K. Srinivasan, J.
1. A dispute between the workmen and the management of the Tinnevelly-Tuticorin Electric Supply, referred to the industrial tribunal for adjudication, related to the payment of additional bonus for the year 1960-61. The company had already granted three months' bonus, but the union on behalf of the workers claimed that the surplus available from out of the trading profits of the relevant year would justify the grant of six months' bonus. The management was asked to file a statement showing the calculation of the profit according to the Full Bench formula. Before the tribunal, the union objected to the debit of certain items. Among them was rebate to consumers, which, according to the union, should not have been deducted from the gross profits as a prior charge. Another objection was that, having regard to the nature of the industry, since the company was only distributing electric power, there could not be depreciation of the static machinery, such as overhead lines, underground cables and transformers and no allowance of multiple-shift depreciation should be given. It was next contended that In providing for the return on reserves used as working capital, it should be proved by the management that the amount in respect of which the return was claimed was actually used in the undertaking, and that merely by the calculation of the difference between the assets and liabilities, it could not be assumed that reserves, respectively, the difference had been used as working capital. It was also urged that there was no proof relevant to the working out of the rehabilitation charges. On all of these points, the industrial tribunal upheld the contention of the management. It held that the profit available would not justify the grant of any additional bonus.
2. The union has approached this Court with an application under Article 226. The contentious advanced are that in dealing with the questions in dispute, the industrial tribunal has committed errors of law and that the award has for that reason to be quashed.
3. I shall deal with the points raised seriatim.
4. It will be useful to start with the formula evolved by the Labour Appellate Tribunal. It is in Millowners' Association, Bombay v. Rashtriya Mill Mazdoor Sangh, Bombay, and Anr. 1950 L.L.J. 1247. This was the first occasion when the Labour Appellate Tribunal formulated certain definite principles for the purpose of determining questions relating to bonus. Proceeding on the view that bonus is cash payment made to the employees in addition to wages and that it could no longer be regarded as an ex gratia payment, the Appellate Tribunal repelled the contention that a claim to bonus is not admissible where wages have been standardized. The basis justifying the payment of bonus is that both capital and labour contribute to the earnings of the industrial concern and it is, therefore, fair that labour should derive some benefit if there is surplus after meeting prior or necessary charges. The principles stated are as hereunder. First of all the gross profits have to be arrived at after meeting the wages and dearness allowances to the employees and other items of expenditure. As an investment has to be made in the industrial undertaking and in order to ensure a return, the plant and machinery should be kept in good working order, such maintenance is also to the advantage of the labour. The first charge on the gross profits should be the amount of money chat would be necessary for rehabilitation, replacement and modernization of the machinery. The Appellate Tribunal stated that since the depreciation allowed by the Incometax law would not be sufficient for these purposes, an extra amount would have to be annually set apart as reserves to make up the deficit. Next, it was laid down that the paid-up capital is entitled to a fair return. The third point was whether any additional return on the reserves employed as working capital should be granted. The Appellate Tribunal observed that the reserves carried over from year to year in law belong to the company and the company is entitled to some return on that money employed as working capital. The company is entitled to deal with the reserve as it chooses and neither the shareholders individually nor the employees can as of right claim any direct benefit accruing out of the reserves employed as working capital. The employment of reserves as working capital obviates the necessity of borrowing money from outside sources, the interest payment on which would cut out the profit. It was held that while the return on the paid-up capital should be 6 per cent that on the reserves used as working capital should be 4 per cent. It is after these items are provided for out of the gross profits and a surplus is available that any bonus would be payable.
5. The working of this formula was explained in a decision of the Supreme Court in Indian Hume Pipe Company, Ltd. v. their workmen : (1959)IILLJ357SC . Their lordships observed at pp. 359-360 that the ' prior or necessary charges ' which should be deducted from gross profits in order to arrive at the surplus should be:
(1) provision for depreciation;
(2) reserves for rehabilitation;
(3) a return of 6 per cent on the paid-up capital;
(4) a return on the working capital at a lesser rate than the return on the paid-up capital; and
(5) an estimated amount in respect of the payment of the incometax.
They observe that this Full Bench formula had been working satisfactorily throughout the country and this formula should be adhered to, though there is scope for flexibility in the working thereof in accordance with the exigencies of the situation. They explain that in any industry there are three interests involved, namely, shareholders, the company and the workmen and all these Interests have to get their proper share in the surplus profits ascertained after due provision is made for the prior charges. It may, therefore, be taken as well settled that the abovementioned items have to be deducted from out of the gross profits, and in general any dispute that arises in cases where bonus is demanded is whether this or that item of charge has been improperly allowed. The matter was also dealt with by the Supreme Court in Associated Cement Companies, Ltd. and Ors. v. their workmen : (1959)ILLJ644SC .
