible from these state-ments to find out which of the machines installed in which year were subject to the break-downs, nor did these statements give us any picture about the percentage of machines installed in diffe-ent years which were included in these statements. Consequently, we have felt handicapped in drawing any inference from bhese · statements.

bhese ·

Reliance was also placed on some statements showing that, for purposes of granting incentive bonus, rated time was prescribed for various machines and progressively this rated time in resped of large number of machines has had to be increased in ord~r to enable the workmen to earn bonus, because the machines them-selves are not working efficiently and if the rated time is not in-creased, the workmen would . fail to qualify for incentive bonus for no fault of their own and simply because the machines on which they were required IC" work had deteriorated in condition. It is true that the statement given of increase of rated time gives sorne indication that the condition of the machinery in this fac-tory has been going down and though this factor is relevant in determining the useful life of machinery, it cannot carry us very far, because t.here is no evidence which would enable us to lay down correlation between the increase in the rated time and the expiry of the useful life of the machinery. It is not possible on the evidence to discover how much the rated time is expected to increase before it can be said that the machinery has completely run out its useful life.

Mr. De also drew .our attention to the statements of some of the witnesses who deposed that machinery running at high speed has shorter life than that running at low speed. This general statement, however, is of no assistance, because the Company did not attempt to classify its machines between_ high speed and low speed ones and to give evidence in that behalf.

Lastly, it was urged by Mr. Sen on behalf of the workmen that another factor which should be taken into account is that, according to the Full Bench Formula; for calculation of rehabilita-tion the machinery is treated as scrapped when its value is reduced to 5 % , because the break-down value of 5 % is all .that is deducted when calculating the requirements for rehabilitation. Tile argu-ment was that the fact thdt the break-down value is taken at -S % indicates that the machinery for purposes of rehabilitation is treatt!d as still useful unless its value is reduced to that low figure.

This i,, no doubt, another aspect that must he taken into account, though we arc m.ablc to accept the submission that machinery should he deemed to have useful life until it reaches the stage of having hrcak-down value of 5'ic. No such absolute rule can be inferred.

In this case, the Tribunal, in tixing the life of the machinery, as we have mentioned earlier. proceeded to calculate it on the basis of the depreciation rate permitted under the Income-tax Act. That basis was not acceptable to either of the parties before us. On behalf of the workmen, it "as urged that it was an entirely wrong principle of calculating the lik, and even on behalf of the Company no attempt was made to support this method adopted by the Tribunal. In the Honorai)' Secretary, South India Mill-owners' Association's case('), this Court also rejected the argu-ment that the calculation of the life may be based on the deprecia-tion rate permitted by the Income-tax Act.Jn these circumstances, we have to consider the cumulative effect of the various pieces of evidence and circumstances which we have discussed above and, on its basis, to estimate what should be considered to be the useful life of the machinery of this Com-pany. Reference may briefly be made to the various conclusions arrived at. The evidence of the independent expert and of the engineer employees of the Company gives figure for useful life of machinery which may be anywhere between 6 years ~o 30 years. The lower figures given by them cannot be accepted as they rdate to economic life in the strict sense of that expression and are based on American standards. At the same ti-<1e, the maximu.111 life worked out from their evidence is on the hypothesis that the useful life stated by Waplington to be three times that of economic lifr is also the useful life in the same proportion to eco-nomic life as given in the evidence of Jovce. Then. there is the evidence that this Company itself has bee;.. running its old machi-nery for quite large number of years and even after 13 or 14 years of use, the Company in quite large number of cases pre-fcn-cd. when buying similar machines. to utilise them. for expan-sion rather than for rehabilitation. On the face of.it, replacement of old machinery would have been preferred to e.xpansion, if the old machinery had really completed its useful life. In some cases. however, machinery purchased in later years had to be rehabilitat-ed after much shorter periods. but no detailed information is avail-able why such early replacemen' became necessary. No Jllaterial was provided to sho"· the comparative quality of machines which have hecn run for long time ~nd machines which were replaced or sought to be replaced after shorter periods of us. After tak-

(I) {196~J 2 Supp. $_C.R. 926.

ing into consideration the various factors mentioned by us above. and on the evidence before us, we think that in this case,. it would be appropriate to hold that the average life of the machinery of tills Company in· respect of different kinds of machines obtained from different sources may be appropriately taken as 15 years. Tills life of 15 years arrived at by us, it may be mentioned is on the basis that the machines of the Company have been running during most of the period, to which the evidence relates; in two shifts only. Girish Chandra Bansal, one of the Engineers ot the Company, examined as witness, stated that the macltines in this Company were working in two shifts only, until, for the first tin1e in 1959-60, the factory started to run round-the-clock, i.e., in three shifts. He added that the factory had been working in two shifts from the tin1e it was founded. lt is also clear that, if the· factory had been working in only one shift, the life of the machi· nery would have been longer, and we think that in that case it would have been appropriate to take the life of the machine.ry as 25 years. On the other hand, after the n~achines are being work· ed in thre~ shifts, the life of the machinery is bound tO be lower and, CO!!sequently, if the machines be worked in three shifts, it would be appropriate to take the life of the machinery at 10 years. In the present case, however, we are accepting the average life as 15 years for all the machines requiring rehabilitation, because the evidence, as mentioned above, shows that the machines have been working in two shifts only from the time when the factory started functioning, with the exception that, in the first few years, they were worked in only Ol)e shift while, from the year preceding the year .of bonus, they h~ve been worked in three shifts. Conse-quently, it may be taken that, up to the year of bonus, the machines have been worked on the average, in two shifts. In working out the divisor, however, it will have to be kept in view that future life of the machinery will have to be calculated on the basis of three shifts and, consequently, on the basis of the figure of 10 years as the useful life of the machinery. We may also inc;Jentally mention that this Court, in the case of National Engineering Indus-tries Ltd. v. The Workmen & Vice Versa('), accepted the life of the precision. machinery of the Company concerned in that case as 15 years, so that the conclusion arrived at Ly us on tl1e evidence in the present case happens to coincide with the figure of life accepted in ti.at case.

In this connection, we may also take notice of one point urged by Mr. De on behalf of the Company. It appears that, when working out the divisor and finding out what machinery required rehabilitation, the Tribunal did not take into account machinery installed during tl1e bonus year itself for making provision for rehabilitation. We think that Mr. De is right in urging ti.at, if

(1) Civil Appeals Nos. 356-357 of 1966 decided on 6-IC-1967.

