1. This petition is filed by the workers' union representing the employees of the second respondent company to quash the award of the Industrial Tribunal, Madras, in I.D. No. 42 of 1967. The dispute referred to the Tribunal was in relation to the demand of the workers for additional bonus for the years 1964 and 1965. The employer has disbursed a 4 per cent bonus for the year 1965. The dispute with regard to the bonus for 1964 his been settled by means of an agreement. The workers claimed that for the year 1965, if the provisions of the Payment of Bonus Act were applied, they would be entitled to a 20 per cent bonus. The main basis of this claim was that the management had earned a profit of Rs. 12,08,304 as a result of the sale of an import entitlement and that this represented a revenue receipt and should have been taken into account in calculating the available surplus. The management contended that the receipts from the transfer of import entitlements were receipts of a capital nature and as such exempt from any charge to income-tax or from being taken into account for computation of the bonus payable. The Industrial Tribunal held that the demand for additional bonus for 1964 was not justifiable, as it was governed by an agreement entered into in I.D. No. 9 of 1965 Discussing the question with regard to the payment of bonus to the year 1965, the Tribunal held that the available su plus and the allocable surplus were correctly calculated by the company and the bonus was paid according to the allocable surplus. This seems to have been mainly on the ground that the consideration received for the transfer of import entitlements was in the nature of a Capital receipt and the company was entitled to appropriate it towards its capital because the expenses and out-goings incidental to the transfer of import entitlements hive not been taken into account by the management for ascertaining the managerial remuneration under the company and for payment of dividend to the shareholders and for provision of taxation for the year under consideration.
2. It appears to me that the fact that the management did not take the consideration received for the transfer of the import entitlements for the purpose of ascertaining the managerial remuneration and for payment of dividend to the share-holders and for provision of taxation for the year under consideration, is wholly irrelevant to the decision of the question under consideration. This amount continues to remain with the company. It will ultimately become available to the share-holders as well as to the management. The fact that it has not been taken into consideration for the purpose of ascertaining the managerial remuneration and for payment of dividend and income-tax merely means that the management want, if they can, to avoid having to pay income-tax on this amount. Incidentally it may help them to avoid having to pay the legitimate bonus also to the labourers. The only question for consideration therefore is, whether this amount represents the profits of the company or not.
3. In this petition, three questions arise for consideration; (1) Whether the receipt of the company for transfer of import entitlements is to be taken into account in calculating the profits of the company for the purpose of bonus? (2) Whether in the bonus paid for 1964, the sum of Rs. (sic) lakhs, as bonus paid to workers, is alone to he taken into account or a sum of Rs. 3,00,000, which, includes the bonus paid to employees of the management other than the workers also has to be taken into account? and (3) Whether the management is justified in providing for the return on the capital as on 1.4.1965 or is it to be on the capital as on 3.12.1964. I shall deal with the second and third questions later.
4. In considering the first question, one might begin with the scheme or import entitlement. The special Export Promotion Scheme for Engineering Goods sponsored by the Government of India, came into effect from 1.4.1963 and cane to an end. In June 1966 with the devaluation of the Indian rupee. Among the benefits available 'o the registered exporters were import entitlements against export of the products mentioned in Annexure V to the Scheme. The value of woods for which an import licence was lo be given would be determined with reference to the F.O.B value of exports upto the monetary extent mentioned in Annexure V. The import entitlements were allowed to registered exporters on production of proof of export or receipt of payments for the export. The import entitlement could be used for the import of materials mentioned in Annexure VII. The import entitlement for machinery or machine parts could be accumulated for a maximum period of two years and a maximum value of rupees ten lakhs. The article imported against such import entitlements could be used in the exporters' own factory or factories or sold to any other manufacturer to manufacture products covered by the scheme, and who directly export a part of their products or who sell a part of their products for export. In cases where an exporter wanted to transfer or sell his import entitlements to another manufacturer, the application for import licence should be filled in by such manutacturer and import licence will be issued in the name of such manufacturer. Alternatively an exporter getting an import licence in his own name will be eligible to obtain a letter of authority in favour of any manufacturer, who satisfies the conditions. There would be no objection to the letter of authority being granted in the name of another manufacturer, who satisfies the conditions. Thus, an import entitlement was freely transferable and it is under this scheme that the management in this case earned in the year ending 3lst December 1965 a sum of rupees 12 lakhs and odd already mentioned.