6. The first Item in dispute relates to rebate to consumers. In the memo, of calculation of surplus profits under the Full Bench formula, the profit as per the revenue account has been taken and the amount representing provision for rebate to consumers deducted therefrom. The short contention advanced by the learned Counsel is that this is not a prior charge and that only an amount which is a prior charge to the Labour Appellate Tribunal formula can at all be deducted from the gross profits. It is no doubt true that In Associated Cement Companies, Ltd. and Ors. v. their workmen : (1959)ILLJ644SC (vide supra) it was pointed out that employers sometimes make an attempt to add items to lists of prior charges and that the Court had always been reluctant to vary or add to the formula evolved by the Labour Appellate Tribunal. Their lordships of the Supreme Court deal also in this case with the employer's claim to treat the amount credited to the gratuity fund as a prior charge. While accepting the position that a gratuity fund is created for the benefit of the workmen and there should be no difficulty in recognizing the employer's claim to the deduction of appropriate amounts on this account, they yet say that, on principle, it is desirable that no addition should be made to the list of prior charges recognized by the formula. Again, in Indian Hume Pipe Company v. their workmen : (1959)IILLJ357SC (vide supra), their lordships disallowed an amount credited towards the debenture redemption fund as a prior charge on the ground that the Full Bench did not envisage any such prior charge. What are prior charges has been indicated in the Full Bench formula and it is principally relying upon these observations that there should be no enlargement of the items found in the Full Bench formula that the learned Counsel contends that the amount specified above should not have been deducted, as it does not form a prior charge. It is also urged that the employer has already taken these amounts as earned that it has paid incometax thereon and that the provision and the payment of rebate has been accumulating year after year without being paid to the consumers, and that being so, it is said, this rebate cannot be regarded as an item which is deductible. For the employer it is contended that the sum represents amounts that are refundable to the consumers under the provisions of the Electricity Supply Act, as the charge for the supply of the energy had been levied from the consumers at a higher rate than what the law prescribed. It is accordingly the contention, broadly stated, that the amount does not represent any part of the profit at all and that in the light of the provisions contained in the Indian Electricity Act, the management which had collected these amounts at a piicular rate was only in physical custody of the moneys pending the discharge of a statutory liability to refund those amounts. On the question whether it can bo regarded as a prior charge, reference has been made to Bombay Gas Company, Ltd. v. their workmen 1961 I L.L.J. 508. In that case, their lordships of the Supreme Court allowed the wealth tax payable by the employer as a prior charge. They observe that at the time when the Full Bench formula was evolved there was no wealth tax and that the non-inclusion of wealth tax as an item of a prior charge in the Full Bench formula could not be a ground for refusing the deduction, for it stood on the same footing as incometax as a prior charge.
7. It seems to me, however, that the nomenclature of prior charge cannot reasonably be given to this item in dispute. This rebate to consumers is governed by the provisions of the Electricity Supply Act. Schedule VI of the Electricity Supply Act, 1948, enjoins upon the supplier to adjust his rates for the sale of electricity, whether by enhancement or reducing them, so that his 'clear profit' in any year shall not, as far as possible, exceed the amount of a ' reasonable return.' The terms 'clear profit 'and 'reasonable return' are defined in the schedule. The tribunal notes that the underlying idea of Sch. VI to the Electricity Supply Act is that there should be a ceiling on the profits earned by electrical undertakings.
8. At the end of each year, the supplier of electricity has to work out his profit and limit it to the quantum laid down in Sch. VI, and he is called upon to refund any excess charge that he might have collected during the year. In effect, what happens in the case of electricity supply undertaking is as below:
Assume that the profit is say Rs. 1,000 but the reasonable profit as computed in terms of the schedule is Rs. 700: under Clause (ii) of Sch. VI, the undertaking can take to itself one-third of the excess, but so as not to exceed 5 per cent of the reasonable return. In the example cited, out of Rs. 300 representing the difference between the profit and the reasonable return, the undertaking can take only 5 per cent of Rs. 700, i.e., Rs. 35. Of the balance of Rs. 265, one-half has to be appropriated to the tariffs and dividend control reserve and the other half has to be distributed or carried forward for distribution to the consumers in the form of a proportional rebate on the amounts collected from them for the sale of electricity and meter rentals. It is such amount as Sch. VI directs the refund of to the consumer that is in dispute in the present case. It does not seem to me to be a case of a deduction out of the gross profits but a deduction as an item of lawful expenditure connoting a legal liability to pay, which should figure in the accounts before even the gross profit is arrived at, that is to say, the amount computed as refundable was never the income of the undertaking, because it was under a statutory duty to pay back that amount. It is not a case of something in the nature of a prior charge which is deducted.
9. Sri M.R. Narayanaswami, learned Counsel for the employer, has pointed out that in conformity with the requirements of Sch. VI, the company has reduced the rates to bring its overall profit within the margin of the reasonable return. Whether the excess amount collected was paid or only kept as a refundable reserve makes no difference in principle. In the eye of law, any amount collected over and above what would be a reasonable return is not part of the income of the licensee. It is only if it is Income of the licensee that the creation of regarding it as a prior charge arises.