.any machinery is installed in bonus year, the Company would be justified in· claiming that it must immeriiately start making provi-sion for its rehabilitation, thoueJl the period for rehabilitation of that machinery would only start at the end of the bonus year. Once machinery has been installed and is in existence in the bonus ye~r. the Company is entitled to say that it will require rehabilita-tion in futc re and that provision should be made for rehabilitation of that machinery also and the Company should start keeping reserves for that purpose from the year of bonus itself. Thus, in the present case, the machinery installed in the year 1960-6 l should have been included in the rehabilitation statement, though the divisor in respect of that machinery will, on our decision given above, be 15 on the basis of two shifts and I 0 on the basis of three shifts, as the machines will still have residuary life of 15 or I 0 years, computing the period from the bonus year which is also the year of installation.

The second factor entering the calculation of rehabilitation requirement about which there was controversy between the parties is the multiplier. We hnvc already m~tioncd the fact that, in the first and the third Schedules IA, the Company gave one set of multipliers, while in the second Schedule I higher multipliers were given. The Tribunal took both sets of multi-pliers into account and worked out the average and accepted that as the correct multiplier, representing the rise in the price rate of the machinery requiring rehabilitation. Thereafter, the Tribunal held that the machinery which was to replace the old one would have larger production and pwceeded to work out figures for reducing the multipliers on that account. The Tribunal l:cld that it would be justified to reduce the average multipliers arrived at by . 75 for machinery installed u~ to 1951-52, by .55 for machi-nery imtalled during the years 1952-53 to 1955-56, and by .35 for that installed during the years 1956-57 to 1960-61. Before us. this method adopted by the Tribunal was criticised by counsel for both parties. On behalf of the workmen, it was contended that there was no justilication for the Tribunal to take the average of the multipliers in the first and the second Schedules 1 and that the Tribunal should only have proceeded on the basis that the multipliers given in the first Schedule I were proved and were correct ones. On behalf of the Company. it was urged that the Tribunal should have accepted the multipliers given in the second Schedule IA anJ should not have reduced them by taking into account those given in the first Schedule I A, and, further, that there was no justification at all for the Tribunal to reduce the figures of the multipliers for the various blocks of machinery by .75 .. 55 or .35 on the ground that the machinery to be installed in replacement would have higher production.

We were taken by learned counsel for parties into the evidence tendered on behalf of the Comp~ny to prove the multipliers. We have found that the correctness of the multipliers shown in the first Schedule IA.has been very satisfactorily proved. It appears that those figures were arrived at by comparing the prices of the old machinery installed in various years with similar machinery purchased in subsequent years. That comparison was contained in statement Ext. 29. The Company's witness Bansal not only proved this statement, but also clearly stated that the machines originally purchased and those purchased later shown in that statement Ext. 29 were the same machines. In cross-examina-tion, he further specifically ai:rested that the production capacity of these new machines mentioned in Ext. 29 was very much the same as that of the original machines which were to be replaced when they were new. It is also significant that these figures of multipliers included in the first Schedule IA were not challenged on behalf of the workmen before the Tribunal. So far as the figures contained in the second Schedule 1 are concerned, it was suggested on behalf of the Company that they were based 011 subsequent quotations received for replacement machinery which formed part of series Ext. 31. Learned counsel for the Com-pany was, however, unable to point out any statement in the evidence of any witness which would show t~at the figures for multipliers incorporated in the second Schedule lA were actually calculated from the qu9tations contained in Ext. 31. In fact, no such evidence was possible, because the second Schedule IA was filed on behalf of the Company after .the evidence of parties was over and that second Schedule IA not being part of the record before the Tribunal when evidence was recorded, it was not possible for any witness to give evidence proving those figures for multipliers. In these circumstances, we must hold that .the Tribu-nal committed an error in taking into account the multipliers given in the second Schedule IA and that the only figures for multipliers that could have been and should be accepted are those in the first Schedule IA.

At the same time, we must also accept the contention on be-half of the Company that the Tribunal had no justification for reducing the multipliers by deducting .75, .55, and .35 in respect of the three blocks of machinery sought to be replaced. As. we. have indicated earlier, the Tribunal proceeded to hold that this deduction was justified on the ground that the new machines which harl been purchased and which were being compared with the original machines sought to be replaced must necessarily have more productive capacity. We have not been able to find any evidence on the record of any witness which would support this conclusion. It is true that the statements ma:de by. Company's witnesses, particularly Bansal show that the new machines weremore efficient and were likely to produce better quality goods. At n..i stage, however, in the cross-examination of Bansal was any statement made admitting that these new machines, whose prices were being compared with those of the old machines for rehabili-tation, had larger productive capacity than those original machines. In fact, as we have pointed out earlier, in his cross-examination Bansal made definite statement that these new machines will produce exactly the same numher of pieces as the original machines when they were new. This Court in the case of the Associared Ceme111 Companies Lid.(') had indicated that it is only if, by the introduction of modern plant or machine, the production capacity of the industry has appreciably increased that it would be relevant for the Tribunal to consider in an appro-priate case whether it would be possible to apportion expenses on the basis that it is case of partial modernisation and partial expansion. If, however, the increased production is not ot significant order, it may be regarded as incidental to replacement or modernisation and the question of apportionment may not arise (p. 969 )'. It is, of coui:se, possible ·hat Bansal, in stating that the new machines, ihe prices of which formed the basis of calculation of multipliers, have exactly the same capacity as the original machines to be replaced, may not be quite correct; but there was no material at ·au from which the Tribunal could have justifiably inferred that the increase in production would be so material as to attract the principle for apportionment laid down by this Court in the case cited above and, consequently. the Tribunal fell into an error in reducing the multipliers merely on the assumption that the new machine> must necessarily have larger production capacity than the original machines. In these circumstances. we hold that the rehabilitation provision should have been calculated by the Tribunal on the basis of the multi-pliers 2iven by the Company in the first Schedule I A, without taking -an average of those multipliers and the multipliers given in the second Schedule I and without decreasing the multipliers hy . 7'.'-, .55 and .35 in respect of various blocks.

The third contested question with regard to rehabilitation relates to the deductions which have to be mad" out of the total rehabilitation requirement tc arrive at the annual provision for that purpose which must be allowed in working out the available ·surplus for distribution of bonus. In the Associated Ce:nenr Companies Ltd. case([1]), when approving the Full Bench Formula. this Court indicated how the calculations should be made. It was held:-

"Before actually awarding an appropriate amount in respect of rehabilitation for the bonus year certain (I) (19591 S.C.R. 925.