5. It is seen from the Schedule 'M' to the annual report for 1965 of the company that the loss on exports in that year was Rs. 6,96,322. The export promotion scheme having been designed to encourage the exports activities such encouragement was given to the exporters in the form of transferable import entitlements under which machinery or raw materials could be imported, which could be used either by them or sold by them and the profits so made were intended to cover not merely the losses incurred in exporting, but also to give sizable profits. Prima facie it is not clear why any amounts received under such a scheme should be treated as anything but profits. The loss in exports is sustained by the management in the course of its ordinary business. The import entitlement is, in effect, a monetary inducement offered to the exporters to make up for the loss and even make a profit. No exporter would make an export, if it merely ended in a loss. It is because of the import entitlements and the profit, which was expected to be made from out of those entitlements, that the export is made. Thus, the import entitlement is a part and parcel of the business activity of the management. The profit made from the import entitlement either by using the material imported under it or by selling the materials imported under it or by transferring the import entitlement itself, is part of the normal business activity of the exporter and the income received therefrom is part of the normal income of such an exporter. The auditors of the company took that view and their report in regard to this matter is as follows:
Schedule 'M' to the accounts shows an excess of receipts on account of import entitlement over loss on export activities, amounting to Rs. 12,08,304. This amount has been transferred to Capital Reserve Account and no provision has been made in respect of bonus or taxation on this amount on some legal advice to the effect that the receipts for transfer of the entitlements under the Export Promotion Scheme sponsored by the Government of India are capital receipts not subject to taxation. However, if these receipts are revenue receipts then the amount of bonus and tax which would become payable on the net excess for the year of Rs. 12,08,304 would be approximately Rs. 8,28,000 which, together with the estimated amount of Rs. 16,16,000/- on the net excess of receipts Rs. 25,26,093 in the previous year would amount to an additional total estimated bonus and tax liability of Rs. 24,44,000/-. In our opinion, the receipts on the transfer of the entitlements are revenue receipts and provision should have been made in the accounts for bonus and taxation amounting to Rs. 24,44,000/- for 1964 and 1965.
In the explanatory memorandum by the Directors it is said thus:
(a) The question whether a receipt of a sum is inherently of capital nature or revenue nature, is purely a question of law;
(b) The auditors do not practise the profession of law and have nowhere been accepted as authorities on pure issues of law;
(c) The Directors themselves concentrated on analysing the precedents and inherent nature of such receipts; and
(d) took the precaution of sitting in conferences with reputed Advocates of the Supreme Court of India and also obtained and acted upon their opinion backed by deep research into the subject.
No doubt the question whether the receipt from the import entitlement is a capital receipt or a revenue receipt is a question of law. No doubt the opinion of the auditors on this question is not final. Not is the opinion of the advocates whom the Directors consulted final on the subject. This Court wilt have to decide this question without reference to the opinion either of the auditors or of the advocates, whom the Directors are said to have consulted.