10. A similar question came up for consideration before the Supreme Court in Civil Appeals Nos. 633 and 634 of 1964 in Poona Electric Supply Company, Ltd., Bombay v. Commissioner of Incometax, Bombay City I (1965) 2 S.C.J. 343. In that case, the Poona Electricity Supply Company carried on the business of distribution of electricity under a licence. During certain assessment years, the company claimed deduction of two amounts from its taxable income. These amounts represented the excess collection which the company had to distribute to its consumers in the form of a rebate, the excess being the excess over the amount of reasonable return under Sch. VI to the Electricity Supply Act. The question arose whether these sums were deductible in arriving at the taxable income of the assessee. Their lordships refer to the provisions of the Electricity Act, 1910, and the Electricity Supply Act, 1948. They point out that the object of the latter Act is to prevent the licensees from charging unreasonable rates to the detriment of the consumers. The provisions of Schs. VI and VII to the Act are deemed to be incorporated in the licence of every licensee. Schedule VI imposes a duty on every licensee to so adjust his rates for the sale of electricity by periodical revision, that his clear profit in any year shall not, as far as possible, exceed the amount of reasonable return. The schedule also defines the expressions ' clear profits' and 'reasonable return,' and it further provides that if there is an excess over the amount of reasonable return, one-third of that excess shall be at the disposal of the undertaking. One-half of the balance of the excess shall be distributed in the form of a proportional rebate to the consumers or carried forward in the supplier's account for future distribution. The question which their lordships posed was whether the amount so returned or made returnable by the licensee to his consumers is deductible for ascertaining his taxable income from his business and they concluded after a consideration of certain decisions that the amounts so credited by the assessee were part of the excess amount paid to It and reserved to be returned to the consumers, which did not form part of the assessee's real profits. It would follow, therefore, that even before the gross profits of the employer are to be arrived at, these sums which, under the law, do not form part of the profits of the employer, have to be ignored. It is not a case of a prior charge in the sense in which the tribunal formula envisaged it. It is an amount which should be deleted even before the computation of the gross profits is made. It seems to me, therefore, that the tribunal was not in error in holding that these amounts could not be added back in order to arrive at the surplus available for computation of bonus.
11. The next item of dispute is the multiple-shift depreciation. Objection has not been taken to the normal depreciation in respect of mains, overhead and underground, and house service connexions. The management contended that as these parts of the machinery wore on duty for all the 24 hours, they were entitled to an additional 50 per cent of the normal depreciation on account of multiple-shift working. This would be in accordance with the Incometax law, but nevertheless, it has been argued by learned Counsel, that there is no evidence that these parts of the machinery are under load throughout the 24 hours and that muliple-shift depreciation should not be allowed unless it was established that the machinery did suffer under constant load. This question came before the Supreme Court in the case of the management In Writ Petition No. 657 of 1965. It is in Tinnevelly-Tuticorin Electric Supply Company, Ltd. v. their workmen : (1960)ILLJ275SC . That was a case where additional bonus was demanded and there also the claim of the management was that triple-shift allowance should be granted. The argument advanced was that in respect of underground cables and wires and overhead cables and wires, as contrasted with the mains the tribunal made a distinction in the matter of shift allowance. In that case, the grant of triple-shift allowance for the mains was not in dispute. According to the rules under the Income tax Act, no extra-shift allowance is allowable in respect of underground and overhead cables and wires. The question arose before the Labour Appellate Tribunal whether they fell within the scope of electric plant, machinery, etc., which is item III-E (1) of Rule 8 of the Incometax Rules or under Item III-C (4) and III-C (5) In respect of which, the Incometax authorities do not allow multiple-shift depreciation. The Appellate Tribunal was not satisfied that such cables and wires would depreciate in value to a materially greater extent when electric energy was carried by them for more than one shift. On the materials which it had before It, the Appellate Tribunal decided against the grant of any extra-shift depreciation in respect of underground and overhead cables and wires. Their lordships of the Supreme Court while accepting the validity of this decision of the Labour Appellate Tribunal pointed out that their decision would not preclude the appellant-management from making a similar claim in future and justify it by leading proper evidence. But the point was not specifically decided whether item III-E (1) or item III-C would apply.
12. The industrial tribunal has referred to this decision. Reference has also been made by the industrial tribunal to a decision of this Court in Salem-Erode Electricity Distribution Company, Ltd. v. Industrial Tribunal, Coimbatore, and Anr. Writ Petitions Nos. 1453 and 1454 of 1956 where the question was decided in favour of the management. The industrial tribunal also discounted any weight to the plea that no such depreciation in respect of overhead and underground cables and wires had been claimed before the Incometax authorities and that it should not, therefore, be allowed for the purposes of the present proceeding. That contention was negatived by the industrial tribunal which held that it was allowable.
13. It has been argued that the view taken by the industrial tribunal is erroneous and that these items are not machinery, being only stationary appendages to the machinery. Once again, it is claimed that when it is clear that the Incometax authorities have not allowed any such depreciation and no claim was in fact made by the management before the Incometax authorities, a different view should not have been taken in this regard.