deductiom have to be made. The first deduction is made on account of the break-down value of the plant and machinery which is usually calculated at the rate of 5 % of the cost price of the block in question. Then the depreciation and general liquid reserves available to the employer are deducted. The reserves which have already been reasonably earmarked for specific purposes of the industry are, however, not taken into account in this connection. Last of all the rehabilitation amount which may have been allowed to the employer in pre-vious years would also have to be deducted if it appears that the amount was available at the time when it was awarded in the past and that it had not been used for rehabilitation purposes in the meanwhile. These are the broad features of the steps which have to be ta.ken in deciding the employer's claim for rehabilitation under the working of the formula." (p. 970).The dispute in the present case relates to the deduction of the depreciation and general liquid reserves. One aspect in contro-versy in this behalf raised on behalf of the Company is that even depreciation should not be deducted unless it is available to the employer for purposes of rehabilitation. The argument was that in the sentence "Then the depreciation and general liquid reserves available to the employer are deducted" the word "depreciation" should be read with the words "reserves available to the employer" and, consequently, the deduction should only be made of depre-ciation reserves available to the employer. We are unable to 11ccept this submission, because the very principle on which.reha-bilitation provision is allowed when making calculatio11S for award-ing bonus militates against this interpretation. This Court, in the same case, in explaining why rehabilitation is granted, held : ll "We have already noticed that the object of provid-ing depreciation of wasting assets in commercial accounting is to recoup the original capital invested in the purchase of such assets; but the amount of deprecia-tion which is allowed under the formula can hardly cover the probable cost of replacement. That is why the formula has recognised the industry's claim for reha-bilitation in addition to the admissible depreciation." (p. 966)

It will thus be seen that the purpose of providing for rehabilitation charges is to enable the industry to cover the difference between 11 the amount of depreciation which is recouped by making provision for it in accordance with the principles of commercial accounting and the amount that would be required to purchase the new machinery for replacement. Once the price of the new machinery USup.C.l./68-7

is known, the rehabilitation amount would be the difference between that price and the amount provided as depreciation of wasting assets in accordance with the principles of commercial accounting. The deduction of depreciation provision made in the account~ is not, therefore, on the ba~is that that amount must be available for purchasing the replacement machinery even in the year when provision for rehabilitation is being made. That amount is deducted from the price of the machinery which will be required to be purchased in order to detennine what amount the industry is going to require for rehabilitation in spite of having been allowed depreciation. Jn our view, therefore, this Court. when it later held that the depreciation and general liquid reserves availablr are to be deducted in calculating the rehabilitation amount, did not intend to Jay down that the depreciation must also be available in the year of bonus. The word~ ~available to the employer" were intended to qualify the expression "gencrnl liquid reserves" only and not the word "depreciation". General liquid reserves are to be deducted on the principle that if such reserve; arc in the hands of the industry and arc not cannarkCd for binding purposes, the industry must utilise those reserves for rc!iabilitatin~ the old machinery instead of ukin~ for provision to be mado out of profits in the year or bonus and m future years. The principle adbpted is that provision for rehabilitation is to be made only to the extent of the difference between the price of the machinery which will have to be paid for replacing the old machinery and the amount of depreciation provision shown in the accounts accord-ing to the commercial system of accounting and even •that rehabi-litation requirement must first be met by the industry out of avail-able liquid reserves rather than by asking for provision to be made out of profits. In the present case, the Tribunal, when calculat-ing the provision for rehabilitation. took the entire price of the replacement machinery as required to be provided out of profits and did not take into account that that price should hav~ been reduced to the extent of the depreciation provided for in the accounts. The annual report of this Company for the year of bonus I 960-61 was produced before us and at page '.!4 it showed that at the beginning of the year 1960-61 depreciation to the extent of Rs. 325 .48 lacs had been provided in the balance-sheet of the Company. This amount has, therefore, to be deducted from the price of the machinery which is to replace the original m~chincry when rehabilitation is resorted to.

The second question on this aspect that arises is whether there were any liquid reserves available which should al•o have been deducted. In the balance-sheet of the Company contained in the Annual Report, various kinds of reserves have been shown. There was reserve for contingencies to the extent of Rs. I 0.00 lacs on 31-3-1960 and development rebate reserve of Rs. 39.51 lacs on

the same date. On behalf of the workmen, it was urged that this amount of Rs. 39.51 lacs should at least be deducted when cal-culating the requirement for rehabilitation. From the balance-shcet itself an inference was sought to be drawn that this reserve existed in tbe form of liquid reserve available for rehabilitation. for this purpose reference was made to the entries on the assets side of the balance-sheet which shows sum of Rs. 220 lacs as lying in fixed deposit account. The argument was that if the Company had such large sum as Rs. 220 lacs in the fixed depo-sit account, it could not possibly urge that the sum of Rs. 39.51 lacs in respect of development rebate reserve was not part of it and was not available as liquid reserve. It is but natural that in the balance-sheet the Company could not show any correlation between the amounts entered on the two sides, liabilities and assets, as that is not required by any principle of commercial accounting. The argument of learned counsel for the company was that this development rebate reserve had been used as part of the working capital of the Company represented by various items shown on the asset; side and this fact was proved by the affidavit of Satya Narayan Murarka, Commercial Manager of the Company, who categorically stated that all the reserves had been utilised as part of the working capital. It seems to us that mere sta,tement by the Commercial Manager that the reserves have been utilised in the working capital cannot be accepted as conclusive evidence of that fact. When the balance-sheet itself shows that cash amounts in the form of fixed deposits were available which were far in excess of the development rebate reserve in question there would be no justification for holding that this development rebate reserve was not available as liquid asset and- had been included by the Company in its working capital. At the stage it is not necessary, therefore, to go into any further details to arrive at the conclusion that this development rebate reserve was liquid asset available for rehabilitation and, consequently, liable to be deducted when calculating the rehabilitation requirement. We shall deal in greater detail with the question of what items were included in the working capital at later stage when dealing with the controversy relating to the claim of the Company for return on working capital which is allowed under the Full Bench Formula, when calculating the ~urplus available for distribution of bonus.

On the question of calculation for provision for rehabilita-tion, the only point raised on behalf of the workmen with 1egard to buildings was that the Tribunal, in taking the life of the factory buildings at 25 years and non-factory buildings at 40 years, was not correct and that the life of the two types of buildings should have been taken at 40 years and 50 years respectively. At the

time of the hearing before the Tribunal, the Company had claimed that Lctory buildings have normal life of 25 years only and non-factory buildings 30 years, while the claim of the workmen was that the factory buildings had life of 40 years and the non-factory buildings 50 years. In arriving at its decision, the Tribu-nal priniarily took into account the provisions of Ruic 9 of the Rules framed under the Income-tax Act, i 922 which lays dO'lrn the principle for calculation of depreciation in respect of build-ings. That principle, no doubt, cannot be taken as giving any correct indication of the life of buildings for purposes of calcula-tion of rehabilitation provision, but, in this case, there was the difficulty that the Tribunal did not accept the evidence given by the Company to prove the age of the buildings as claimed by it, while no evidence was given on behalf of the workmen in suppon of their claim that the lik of the buildings should be taken at the figure' contended on their behalf. In the course of argument~ before "'· all that learned counsel did was to refer to the decision of thi' Court in the Associated Cement Companies Ltd. case(') at p. 993 where the calculations made in the Chart show that the life of the various buildings concerned in that case were taken to be between 30 and 35 years. We do not think that. in the absence of evidence showing that the buildings of the Company were similar to those building'. whose life came up for considera-tion in tire case cited abovr, it is possible to derive any assistance from the figures acceptet: Ill that case. In these circt.:mstances, the position before us is that neither on behalf of the Company, nor on behalf of the workmen is there any reliable evidence brought to our notice on the basis of which we can arrive at correct estimate of the life of the buildings of the Company and. consequently, we do not think that there will be any justification for us to vary the decision given by the Tribunal in this behalf.