7. A large number of decisions under the Income-tax Act as regards capital receipts and revenue receipts were cited by both sides. I consider that while such decisions may be of some use in deciding this question, it cannot be decided merely on the basis of the decisions under the Income-tax Act. The scheme of the Payment of Bonus Act is quite different from the Income tax Act. It does not make the income assessable to tax under the Income-tax Act as the basis for the calculation of payment of bonus. If it did, naturally, we will have to be guided wholly by the Income-tax Act and the decisions thereunder. That is not the case here. Under Section 4 of the Payment of Bonus Act, the gross profit derived by an employer from an establishment in respect of any accounting year shall, in the case of a company other than a banking company, be calculated in me manner specified in the Second Schedule. Under Section 5, the available surplus in respect of any accounting year shall be the gross profits for that year after deducting therefrom certain sums. Under Section 6 certain sums are deductable from the gross profits as prior charges like depreciation, developmental rebate and direct taxes payable by the employer as also the sums specified in Schedule III like dividends and return on the capital. Thus, these deductions are, of course, with reference to the provisions of the Income-tax Act. But under Section 7 in calculating the direct taxes payable by the employer, no account shall be taken of-
(i) any loss incurred by the employer in respect of any previous accounting year and carried forward under any law for the time being in force relating to direct taxes;
(ii) any arrears of depreciation which the employer is entitled to add to the amount of the allowance for depreciation for any following accounting year or years under Sub-section (2) of Section 32 of the Income-tax Act;
(iii) any exemption conferred on the employer under Section 84 of the Income-tax Act or of any deduction to which he is entitled under Sub-section (1) of Section 101 of that Act, as in force immediately before the commencement of the Finance Act, 1965;
(iv) Where the income of any employer includes any profits and gains derived from the export of any goods or merchandise out of India and any rebate on such income is allowed under any law for the time being in force relating to direct taxes, then, no account shall be taken of such rebate;
(v) no account shall be taken of any rebate (other than development rebate or development allowance) or credit or relief or deduction (not hereinbefore mentioned in this section) in the payment of any direct tax allowed under any law for the time being in force relating to direct taxes or under the relevant annual Finance Act, for the development of any industry.
It would be apparent from the above provisions that quite a number of items, which would not be taken into account for the purposes of levying income-tax, are included in the Payment of Bonus Act for purposes of calculating the gross profits. That is why the niceties and distinctions applied in decisions under the Income-tax Act are not wholly relevant to the decision of the question in this case. As the payment of bonus is based primarily on the gross profits after making certain deductions provided for under the Act itself, the decision in this case will have to be on the basis of the provisions of Payment of Bonus Act itself. It appears to me, therefore, that there is very little doubt that in calculating the gross profits and the allocable surplus under the Payment of Bonus Act undue importance should not be given to decisions under the Income tax Act. The receipt by the company of certain amounts as a result of the transfer of the import entitlements obtained by it is part of its normal business income and arises out of its normal business activity. It could even be considered as falling under the provisions of Section 349 of the Companies Act under Sub-section (2) of which in calculating the gross net profits of a company, credit should be given for bounties and subsidies received from any Government, or any public authority constituted or authorised in this behalf by any Government. The import entitlement is not of any value apart from the money or the profits it brings in, Instead of the Government making a direct gift in order to cover the loss incurred in exporting and also to enable the exporter to make some profits, the Government makes the import entitlement available to the exporter which in effect enables him to obtain sums which might amount to a bounty or subsidy received from the Government. A subsidy might take many forms, either of a direct payment or of a scheme under which the exporter is enabled to make profits, The import entitlement should, therefore, be considered to be a bounty and should certainly be taken into account in calculating the net profits of a company. If that is so in respect of the remuneration of the managing agents under Section 348 of the Act, the same rule should apply also to payment of bonus.