14. It is no doubt true that the Indian Income-tax Rules provide for a particular method of arriving at the depreciation in respect of buildings, machinery, plant; or furniture. Rule 8 of these rules fixes such allowance at certain percentages of the written-down value or the original cost, as the case may be. Serial No. III-E deals with ' electric supply undertakings ' and item I thereunder refers to electric plant, machinery and boilers. Serial No. III-C is headed ' electrical machinery' and, as against ' switohgear. instruments, transformers,' etc., and ' underground cables and wires ' and ' overhead cables and wires,' there is a remark that ' no extra-shift allowance would be permissible.' The question is whether the procedure adopted by the Incometax authorities should control the decision in the instant case. Apart from the fact that such parts of ' electrical machinery' are under load for more than two shifts, there is undoubtedly depreciation caused by wear and tear due to continuous exposure. In effect, whether they carry current or not at all times, they are undoubtedly on duty as it were right round the clock. Even the Incometax law recognizes the eligibility to grant of extra-shift allowance computed at a percentage of the normal allowance. For instance, under III (1) of Rule 3 of the Incometax Rules, as against ' machinery and plant' an extra allowance up to a maximum of 50 per cent of the normal allowance, will be allowed where a concern claims such allowance on account of doable-shift working. Where there is triple-shift working, an extra allowance up to a maximum of 100 per cent of the allowance is also permissible. It is not, therefore, an inflexible rule that an extra-shift allowance cannot be granted. Learned Counsel makes a somewhat unreasonable demand when he claims that the management should establish that every instrument or piece of machinery, stationary or otherwise, must be proved to have been working daring the 24 hours. He claims that there are occasions when a transformer is off-duty or when the cables are not carrying current. It is really difficult to appreciate this claim. Even in the case of machinery, there are occasions when the machinery is not working for the purposes of maintenance and the like. That is a normal feature in the case of the use of machinery of any description. It will be impossible for any management to record the duration when the machinery was not working, particularly in the case of an electric supply undertaking. To my mind, it is not the circumstances that these underground cables and wires carry current that is the principal cause of their deterioration. It is necessary to maintain these cables intact all the 24 hours of the day and that being so, that they are working on multiple-shifts cannot be denied.
A recent decision of this Court dealt with the question in T.C. No. 234 of 1962. The assessee in that case claimed a 10 per cent depreciation on house service connexions and posts, which was allowed by the Incometax Officer who held that the case fell under Item III-E of Rule 8 relating to electric supply undertakings. The Appellate Assistant Commissioner thought that the proper allowance would be only at 5 per cent under item III-C(5), which is overhead cables and wires, against which the remark ' no extra-shift allowance' finds place in the rule. The Incometax Appellate Tribunal, however, upheld the view taken by the Incometax Officer and the question came before this Court on a reference. The learned Judges observed:
It is clear from Clause C that the electric machinery in general would include overhead cables and wires. It is true in Clause E no specific mention of overhead cables and wires is made. But, in our opinion, on that ground it cannot be said that the electric machinery In Clause C should be read as excluding from its scope overhead cables and wires. The use of the expression ' electric plant, machinery, boilers, in Clause E appears to have been made in a comprehensive sense so as to include parts of the plant as well as electric machinery. Clause E seems to be in the nature of an exception to Clause C and where it concerns electric supply undertakings, a consolidated rate is fixed for electric plant, machinery, boilers, without reference to the various parts which go to make up the plant, machinery or boilers.
The decision accordingly was that these cables and wires form part of the electrical undertaking. It would follow that if the electrical undertaking as a whole cannot be denied the benefit of an extra-shift allowance, overhead wires and cables cannot be separately dealt with.
15. I may mention at this stage that the decision of this Court in Salem-Erode Electricity Distribution Company, Ltd. v. Industrial Tribunal, Coimbatore, and Anr. Writ Petitions Nos. 1453 and 1454 of 1956 (vide (supra) which had been relied upon by the Industrial tribunal was dealt with in Salem-Erode Electricity Distribution Company, Ltd., Employees' Union, Salem v. Salem-Erode Electricity Distribution Company, Ltd., and Anr. Writ Petitions Nos. 75 and 116 of 1961. The learned Judges referred to the decision in Tinnevelly-Tuticorin Electric Supply Company, Ltd. v. their workmen : (1960)ILLJ275SC (vide supra). During the hearing of these appeals, further particulars on certain technical aspects were called for. The learned Judges observed that the claim to triple-shift allowance would be irresistible if the classification came under electric plant and machinery but did not however agree with the trial Judge that the claim could be brought under this head. But they thought that this was a technical problem upon which more light was necessary. They refer to a direction made by them calling for further material. Then they state thus:
Apart from any question of interpretation of the relevant provisions or clauses or the scope of any such term as electricity plant and machinery, it should be manifest that there is an initial difficulty in conceiving of triple-shift in relation to electricity distribution. As we understand this concept of an added depreciation allowance for such machinery, it really implies that machinery which would normally have a period of rest was being employed during such extra-shifts either as double-shift or triple-shift. This increased wear and tear entitled the management to claim a special allowance. But with regard to the distribution of electricity as distinct from its production, the technical problem is obvious when transformers, cables and overhead transmission lines which effect the distribution of energy have necessarily to be employed all the 24 hours if the energy is to be continuously supplied to the consumers...