The last controversy in the calculations for rehabilitation provision is on the question whether the depreciati:m and the liquid reserves available should be deJucted from the total amount of rehabilitation 1 ~quirement or whether it should be takcri into account at the very first stage when the machinery or the buildings requiring earliest rehabilitation are taken into consideration and the annual requirement in respect of them is worked 0•1t. On behalf of the workmen, we think, it was rightly urged thar, if de-preciation and liquid reserves available are to be deducted. they must be incorporated in the account~ against the replacement cost of those items which required replacement earliest in time. It is obvious that ·if funds in the form of depreciation provision and other liquid reserves arc available. the Companv claiming provi-sion for rehabilitation must utilise them in rehabilitatini: those (T)rt<i;-9fs.c:R-:-9"f5. -- - -

machines and buildings which require rehabilitation at the earliest point of time. There is no principle at all that the depreciation in respect of particular machinery must be deducted when cal-culating the rehabilitation requirement in respect of that machi-nery itself. The Full Bench Formula approved by this Conrt only recognises the industry's claim to make provision out of profits for rehabilitation of m1chinery which might require replacement even in future only on the ground that the industry may not be able to meet those replacement cost out of funds available in its hands. The provision for future requirement of rehabilitation must at any time depend upon what is immediately available and what is going to be required in future. If some mac~ines have fully run out their lives, they must necessarily be replaced out of resources available immediately and there would be no justifica-tion for keeping the avail~ble resources in reserves for future reha-bilitation, while not providing out of those available resources for immediate replacement of the machinery. Then, there is the second aspect that an employer in order to claim more and more rehabilitation provision, will have tendency to keep old blocks of machinery running and to avoid adoption of such device it would be fair that he is required to utilise available resources at the very first opportunity when the old blocks of machinery require replacement and claim annual provision for future only in respect of that machinery' which will require replacement later on. It appears that this Court in The Associated Cement Companies Ltd. case(') proceeded on this very basis when calculating the rehabili-tation requirement, though without discussing this question in detail. In that case, reserves to the extent of Rs. 311 lacs were found to be available. The machinery which required to be rehabilitated was divided into four blocks, the earliest block con-sisting of machinery installed up to 1939 in respect of which the rehabilitation requirement was Rs. 1172.76 [1]acs. In respec~ of three later blocks, the rehabilitation requirement was Rs. 70.40 lacs, 270.37 lacs and Rs. 768.50 lacs. The total requirements tor rehabilitation in respect of all the four blocks was thus Rs. 2282.03 lacs. When calculating the annual requirement the Court did not deduct the sum of Rs. 311 lacs in respect of available reserves out of this total of Rs. 2282.03 lacs, but instead deducted this amount from the cost of the machinery required to replace the pre-1939 block for which the amount arrived at was Rs. 1172.76 lacs. After deducting this amount of reserves from the replace-ment cost of that block: the balance was divided by the divisor 7 which was treated as the remainder life of the machinery falling within that block. This calculation adopted in that case, there-H fore, fully bears out our view that the depreciation and available reserves must be taken into account when calculating the annual

provision in respect of that machinery which requires earliest replacement and should not be deducted out of the total rehabili-tation cost as urged by learned counsel for the Company.

requires earliest

Mr. De in this connection drew our attention to decision of the Labour Appellate Tribunal in Sarby & Farmer Ma~door IJ11io11, Ca/curra(') at pp. 711-712. In that case, the Tribunal first worked out the total rehabilitation and replacement cost of the machinery at Rs. 43.81 lacs. From this amount were deduct-ed ;um of Rs. 14.75 lacs in respect of available r<!Serve, ~wn of Rs 9 · 03 lacs as the total depreciation on the plants and machi-!1cry and sum of Rs. 0.737 lac in respect of the break-down v;iluc of the machinery at 5 % of the cost price. leaving balance of Rs. 19.364 lacs as the rehabilitation requirement. Then the Tribunal noticed that, on the basis of total requirement of Rs. 43.81 lacs over the several periods during which rehabilita-tion and replacement was to take place, the annual requirement was worked out at Rs. 8.04 lacs. Applying the simple arithmetic of ratio. the Tribunal held that the proporticnate annual require-ment would be Rs. 3.54 lacs, if the total requirements are rccluced to Rs. 19.364 lacs. In that case. thus. the Tribunal proceeded on the basis which has been canvassed on behalf of the Company before us. The total rehabilitation requirement was first worked out, while the annual requirement was also worked out on the basis of that requirement, without taking into account the depre-ciation. ava:Iable liquid rescr\les and the break-down value oi the machinery to be replaced. Thereafter. the total rehabilitation requirement was reduced by the amount of depreciation, liquid reserves available and break-down value of the machinery, and the annual requirement was reduced in respect of each block of machinery in the same proportion as the proportion between thr-total requirement and the net amount available arrived at. aftet tleducting depreciation. available liquid reserves and break-down value. We do not think that the principle adopted by the Labour Appellate Tribunal was correct and should be accepted. On the face of it. it intrnduccs very anomalous position. In case where some machinery may require immediate replacement in the year of bonus in question and re.sources may be available for meeting the cost of the entire machinery required to replace it, the principle :idopted by the Tribunal w0uld still permit the industry not to replace that machinery, but claim future provision for its replacement on the basis that the available resources arc to be proportionately : llocated to machinery which may require replace" ment in much later years. We hold that in aproving this cour~e. the Trihunal did nm adopt the correct principle according to whlch caltulation should Lie made, when applying the Full Bench

··--·--- ·--·---··-

(I) f1955J LAC. 70J.