8. I shall, however, discuss briefly the various decisions referred to by both parties. The first decision relied on by the petitioners is the one in Bisheshwar Singh v. Commissioner of Income-tax : 27ITR376(Patna) . There the assesses obtained two permits for molasses which he transferred to another person as a result of which he got a sum of Rs. 61,450/-. The Tribunal held that the transaction constituted an adventure in the nature of trade and the income was, therefore, liable to be taxed. This was upheld by the Patna High Court, The reasoning of the Court was that there was a definite intention on the part of the assessee to re sell the permits and make profits from the transaction and that the assessee had obtained profits from an adventure in the nature of trade and, therefore, the income was assessable. On behalf of the employer this decision is sought to be explained on the basis that it was held to be an adventure in the nature of trade because there was definite intention on the part of the assessee to re-sell the permits and make profits from the transaction and that there is no evidence of such an intention in this case. One particular difficulty which has to be faced in this case unlike the cases under the Income-tax Act is this: whereas in the cases under that Act there is first an appeal to the Assistant Commissioner of Income-tax and a further appeal to the Income-tax Appellate Tribunal and the High Court itself has got to decide the question of law referred to it on the basis of the facts ascertained by the Tribunal, the court does not have that advantage here. The Tribunal in this case has not considered whether the assessee had an intention to re-sell. The test by which a transaction is to be held to be an adventure in the nature of a trade or not is the intention with which the asset was acquired. If a person acquires a capital asset, with the intention of retaining it himself, but later changes his mind and disposes it of and makes a profit in the bargain, it cannot be held to be an adventure in the nature of trade. But where even in the beginning the assessee had no intention of retaining the property but only of either developing it and selling or selling outright, then it would be an adventure in the nature of trade. As I said, the Tribunal did not decide this question and it cannot also be expected to decide this question because it was not considering the transaction from the point of view as to whether this was an adventure in the nature of trade. But I should consider that in the circumstances which I have explained earlier, the question what the intention of the person concerned was at the time he acquired the asset is not very relevant in considering a question under the Payment of Bonus Act. What is relevant is only the profit made out of it.
9. The second decision relied upon wasthat of the Allahabad High Court in Ex-Soldiers' Motor Transport Co. v. Commissioner of Income-tax : 47ITR913(All) where the assessee, who carried on the business of plying motor buses and who held permits from the Transport Authority to ply buses in certain routes, transferred the permits to ply buses in some of the routes to a third party, with the permission of the Authority and received a sum of Rs. 10,000/- as consideration for such transfer, and it was held that the sum of Rs. 10,001/- thus received by the assessee was not a receipt of a capital nature but a revenue receipt and was liable to be assessed to income-tax. It was held that there was really no sale of any capital asset in the case; the assessee had merely changed the mode of earning profits by using the permits. This decision would be directly in point in this case to hold that the amount in controversy is a revenue receipt. But it is contended on behalf of the employer that this decision was based on the decision in Commissioner of Excess Profits Tax v. Shri Lakshmi Silk Mills Ltd. : 20ITR451(SC) and the court refused to follow this decision in Maheshwari Devi Jute Mills v. Commissioner of Income-tax : 43ITR254(All) and the Supreme Court in Commissioner of Income-tax v. Maheshwari Devi Jute Mills Ltd. : 57ITR36(SC) (S.C.), has affirmed the latter decision and, therefore, the decision in : 47ITR913(All) cannot be said to be good law. But it should be noticed that the decision of the Supreme Court itself was on the basis that the loom-hours transferred in that case was an asset belonging to the assessee. At page 39 of the report their Lordships say:
In the proceedings before the Income-tax authorities, the Tribunal and the High Court, these 'loom-hours' have been regarded as an asset belonging to each member and in considering these appeals we do not think we would be justified in allowing counsel to raise a contention (as was sought to be done) that 'loom-hours' were in the nature of a privilege and were not an asset at all. The case has at all earlier stages been considered on the footing that by virtue of the covenant incorporated in the agreement between the members of the association, the right to work for the allotted number of hours was an asset capable of being transferred, subject to the sanction of the association.