The matter was not ultimately decided but was left open to the industrial tribunal for a complete adjudication after enquiry into all relevant aspects including technical aspects. There is thus no finality in respect of that matter. But it seems to me that the observations which I have extracted above fully justify the view that if these items of machinery, as they may be loosely called, are in fact on duty for all the 24 hours of the day, they must necessarily be regarded as working on more than two shifts for which the Incometax law makes a provision for depreciation. But, to my mind, in the context of a dispute with regard to bonus, being based upon the profits of the concern, it is not the Incometax law that can possibly say the last word in respect of depreciation. It would not be untrue to say that the Incometax law makes allowances for depreciation only on a notional scale as it were and does not in all cases cover the true depreciation that a piece of machinery might suffer. That has in fact been recognized in labour law. The Labour Appellate Tribunal, which evolved the bonus formula, observes in 1950 L.L.J. 1217 :
As depreciation allowed by the income-tax authorities is only a percentage of the written-down value, the funds set apart yearly for depreciation and designated under that head would not be sufficient for these purposes.
16. I am accordingly satisfied that when once it cannot be denied that these items of machinery are on duty right, round the clock, an extra-shift allowance is permissible for the purposes of arriving at the distributable profits.
17. That the return on reserves used as working capital has to be deducted from the gross profits is not in dispute. It is one of the deductions sanctioned by the Labour Appellate Tribunal's formula. The difficulty in the instant case is as to the method of arriving at the quantum of reserves so used as working capital. In these cases, what the tribunal has done will be apparent from tile following passage from its judgment:
In a proper computation of the working capital, all the reserves available plus the total capital and depreciation reserves are taken together and the total block of Investment is deducted and in this way the amount of reserves available and used as working capital is arrived at. To find out whether this amount was available for the year in question for the purpose of utilization in the current assets as working capital, in addition to loans and other items which have been used as working capital it is enough to point out that unless such amount was available and was used in the current assets, the balance sheet can never be balanced.
18. Earlier the tribunal set out the contention that there was no evidence as to the reserves actually used as working capital and that the accountant examined on behalf of the management did not throw any light on the matter. 16 proceeded to the definition of the term ' working capital' in a textbook on Book-keeping and Accounts, where a broad definition is given in this manner:
Working capital is the amount by which the readily realizable, liquid or current assets of a concern exceed its current liabilities. Thus the total of a company's cash, investments, bills receivable, stock, book debts and similar liquid assets minus its trade creditors, bank overdraft, bills payable and similar floating liabilities represents the working capital of the company. In calculating such capital, the fixed and more or less permanent assets, such as buildings, plant, etc., and long or fixed period loans and similar ' fixed' liabilities are excluded.
Based upon this definition, the tribunal thought that the term ' working capital' has to be taken to be the excess of the current assets over the current liabilities for the purpose of the bonus formula. It virtually allowed Interest at 4 per cent on the working capital which it computed In the above manner.
19. It is obvious that there is an error in the procedure adopted by the tribunal. The Labour Appellate Tribunal formula did not envisage the deduction of 4 per cent return on the entire working capital. It will be noticed that a return of 6 per cent is already allowed on capital invested in the concern. Four per cent return contemplated refers only to reserves used as working capital, reserves which would otherwise belong to the company absolutely and which it utilized for the purpose of the concern. Merely to take the difference between the current assets and current liabilities would not result In determining the quantum of reserves used as working capital. That may no doubt lead to the totality of the working capital, but what the Labour Appellate Tribunal formula takes Into account is not the totality of the working capital of the company but only a part of it, that is to say, reserves of the company which have been used for the purpose of the concern. It will be noticed that if these reserves were not so used and the company had needed funds for carrying on business, it would have to go into the open market and raise loans and pay interest thereon, which interest would be deductible even out of the gross profits. But where the company makes available funds, which absolutely belong to it, for the purpose of working the company, then it is entitled to a certain amount of interest on the use of its money and that is deducted before the net profit out of which bonus is to be paid is arrived at. The view taken by the tribunal that 4 per cent return can be calculated on the working capital computed as the difference between the current assets and current liabilities is certainly erroneous.