Formula for calculation of bonus. Learned counsel also referred us to the decision of this Court in M/ s. Titaghur Paper Mills Co. Ltd. v. lts Workmen([1]) to show that, in that case, this Court also, when calculating the rehabilitation provision, deducted the entire depreciation and reserves available from the total rehabilitatidn requirement and did not adopt the course of deducting it from different blocks of machinery requiring rehabilitation. That case, however, does not support the view taken by the Labour Appellate Tribunal, because in that case this Court had accepted the deci-sion of the Tribunal that all the machinery in whichever year it may have been installed had uniform residuary life of 10 years, so that all the machinery was to be rehabilitated simultaneously during the next 10 years. There was, therefore, no distinction between machinery installed in one year and that instaUed in other years insofar as the year in which it was to be re-placed was concerned. It is true that, in some cases while describing the Full Bench Formula, this Court has mentioned that the total depreciation and liquid reserves available are to be deducted from the total rehabilitation requirement, but we do not think that it was intended to lay down in those cases that the method of deduction to be adppted is that laid down by the Labour Appellate Tribunal in Saxby and Farmer Mazdoor Union, Calcutta('). On the other hand as· we have :tlready indicated this Court, in The Associated C.em'ent Companies Ltd. case('), very clearly pr_oceeded to-11pplfthe principle which I we are accepting 'in· iliis case. Consequently, we hold that the depreciation provision of Rs. 325.48 lacs and available develop-ment rebate reserve of Rs. 39.51 lacs must be taken into account when calculating the annual prov:sion for rehabilitation required for replacement of the earliest installed machinery until it is exhausted, whereafter the annual requirement fur the remaining blocks of machinery will have to be calculated, ignoring these ' available resources.

The next contest between the parties in this appeal relates to the claim of the Company to return on reserves and other funds used as working capita! during the bonus year when calculating the surplus available for di~tribution of bonus. That Company is entitled to return on reserves used as working rapital was re-G cognised by the Full Bench of the Labour Appellate Tribunal in The Mil/owners' Association's(') case, when laying down the tor-mula for calculation of available surplus which was approved by this Court in the case of The Associated Cement Companies Md. ([8]). In the latter case in dealing with this aspect ot the matter, the Court pointed out that no distinction b,as been made by Tribunals between reserves used as working capital and depre-

(2) (1955] L,A.C, 707.

(I) {1959! Supp, 2 S.C.R, 1012 at p. 1042.

(4) (1950] L,LJ, 1247.

(3) (1!157] S,C,R. 925.

ciation fund similarly used. The Court approved the decision of the Labour Appellate Tribunal in The Mil/owners' Assoc1a/lon IJombay v. The Rashtriya Mill Mazdoor Sangh('), where the ob-jection of the labour to depreciation fund earning any return. even if it was utilised for or about the business of the year, was ovre-ruled and the Tribunal observed that "no essential difference could be made between the depreciation fund and any other fund belonging to the Company which could be invested so as to earn return.' The Court further held :

"It is thus clear that what is material is not the origin of the fund. It is the fact that the fund in the hands of the concern has been-used as working capital that justifies the claim for an adequate return on it. We think it is common-sense that if the concern utilises liquid funds available in its hands for the purpose of meeting its working expenses rather than borrow the necessary amounts, it is entitled to claim some reason-able return on the funds thus used.'' (pp. 964-65).

In this appeal, it is not disputed that the Company is entitled to claim return on reserves which were actuall:' utilised as working capital during the year of bonus, but Mr. Sen on behalf of the workmen urged that this return must be allowed only on reserves used as working capital and not on any other funds used at such. On the face of it, this argument cannot be accepted in view of the decision of this Court in the case of The Associated Cement Com-pmries Ltd.,(') where it has been clearly held that the origin of the fund is immaterial, though with the qualification that the fund should be one which is available for investment be-fore claim can be made by the employer for return on it. This principle has been affirmed or followed in number of cases subsequently decided by this Court, but we do not consider it necessary to refer to them in view of the fact that Mr. De on behalf of the employer conceded that this is the settled law and only contended that, in this case, the Company has in fact dis-charged the burden of proving that all the reserves shown in the balance-sheet for the year of bonus were actually utilis.ed as work-ing capital. Consequently, we proceed to examine this submis-sion made on behalf of the Company.

Mr. De, in support of this submission, drew our attention to the affidavit of Satya Narayan Murarka who is (he Commercial Manager of the Company. In this affidavit, Murarka stated that all the sums shown as reserves and surpluses in the balance-sheet were available for being utilised as working capital and were, in

(2) (1959) S.C.R. 925.

(I) (t952j l.L.L.J. lt8, 522.

fact, so utilised. Murarka was also tendered for cross-examina-tion, so that the workmen hand an opportunity of testing the cor-rectness of his evidence by cross-examining him. It. was urged by Mr. De that there was nothing in· the cross-examination of Murarka which would justify rejection of the statements ma~e by him in his affidavit that all the reserves and surpluses available had been employed as part of the working capital of the Com:pany, and, in this connection, drew our attention to· some deci§ions of this Court where the evidence given on behalf of the employer on aiidavit has been accepted by this Court as sufficient proof. The first case cited by him is The Tata Oil Mills Co., Ltd. v. Its Work-men and Others([1]). In that case, question arose whether the Company concerned was entitled to claim return on the amount of depreciation. reserves used as working capital. Dealing with this claim, the Court held :

"An affidavit W!IS made on behalf of the Company that it had used its reserve funds comprising premium on ordinary shares, general reserve, depreciation re-D serve, workmen's compensation reserve, employees' gratuity reserve, bad and doubtful debt reserves and sales promotion reserve as working ·capital. The Tri-bunal, however, allowed return at 4 per centum on working capital of Rs. 31.88 lacs. This excluded the depreciation reserve but included all other reserves which were claimed by the company and having been used for working capital."

Proceeding further, the Court held :-

"It is enough to say that the affidavit of the Chief Aecountant filed on behalf of the company was not challenged before the Industrial Tribunal on behalf of the respondents. .It would, therefore, be impossible for us now to overlook that affidavit, particularly when the Tribunal gave no reason why it treated the working capital as Rs. 31.88 lacs only."

The Court, thus, accepted the evidence of the affidavit, though it was added that it will be open to the workmen in 'future to show by proper cross-examination of the Company's witnesses or by proper evidence that the amount shown as the depreciation reservewas not available in whole or in part to be used as working capital and that whatever may be available was not in fact so used in the sense explained above.

In Anil Starch Products Ltd. v. Ahmedabad Chemical Worker's Union and Others(') this Court, dealing with the ques-(l) ['1960] l s.C.R. I at p. 10. (2) A.LR. 1961 S.C. 1346 at p. 1348.

11<m of proa[ that depreciation reserve had been used a~ working capital, held :

'"It is enough to say in that connection th~t a·n affi-davit was tiled by the manager of the company to the effect that all its reserves including the depreciation fund had been used as working capital. The manager appeared as witness for the company before the Tri-B bunal and swore that the affidavit made by him wa> correct. He was cross-examined as to th~ amount required for rehabilitation, which was also given by him in that affidavit; but no que>tiOJl was put to him to challenge his statement that the entire depreciation reserve had been used as working capital. The Tribunal also did not go into the question whether any money was available in the depreciation resfrve fund and had been actually used as working capital. It dismissed the claim for return on the depreciation reserve on entirely different grounds. In the circumstances, we must accept the affidavit so far as the present year is concern-D ed and hold that the working capital was Rs. 34 lacs. It will, however, be open to the workmen L'l future to show by proper cross-examination of the company's witnesses or by proper evidence that the amount shown a• depreciation reserve was not available in whole or in part as explained above to be used as working capi-tal and that what ·ver was available was not in fact so used."