Therefore, it cannot be said that the decision of the Supreme Court case really demolishes the basis of the decision of the Allahabad High Court. That is the view taken by Kanga and Palkhivala in their book 'The Law and Practice of Income-tax, VI Edition, Volume 1, At page 122, the learned authors say:
If a jute mill has the right to work a certain number of loom-hours under an agreement formulated by a trade association to avoid losses owing to over-production, and finding itself unable to utilise all the loom-hours, 'transfers' some loom-hours to another mill for a cash payment as permitted under the agreement, the receipt would be on revenue account. The decision of the Supreme Court (to the contrary in Commissioner of Income-tax v. Maheshwari Devi Jute Mills Ltd. : 57ITR36(SC) is, it is submitted with respect, incorrect. That case had proceeded at earlier stages on the basis that loom-hours are capital assets and the Supreme Court disposed of the appeal on the same basis. Loom-hours are, correctly speaking, neither capital nor revenue assets in the legal or commercial sense. The allotment of loom-hours to different units under a trade agreement constitutes merely a contractual restriction on every unit's right under the general law to work its factory to its full capacity, and the 'purchase' of loom-hours is merely a relaxation of that restriction. The price received by the 'seller' of loom-hours is a trading receipt in substitution of the profits which would have been made by working the loom-hours.
They also refer to the decision of the Allahabad High Court in Ex-Soldiers' Motor Transport Co. v. C.I.T. : 47ITR913(All) with approval in support of this view, I think, of this decision which exactly covers the facts of this case.
10. Another case relied upon is the one in M.R. Goyel v. C.I.T. 1969 I S.C.C. 659. In that case a businessman dealing in articles including parachute silks, entered into a contract with Tata Aircraft Ltd., for the purchase of stock in trade for the business which he was carrying on, The benefit of this contract was transferred by him in favour of Messrs. Nathmal Nihalchand, Pokhraj Hirachand and Harilal Harigovandas for a consideration and that consideration was held to represent a receipt for transferring the benefits of the contract entered into by the assessee in the ordinary course of business and thus liable as an income receipt. The respondents seek to distinguish this case on the ground that the contract was one which related to the assessee's ordinary course of business and should, therefore, be deemed to be an income receipt whereas in the present case, it cannot be said that the employer was a dealer in import entitlements and, therefore, an income from import entitlements cannot be said to be an income receipt. But it should be remembered that there is considerable similarity between the two cases. The import entitlement also arose in the ordinary course of the employer's business. He did not make any investment for acquiring this asset. The import entitlement is one form of receipt which could be turned into cash just as the benefit of the contract also could be turned into cash in the reported cases. By itself it cannot fetch any income unless it is transferred or made use of unlike capital assets.
11. On the other hand the respondent relies upon the decision in Seshasayee Brothers Ltd. v. Commissioner of Income-tax : 42ITR568(Mad) . In that case the assessee was a partner of a firm which obtained a licence to establish a factory for the manufacture of Vanaspathi products from the Government of India. Finding that the future prospects of the venture were uncertain, the assessee withdrew from the project and the licence was surrendered to another group in which some of the partners of the firm still figured. The assessee received Rs. 41,000 as its share out of the consideration for the transfer of the licence and it was held that the sum received by the assesses was a capital gain and it was not assessable as a trading receipt as it was not one of the lines of business of the assessee to acquire and sell licences. It is, therefore, urged on behalf of the employer that as in the present case the business of the employer was not acquiring and selling import entitlements, the receipt from that source is not a trading receipt. But while the licence in that case did not arise out of the business of the assessee, in the present case, the import entitlement was obtained as a result of the employer's trading activity. It was not unrelated to the employer's business. What it obtained was something which it got in the course of its business and which could be turned into its financial advantage. It should, therefore, be considered to be an income arising out of the employer's business.
12. It is hardly necessary to refer to some of the decisions relied upon on behalf of the employer because all of them are cases where the assessee invested monies in order to obtain capital assets. They did not arise out of their business or trading activity. I shall, however, refer to them in brief.