20. In Bengal Kagazkal Mazaoar Union and Ors. v. Titaghur Paper Mills Company, Ltd. and Ors. : (1963)IILLJ358SC (vide supra), their lordships of the Supreme Court deal with the matter thus at p. 361:.It is now well-settled that a balance sheet cannot be taken as proof of a claim of what portion of reserves has actually been used as working capital and that the utilization of a portion of reserves as working capital has to be proved by the employer by evidence on affidavit or otherwise after giving opportunity to the workmen to contest the correctness of such evidence by cross-examination.... What happened in the present case was that the accountant of the respondent gave two alternative calculations for arriving at the reserves used as working capital. Thus there were two figures given by the respondent to show what reserves were actually used as working capital. Further, according to the accountant, the lower figure represented the assets which could be at once converted into liquid cash while the higher figure represented both cash invested In the business and liquid cash that would be available. He then went on to state that the amount was always available for utilization as working capital and that it was actually utilized during the years ... We should have expected more positive evidence on the point which would have shown one figure, for reserves actually used as working capital could only be represented by one figure. Though, therefore, the accountant did swear that the amount was used as working capital and his oath was apparently with respect to both figures, the respondent in the end was content to take the lower figure ...
The question was again considered in Aluminium Corporation of India, Ltd. v. their workmen : (1963)IILLJ629SC where also a claim was advanced on behalf of the employer that the balance sheet of the company would by Itself show what part of the reserves was used as working capital and that an easy and safe way of ascertaining the correct figure is by deducting the current liabilities of the company in the balance sheet from the current assets shown therein. Their lordships, no doubt, observe that that would be a proper method for determining the working capital of the concern. Bat they point out that mere statements in the balance sheet as regards the current assets and current liabilities would not be taken as sacrosanct. Bat, what is more important as emphasized in tills judgment, is, it is not a question of determining the total working capital of the concern which is easy enough but to find out what portion of the reserves hare been used as working capital. They say at p. 632:.It may often happen that the whole of the working capital is provided from what remained of the subscribed capital after the acquisition of the fixed assets. There may be other cases where a portion of the working capital is provided from the subscribed capital and the remainder is met from the reserves. There appears to be a tendency on the part of some employers to show the entire amount of reserves available for use as working capital as the actual amount used for that purpose. This is obviously wrong.
Obviously, the return of 4 per cent, which has to be deducted is not upon the working capital but only on that portion of the reserves used as working capital, a distinction which the tribunal has entirely overlooked. The discussion in the award of the tribunal is equally faulty in this regard, for the tribunal observes:
There is no reason whatever to doubt the figures in these documents, viz., calculation sheet by the managemant on the basis of Full Bench formula and the work sheet Ex. M. 2. The management has rightly claimed the lower figure of Rs. 30,560 arrived at in accordance with the principles laid down for ascertaining the quantum of working capital.
To repeat, it is not the quantum of working capital that is entitled to a 4 per cent return but the quantum of reserves used as working capital.
21. The next point that may bo taken up is the deduction on account of rehabilitation charges. It was contended before the tribunal that in previous years much lesser amounts had been granted. But the tribunal discounted the plea of res judicata, for rehabilitation was in respect of a recurring and continuous process of wastage of assets and it could not be said that what was granted in one year should set the upper limit for the grant for all time. The Labour Appellate Tribunal pointed out that in order to secure recurring returns on money invested in any industrial undertaking, it is essential that the plant and machinery should be continuously in working order and such maintenance of plant and machinery would also be to the advantage of labour. The first charge on the gross profits should, therefore, be the amount of money that, would be necessary for rehabilitation, replacement and modernization of the machinery. It was stated that an amount over and above what was allowed by way of depreciation by the Incometax authorities would be necessary to be set apart annually to make up the deficit. The validity of such a prior charge is not in dispute. It is the manner in which the quantum is arrived at that gives rise to difficulties. It is also not in dispute that the onus of proof in this regard is upon the employer. What has been done in the present case is to take the anticipated life of the piece of machinery as given in the Indian Electricity Act. In Aluminium Corporation of India, Ltd. v. their workmen : (1963)IILLJ629SC (vide supra), their lordships of the Supreme Court observe at p. 630:.It has to be remembered in this connexion that by a series of decisions of this Court, it is now well-settled that the burden to prove any prior charge under the head ' rehabilitation' lies on the employer and that unless the employer has by proper evidence established its claim to some amount as rehabilitation charge the claim must be rejected....
In that case, what was done was virtually to value the assets of the company at two different points of time, and the several statements in which the rehabilitation charge was shown revealed different figures. It was held that there was no evidence to show how the multiplier or the divisor relevant to the question was arrived at. The rejection of the claim by the industrial tribunal for these reasons was sustained. Reference has also been made to Bengal Kagaskal Mazdoor Union v. Titaghur Paper Mills 1963 II L.L.J. 388 (vide supra). It has been pointed out therein that the determination of rehabilitation is a long-term affair and once it has been determined, it cannot go on increasing from year to year except in the case of a sudden appreciable rise in prices or on account of new blocks being added followed by further rise of prices after the purchase of the new blocks. It was also held that in making any deduction on the prior charge in a particular year, the amount earmarked for such purpose in the previous years and remaining unused should be taken into account.