In Khandesh Spf?. & W1•1,'. Mills Co. Ltd .. v. The Raslitriya Girni Kamgar Sangh, Ja/gaon, ([1]) this Court, again dealing with the question of proof of working capital, referred to tho earlier La>es and held :

"This judgment again reinforces the view of this Court that proper opportunity should be given to the labour to test the correctness of the evidence given on affidavit on behalf of the management in regard . to the user of the reserves as working capital."

On the basis of these views expressed by this Court, it was urged that, in the present case, the affidavit of Murarka should be accepted as sufficient evidence in proof of the company's claim that all the reserves and funds mentioned in the affidavit were in fact used as working capital, so that the company is entitled to claim return on them.

It appears to us that the affidavit of Murarka in the present cao;e is not such that it can be held to have discharged the burden

(I) [i96C.] 2 S.C.R. 841 at p. 850.

which Jay upon the Company to prove that all the reserves and other funds had, in fact, been utilised as working capital. In the affidavit, Murarka referred to the balance-sheet and stated that the various funds claimed as having been used as working capital were shown at the beginning of the bonus year as in existence and the further entries indicated that those amounts were still intact at the end of the bonus year and were carried forward to the next year. Such statement was made by him in respect of reserve for contingencies amounting to Rs. 10 lacs, forfeited dividends amounting to Rs. 450 lacs, profit and Joss account balance amount-in,s to Rs. 3.63 lacs, provision for depreciation amounting to Rs. 325.48 lac;s, and development rebate reserve amounting to Rs. 39.51 lacs. It is to be noticed that the fact that these amounts were shown as in existence at the begiilning of the bonus year as well as at the end of that year can certainly lead to reasonable inference that these funds were all available to the company for being utilised in its business during the year; but the mere fact of these entries showing the existence of these funds at the beginning and at the end of the year cannot be the basis for conclusion that these funds must have been utilised as part of the working capital of the Company. In order to claim return, it is not enough for Company to show that the amounts were available during the year for being utilised as working capital. The Company has further to discharge the burden of proving that those funds were in fact so utilised. This principle was clearly indicated by this Court in Bengal Kagazkal Mazdoor Union and Others v. Titagarh Paper Mills Company, Ltd. and Others('). It was in that case rhat this Court gave an indication of how the availability of reserves and other funds for use as working capital can be inferred from the balance-sheet. It was said :

"What is usually done is to take into account the liquid assets of various kinds available at the begin~g'. of the relevant year and the total of such assets avail• able at the beginning of the year is considered as work-ing capital for that year, if there is evidence that it has been actually used during the year. But when we come· to the end of the year and look at the balance-sheet, we have to find out the liquid assets available at the end of the year from which the amount available as working capital for the next year may be arrived at. But the liquid assets available at the end of the year will usually be of two kinds; firstly, there will be cash assets in the various reserves and secondly, there will be assets in the shape of raw materials, etc., and both together become the available working capital for the next year subject

y) (1963] L:L.J. 3)8 •Ip. 364.

to necessary adjustments and also subject to the evidence that they were actually used as working capital."

Proceeding further, the Court, while dealing with the bonus year 1955-56, held :-

"."iow the working capital is generally arrived at by finding the liquid reserves available on 1st April, 1955. These liquid reserves may be in the fonn of reserves of various kinds, i.e., depreciation reserves, general reserve, renewal reserve. and so on, and also in the form of in-vestments, advances and raw materials, etc. in stock. All these have to be taken into account in arriving at the working capital after necessary adjustments. As we have already pointed out, the amo•mt of working capital thus arrived at, if there is evidence that it was actually used as working capital for the year, may be allowed interest in accordance with the Full Bench Fonnula."In that case. thus, the two steps necessary for proving the claim were separately indicated. The first step in proving that reserves and other funds have been used as working capital is to show that they were available by proving the balance-sheet in which those reserves and funds are shown in existence at the beginning of the year. The second step indicated is that evidence must be; given to prove that these reserves and funds were actually utilised as working capital during the year. Obviously, this proof is needed. because, even though the reserves and funds may be available. they may not be utilised as part of the working capital and may form part of cash amounts kept by the Company or may be utilised for purposes other than that of working capital. The mere existence of the reserves and funds at the beginning of the year, even taken together with their existence at the end of the year, cannot lead to any inference that these reserves and funds must have formed part of the working capital during the year and could not form part of other items such as fixed deposits. invest-ments. etc. Murarka in his affidavit, as we have indicated above. gave his conclusion that the various reserves wcre_used as part of the working capital only on the basis that these reserves and funds were in existence both at the beginning and at the end of the year. The conclusion drawn by Murarka had, therefore, no basis at all. The facts on which he relied could only justify an Inference that these reserves and funds were available. but they could not exclude the possibility that they were utilised for purposes other than that of working capital. 'The affi-davit of Murarka in this case cannot thus be held to be 'ufficient proof of this second ingredient that the reserve~ a11.d

• funds vvere i:i fact utilised as working capital. So far as the cases referred to by learned counsel are concerned, which we have dis-cussed earlier, they do not, in our opinion, lay down the principle that, if in an affidavit filed on behalf of the employer broad statement is made that all reserves and other funds were used as part of the working capital, that statement must be accepted a' sufficient proof, even when the statement is coupled with an admission that it is based on an inference from the balance-sheet only and no other proof is furnished to show that these available reserves and funds were in fact bro.ught in as working capital by the employer during the year in question. In these circumstances. even though in the cross-examination of Murarka on behalf of the workmen nothing very material was elicited on this question, we have to hold that the affidavit given by Murarka is not sufficient to discharge the burden which lay on the Company to prove that all the reserves and 'other funds shown in the balance-sheet as in existence at the beginning and at the end of the bonus year in question were utilised as working capital.