22. The tribunal has examined the claim in the light of these and other decisions. It has taken notice of the fact that the multiplier has to be determined on the basis of the increase in the prices and the divisor should be arrived at on proof of the expectation of life of the machinery. These are undoubtedly notional to a large extent. The tribunal has also taken note of the fact that in BO far as the machinery employed in the electrical undertakings is concerned, its economic life has been given in Sub. VII to the Electric Supply Act and the estimate of life so given in the Act must be taken as having been reached after extensive study, research and actual experience. The difficulty really arises in finding the multiplier, for the probable cost of replacement at a future point of time has to be estimated and that must involve, as has been pointed out in decisions a certain amount of guess work. This multiplier is the ratio between the cost price of the plant and machinery, and its probable cost price when it requires to be replaced. If it is computed today that, a piece of machinery has an expectation of life of ten years and its replacement would be called for at the end of ten years, it is obvious that an estimate of the probable cost of the machinery after ten years cannot be precise. In making that estimate, the management has necessarily to depend upon the manner in which the prices have been increasing during the past. Even if the management makes enquiry of manufacturing firms with regard to the cost of supply of a piece of machinery, that would only furnish the data as to the price at the present time and not its probable price at a future time. It would, therefore, be unreal to insist that the management should have called for quotations and in the absence of any quotations, its estimate of the cost of replacement of the machinery involved must necessarily be ignored. So long as the cost so estimated is not so disproportionate to the prevailing trend, it can reasonably be accepted, and the multiplier based on such an estimate cannot be said to be incorrect.
23. In Titaghur Paper Mills Company, Ltd. v. their workmen : (1959)IILLJ9SC (vide supra), the question regarding rehabilitation was dealt with in this manner at p. 21:. When prices are stable or falling, there is no necessity of making further provision for rehabilitation, for the usual depreciation, provided for the purposes of the Incometax Act, is sufficient to build up a fund for replacement of plant and machinery when they are worn out; but when prices are rising, the usual depreciation fund is not enough to replace plant and machinery which become useless. This was particularly so after the end of the last war, when the question of replacing machinery purchased before the war, i.e., before 1939, came up before the Full Bench of the Labour Appellate Tribunal in 1950. In order, therefore, to meet this particular situation arising out of a steep rise in prices, the Full Bench formula was evolved to provide for a further sum for rehabilitation out of the profits besides the statutory depreciation. This was on a notional basis and depended upon a multiplier which was used to find out the current prices of machinery to be replaced and a divisor based on the useful life of the machinery to find out what sum should be provided each year for what was called rehabilitation ...
After setting out that land, building and machinery should be separately dealt with in this regard, they proceeded to deal with the machinery and observed at p. 22;.As for machinery, there is again the necessity of further subdivision, according to when the machinery was purchased. The machinery purchased before the last war stands on one footing and thus there will be a block of machinery which may be known as pre-1939. The second block of machinery may well be that purchased during the war and the last block that purchased after the war. The last two are not rigid divisions; but they indicate that machinery has to be divided into blocks according to years of purchase to arrive at a correct multiplier and a correct divisor.
Thereafter, they entered into a closer examination of the facts of that particular case and the correctness of the method of determining the multiplier or the divisor therein.
24. It is clear, therefore, that when the question of rehabilitation has to be considered and the probable value of the machinery that would require replacement has to be determined, a certain amount of guess work is Inevitable. For instance, an item of machinery which might have been purchased, say in 1955, and which has a normal expectation of life of about twenty years, would require to be replaced only in 1975. What the formula requires is the probable value of the machinery, when it requires to be replaced, that is, in 1975. To a certain extent, only the trend of prices can be had regard to, in order to ascertain the probable price of the machinery in 1975. There should, therefore, be some evidence to show that in the case of machinery, the prices have been increasing from the date of its purchase and on the basis of this increase its probable value in the future has to be estimated. If the value was, say Rs. 1,000 in 1955 and the trend of increase shows that it has doubled itself within last ten years, it may not be unreasonable to say that by 1975 its value might be roughly four times the 1955 value. Four (4) would accordingly be the multiplier and 20, normal expectation of life of the machinary would be the divisor. In so far as the divisor is concerned, in these cases, the tribunal has adopted the expectation of life of the machinery as given in the statute, that is, the Electricity Act. I shall deal with it later. But, on the question whether there was evidence to justify the adoption of any particular multiplier for various blocks of machinery, it seems to so that the evidence la singularly weak and unacceptable. In the case cited, their lordships observed in : (1959)IILLJ9SC :.It is the company which is claiming that a certain multiplier be used for calculating rehabilitation reserve, and it was its duty to produce good and sufficient evidence as to the correct multiplier if it wants that multiplier to be used ...
25. In Associated Cement Companies, Ltd. (Dwarka Cement Works) v. their workmen : (1959)ILLJ644SC . It is observed at p. 669:
The decision on the question of the probable cost of rehabilitation is always reached by adopting a suitable multiplier. This multiplier is based on the ratio between the cost price of the plant and machinery and the probable price which may have to be paid for its rehabilitation, replacement or modernization. Since there has been a continuous rise in the prices of industrial plant and machinery, the older the plant which needs rehabilitation the higher is the multiplier. That is why there is always a competition between industry and workmen on this point. Industry is sometimes tempted to keep its old pre-1,939 block alive with a view to claim a higher multiplier which gives it a larger amount of rehabilitation expenditure; whereas workmen urge that the old pre-1939 block has been nominally kept alive as a device and so press for a lower multiplier which could reduce the claim for rehabilitation...