The balance-sheet, it appears to us, itself gives an indication that this claim made on behalf of the Company cannot be fully justified. In. the balance-sheet, the assets of the Company are shown under various heads and it seems to us that items falling under certain heads only can be treated as working capital of the Company during the year, while others have to be excluded. The items which cannot be treated as part of the working capital are: fixed assets of the value of Rs. 411.08 lacs, investments of the value of Rs. 14.48 lacs, fixed deposit amount of Rs. 220 lacs, loans and advances recoverable in cash or in kind or for value to be received or pending adjustment amounting to Rs. 11. 7 4 lacs. and loans and advances from Trust and other authorities amount-ing to Rs. 8.09 lacs. On the other hand, the workii:ig capital would consist of current assets of the value of Rs. 31.34 lacs, Stock in Trade of the value of Rs. 337 lacs, sundry debts of the value of Rs. 69.82 lacs, bank and cash balances of the value of Rs. 37.98 lacs, loans and advances of the value of Rs. 14.27 lacs, and insurance and other claims of the value of Rs. 7 .61 lacs. Thus. in the present ca~e. the balance-sheet gives an indication that sum of Rs. 498.02 lacs was the amount shown at the beginning of the year against items of assets which can be classifi-ed as part of the working capital, whereas the remaining sum of Rs. 665.38 lacs represe!Jt fixed assets, fixed deposits, investments and other loans and advances which cannot be classified as part of working capital.

Similarly,. an examinatiDn of the items -entered on the side of liabilities in the balance-sheet shows what were the sources from which moneys became available for acquisition of these assets.

Amongst these, the reserves shown are only Rs. l 0 lacs for con-tingencies and Rs. 39.51 lacs as development rebate reserve. Though the balance-sheet does not iself show the depreciation fund, it is also clear from the Schedule attached to the balance-sheet that, up to the beginning of the year, depreciation provi-sion had been made to the extent of Rs. 325.48 lacs. In order not to show it as available development reserve or fund in the balance-sheet, what the Company did was to show the depreciated value of the capital assets at Rs. 411.07 lacs instead of the actual value of Rs. 736.56 lacs which was the amount paid in cash for acquiring those fixed assets. For purposes of dealing with the question whether any reserve wa' used as working capital, we must, therefore, proceed on the basis that there was depreci~uon reserve of Rs. 325.48 lacs, while the investment on the fixed· assets was Rs. 736.56 lacs and not merely Rs. 411.07 lacs. Taking this depreciation reserve also into account, it would thus appear that the reserves available at the beginning of the year were of the amount of Rs. 374.99 lacs. ·The subscribed capital and capital available from forfeited shares was Rs. 819.57 lacs. Funds available from other resources, such as profit and loss account balance, unsecured loans, current liabilities and provisions, J>rovi-sion for taxation, proposed dividends and contingent liaoilities not provided for, amounted to Rs. 294.33 lacs. The question that arises is how much money from each of these sources had gone into the working capital and how much into fixed assets or other items of assets indicated by us above. In examining this position, the value of the fixed assets has to be taken as Rs. 736.56 lacs which wa' the actual amount spent in acquiring those assets and not at the written down value of those asset' at Rs. 411.08 lacs. It seems to us that this being the ·position, there was no justification for Murarka to claim that all the amounts available in reserve had gone towards the working capital and did not represent other assets, such as the fixed deposit of Rs. 220 lacs and similar other items. In these circumstances, we have t0 hold that no reliance can be placed on the affidavit of Murarb that all the reserves, including the depreciation reserve and the contingent and development rebate reserve were actually used as part of the working capital during this year.

The question that next arises on this conclusion of ours is whether any return at all should be allowed to the Company on reserves or other funds claimed as having been utilised as working capital during this year. The exact figure on which the Com-pany could claim return has not been proved by it, but it seems to us that at least some part of the reserves must necessarily have been utilised in the working capital. The Company had paid-up capital of Rs. 819.57 lacs and it can safely be assumed that this money was utilised for acquirin~ the fixed assets. as that will

be the primary purpose of obtaining capital from the share-holders. sum of Rs. 736.56 lacs must, therefore, have gonei in cash into the fixed assets out of this sum of Rs. 819.57 lacs, leav-ing balance of Rs. 83.Ql lacs. The sum available from other resources was Rs. 294.33 lacs which, together with the balance of the subscribed capital left over, gives figure of Rs. 377.34 lacs. Consequently, for purposes of the working capital, maxi-mum amount of Rs. 377.34 lacs could have been available from the subscribed capital or other resources and the balance of the amount must necessarily come out of th.e reserves. The items of assets classified as representing the working capital, as we have indicated above, have total value of Rs. 498.02 lacs. Deduct-ing from this amount the sum of Rs. 377.34 lacs available from subscribed capital or other resources, there remains balance of Rs. 120.68 lacs which must have necessarily come out of the various reserves, including the depreciation reserve, and this amount at least must be held to represent reserves acually used as working capital during the year by the Company. We tWnk that, since the information available from the balance-sheet itself shows that at least Rs. 120.68 lacs out of the reserves did form part of the working capital of the Company, it would be fair to allow the Company 4% return on· this amount, even though we _are not inclined to accept the evidence of Murarka and have to hold that the Company on its part failed to prove that this amount or the whole of the amount of reserves had been utilised as part of the I working capital during this year. Consequently, the amount which the Company has to be allowed as return on reserves utilis-ed as working capital comes to Rs. 4.83 lacs. In this connection, we may also take notice of the claim made by the Company that return should also be allowed on certain other sums used as working capital which have been described as ' working income. available from four \iifferent sources. The Company claimed that The details given were it had money Rs. 249. 71 lacs from profit as worked out in the Profit and Loss Account at the end cf the year, Rs. 63.07 lacs as reserve for depreciation for the year. Rs. 36.00 lacs as development rebate for this year and Rs. 4.71 lacs as value of discarded fixed assets written off. The claim was that at least half the amount repre-sented by these figures should be treated as fund which wa< available during the bonus year for being utilised as working capi-tal. This submission, in our opinion, cannot be accepted. There is nothing to show whether any of these amounts became available to the Company during the year and if so, when they became available. In fact, the profit as worked out in the Profit and Loss Account can be held to have accrued to the Company only when the Profit and Loss Account was worked out at the end of the year. We )lave already referred to the decision of this Court. in

Bengal Kagazkal Mazdoor Union and Others(') where it was held that amounts shown as liquid assets at the beginning of the year are the only amounts which can be held to be available for utilisation as working capital in that year. Amounts which accrue during the year or at the end of the year cannot be held to be available, unless evidence is led on the basis of which positive finding can be recorded that those amounts became available on particular date during tbe year and were thereafter actually utilised as part of the working capital. Profit for the year and reserve or development rebate for the year in question cannot be prm~d to have accrued on any particular date during the year and, therefore, it is also not possible to hold that they were utilised as part of the working capital during that very year. This claim which is novel one put forward on behalf of the Company for the first time in applying the Full Bench Formula for calculation of available surplus for distribution of bonus, must, therefore, be rejected. point that was raised on behalf of the workmen, but which was not seriously argued before us, was that the return on paid-up capital should not be allowed at least to the extent to which money had been invested in the subsidiary or other companies. The amount ii) question is Rs. 14.48 lacs already noticed by us earlier when dealing with the question of proof of utilisation of reserves as working capital. In dealing with that question, we have already proceeded on the basis that the paid-up capital was either invested in fixed assets, or must have been utilised as part of the working capital, and have not accepted the plea that this sum of Rs. 14.48 lacs of investment came out of the paid-up capital. Consequently, no question can arise of reducing this amount from the paid-up capital when allowing 6% return on it in accordance with the Full Bench Formula.

Another deduction, while calculating the surplus out of the . profits available for distribution of bonus, which has been chal-lenged on behalf of the workmen relates to the income from home delivery commission. From the facts, it appears that this Com-pany was manufacturing cars in collaboration with foreign concern and the arrangement was that, if that foreign concern sold any of its goods in India, the Company would be entitled to its commission on those sales, even though the Company may not be party to the transactions of those sales. This arrangement thus recognised the exclusive right of the Company in respect of sale of its cars and to reimbursement in case the foreign collabo-rator entered into transactions infringing that right. It seems to us that the income thus accruing to the Company has to be treated as extraneous income which was earned by the Company without

WORKMEN v. IIlNDUSTAN MOTORS LTl>. (Bhargava,J.) .JO

any activities in which the work.men participated or contributed their labour. Learned counsel for the work.men referred us to the decisions of this Court in the Tata Oil Mills Co. Ltd.(') and Voltas Limited v. Its workmen([2]). The situations that were discussed in those cases were different. In those cases, the prin-ciple laid down was that, if any income was earned in the course of the normal business of the Company in which the workmen were also engaged, that income must be included· in the pro-fits for calculation of surplus available for distribution of bonus. None of the instances that came up for consideration were similar to the one before us. The home delivery commission earned in the present case did not require any contribution of work or labour on the part of the workmen, and accrued to the Company simply because of its agreement with the foreign collaborator which entitled the Company to claim the commission without going through any process of manufacturing or selling the cars or their components. In the circumstances, the deduction of the home delivery commission from the profits was fully justified. · The last point urged related to the interest on fixed deposits earned by the Company during the bonus year. We have already indicated earlier that sum of Rs. 220 lacs was in fixed deposit account and the profit and loss account shows that sum of Rs. 5.17 lacs was received as interest on it by the Company. This has also to be excluded when calculating the available surplus, because this income also accrued to the Company without any contribution on the part of the workmen. It was not the regulat business of the Company to keep money in fixed deposits and earn interest thereon. At the same time. however, we feel that on equitable grounds, the Company should not be entitled to · claim the sum of Rs. 2.16 lacs as an expenditure of the business of the Company in respect of interest paid to bank and others. When the Company was receiving interest on fixed deposits, it would be proper to hold that at least the interest paid by the Company should come out of the interest earned by it. There seems to be no justification for permitting Company to keep money in fixed deposit and treat the interest accruing on it as extraneous income. while, at the same time, permitting the Com-pany to take loans, pay interest and treat that interest as business expenditure. Consequently. in this case, when calculating the available surplus,.a sum of Rs. 5.17 lacs minus Rs. 2.16 lacs= Rs. 3.01 lacs only will be deducted as extraneous income which was earned without any contribution from the workmen .and which cannot therefore, be taken ivto account when calculating available surp\us.

On the basis of these decisions, we have worked out Charts showing the amount of annual rehabilitation provision which -----··- ----------- ·--(I). J J 960] IS.CR. I. (2) [1961) 3 S.CR. 167. LJSupCl/68-8

CHART I

-------·----

27·04 4· 14 = 9·69 ~

6·31 16·46 7· 16 16 -'<> '<>

16·46 7· 16 16 -'<> '<> 17· IJ g; 10·34 -...

CHART II

(All figures in lacs of rupees)

Annual Requirement for Rehabilitation for all the Machinery I 16·07 Less Depreciation Provision for the Year of Bonus 1960.61 63·07 Net Requirement for Rehabilitation of Machinery in the Year 196~61 53·00 Requirement for Rehabilitation of Buildings 0·97 Total RehabHitation Req_uirement 64·97

CHART Ill

(All figures in lacs of rupees)

Profit aS per Profit & Loss Account 249·71 Add: Provision for Depreciation 63·07 ReServe for Development Rebate 36·00 Charity and Donation 0·35 EXpenses pertaining to pievious years (Sales tax) 0·01 99·43 99·43 349·14

Less : Income pertaining to previous Years and Provisions no longer required 5·70 Surplus .on Sale of Fixed Ao;sets ·o·o9 Home Delivery Commission 1·03 Interest on Fixed Deposits 3·01 Normal Notional Depreciation 69·26 Income-tax Liability for the year 1,12·37• 6 % Return on Ordinary Share Capital 29·77• 8 · S1 % Return on Preference Share Capital 27·55 4 % Retwn on Working Capital 4·83 Provision for Rehabilitation 64·97 318·58 318·58 Net Surplus Available for Payment of. Bonus 30·56

•These figures have been corrected by us. In the statement filed by the C\~ they were.wrongly entered as l 2 · l 8 lacs and 129 · 89lacsrespcctively.

must be allowed to the Company and, taking that into account, the amount of surplus available out of the profits for distribution as bonus. Chart I shows the annual rehabilitation requirement for machinery which works out at Rs. 116.07 lacs. Chart II gives the calculation, on the basis of this figure, of the net amount required for rehabilitation during the year of bonus for the machi-nery and buildings, after taking into account the depreciation pro-vision for the year of bonus. This net amount is Rs. 64.97 lacs. Chart Ill, based on these figures and on other figures arrived at by us in our judgment, shows that net amount of Rs. 30.56 lacs would be available as surplus for payinent of bonus during this year. The Tribunal was, therefore, not right in arriving at its decision that this Company was not in position to pay bomLs at all. As we have indicated earlier, the workmen have claimed bonus equivalent to 6 months' wages which would amount to sum of Rs. 24 lacs. We do not find any justification for granting bonus at such high rate. Though the Company has earned large amount of profit during the year of bonus, it is to be noticed that, for quite large nun1bci of years. the Company has been running at loss. The Company has an expanding business and the total amount of surplus available for allocation between the capital and the labour is Rs. 30.56 lacs. In all these circums-tances. we consider it just and proper that bonus should be paid to the workmen Gi 20% of their annual wages, so that total sum of Rs. 9.60 lacs out of thi> 'urplus will be paid out as bonus, leaving the balance of Rs. '.! 1.0~ lacs with the Company for being utilised for other purposes.

The appeal is, consequently, allowed, the decision of the Tribunal is set aside and it is hereby ordered that the Company shall pay to the workmen total amount of Rs. 9.60 lacs as bon1Ls. representing 20% of the annual wage of the workmen. In the circumstances of this case, we direct parties to bear their own costs of this .. appeal.

Appeal a//nH·ed.