They further observed at p. 670:
In dealing with the employer's claim for rehabilitation, tribunals have always placed the onus of proof on the employer. He has to prove the price of the plant and machinery, its age, the period during which it requires replacement, the cost of replacement, the amount standing in the depreciation and reserve fund, and to what extent the funds at his disposal would meet the cost of replacement. If the employer fails to lead satisfactory evidence on these points tribunals have on occasions totally rejected his claim for rehabilitation.... If the tribunals are satisfied that the employer is deliberately and without a sufficient cause not taking any steps to rehabilitate, replace or modernize his machinery even though an appropriate allowance is made in that behalf from year to year, they may take into account his conduct in determining the extent of such allowance in the bonus year in question...
These observations clearly indicate that it is the duty of the employer to place acceptable evidence in support of its contention that a particular multiplier should be adopted.
26. Though evidence of some kind has been adduced by the employer in these cases and statements were also submitted, in so far as the probable price of the machinery is concerned, admittedly the evidence was purely speculative. It was rightly pointed out on behalf of the workmen that no quotation of any kind with regard to the prices of machinery which would show the trend of increase in prices was produced. That complaint is fully justified. The only evidence that I can find is the broad statement given by Sri Narayanamurthi, M.W. 2, that the electric supply undertaking was spending about rupees fifteen lakhs each year and nothing more could be done on account of paucity of funds which rehabilitation required. Sri Krlshnaswami, M.W. 1, the accountant of the Salem-Erode Electricity Distribution Company stated that from the accounts, details of the values as at the time of par-chase could be gathered. He could give no evidence as to which assets were replaced and which were rehabilitated. The entirety of his evidence does not reveal any material on the basis of which a proper multiplier for each block could be arrived at. The statement filed on behalf of the employer no doubt gives a figure as ' multiplier.' But it is obvious from the decisions which have been cited that there must be evidence which would justify the adoption of a particular multiplier. It cannot possibly be left to the whim and fancy of the employer. Such evidence as the decisions demand is certainly lacking in the present cases.
27. The contention on behalf of the workmen has been that the adoption of the divisor in these cases is incorrect and that there should be evidence with regard to the probable life of each group of machinery. It is true that the decisions do require evidence upon this head. All the decisions have dealt with textile and other companies. The present cases relate to electricity supply undertakings which are governed by special enactments. It is not disputed that these enactments contain a schedule according to which the probable life of any item of machinery is fixed for the purposes of the Act. It is this extent of probable life that has been taken as the divisor in the present oases. I am not willing to agree that the adoption of these figures as divisors is in any way erroneous. When the statute lays down the probable life of various items of machinery concerned in electricity undertakings, it must have been arrived at after a note had been taken of the facts relating thereto. It is hardly likely that the legislature in laying down certain figures acted arbitrarily. In any event, anticipation of the life of the machinery as found in the statute is certainly a piece of evidence and the adoption of these figures as the divisors is not improper. But since there has been no evidence justifying the adoption of the multipliers used in these cases, the tribunal was not justified in accepting the figures given by the management.
28. The conclusions reached by the tribunal on the head of rehabilitation is certainly not in accord with the principles laid down in the decisions.
29. Sri M.R. Narayanaswami, learned Counsel for the employers, contended that even making every allowance demanded by the workmen it is impossible that there could be that amount of surplus to justify the grant of three months' additional bonus. He argued that three persons are entitled to share in the surplus: the management, the workmen and the shareholders. Even assuming that all the contentions of the workmen with regard to the calculation of the surplus are correct, that could still not yield that amount of surplus which would justify the grant of additional bonus of three months' salary. That may be so. It is true that the workmen have claimed bonus for three months. But what the tribunal is called upon to determine is the quantum of surplus available according to the formula of the Labour Appellate Tribunal and thereafter to determine what amount of bonus could be given to the workmen. Whether it is three months' bonus as demanded by the workmen or less would depend upon the ascertainment of the surplus. Sri Narayanaswami's argument only suggests that the claim of three months' bonus is extravagant and cannot possibly be met. That, as I said, might be so. But, if, on the actual working of the surplus, the workmen are entitled to some bonus, whether it be fifteen days' wages or one month or more, that bag to be granted. What is important is the ascertainment of the surplus.
30. At least on two points, viz., on the question of rehabilitation and the allowances for the return on reserves used as working capital, the tribunal has erred and its conclusions are inconsistent with the decisions referred to above. It follows, therefore, that the award of the tribunal has to be quashed. The tribunal will reconsider these two questions in the light of the observations contained herein and make such orders on the reference, as may be justified.
31. The writ petition is allowed but there will be no order as to costs.