13. In the case in Hood Barrs v. Inland Revenue Commissioners 34 I.T.R. 238 a timber merchant entered into two agreements with a company in which he owned 49 per cent of the capital in respect of a large number of trees growing on the company's land. He acquired the right to mark, fell and carry away all the said trees and complete all the operations authorised at such time as he shall consider convenient, no time limit being fixed. The trees had not been selected or identified, ft was held that in computing the timber merchant's income-tax liability, the sums payable should be treated as capital expenditure and not as the price for stock-in-trade and accordingly should not be debited in calculating his trading profits, as his only right was to fell and carry away the trees which remained the vendor's property tillseverance.
14. In Commissioner of Income-tax v. Rai Bahadur Jairam Valji : 35ITR148(SC) , B.I. Company entered into an agreement with the assessee, who had been supplying limestone and dolomite to the company since 1920, for the purchase of all its requirements of limestone and dolomite from him at specified rates. The company went into liquidation and its assets and liabilities were taken over by another company called U.S. Co. The latter continued to purchase limestone and dolomite from the assessee for some time but, when it found the rates uneconomical, informed the assessee, by notice, of its decision to purchase its requirements elsewhere. The assessee filed a suit against I.I.S. Co. Thereafter the assessee and I.I.S. Co., entered into an agreement in respect of the disputes between them under which the assessee was to work a quarry for a period of 25 years and to supply the limestone quarried to the company. The assessee was paid at a specified rate per ton of limestone. The working of the quarry was left entirely in the hands of the assessee, who was him-self to purchase the machinery and appliance and put up all the superstructures engaging his own workmen. The assessee also agreed to supply to the company such other quantities of limestone as the company might order. A fresh agreement was entered into on August 2, 1941, whereby the company agreed to pay a sum of Rs. 2,50,000/- to the assessee as solatium besides the monthly instalments of Rs. 4,000/- remaining unpaid under the contract of 1940. It was held that the sum of Rs. 2,50,000/- was not paid to the assessee as compensation for expenses laid out for works at the quarry of a capital nature and could not be held to be a capital receipt on that account, that the agreements of 1940 and 1941 were merely adjustments made in the ordinary course of business, that there was no profit-making apparatus set up by the agreement of 1941 apart from the business which was to be carried on under it, that, therefore, the receipt of Rs. 2,50,000/- by the respondent was a revenue receipt and was chargeable to tax.
15. In Chintamani Saran Nath Sah Deo v. Commissioner of Income-tax : 41ITR506(SC) the assessee received certain amounts for four licences granted to different parties to prospect for bauxite. The periods of the licences were six months in two cases and one year in the other two. Under the licence, the licensee was granted the right to enter upon the land to prospect, search and mine, quarry, bore, dig and remove all bauxite lying in or within the land and for that purpose the licensee had the right to dig pits, shafts, borings and to remove, take away and appropriate samples and specimens of bauxite in reasonable quantities not exceeding 100 tons in the aggregate. It was held that the licence was not merely a grant of the use of the capital of the assessee but it was really a grant of a right to a portion of the capital in the shape of a general right to the capital asset, and that the amounts received by the assessee were capital receipts and were not assessable to income-tax.
16. In Abdul Kayoom v. Commissioner of Income tax : 44ITR689(SC) the assessee firm which carried on business in the purchase and sale of conch (chank) shells took on lease from the Government 'the exclusive rights' liberty and authority to fish for and take and carry away all 'chank shells' in the sea off the coast line of a certain area specified in the lease, for a period of three years on a consideration of a yearly rent. The assessee claimed that, in computing its annual income from the sale of chanks it was entitled to deduct the yearly rent paid to the Government as business expenditure. The High Court held that the expenditure was not of a capital nature and the assessee was entitled to deduct the amount claimed as business expenditure. On appeal, the Supreme Court held that the amount paid by the assessee was an amount paid to obtain an enduring asset in the shape of an exclusive right to fish; the payment was not related to the chanks, which it might or might not bring to the surface; it was not an amount spent in acquiring its stock-in-trade but for acquiring an asset from which it may collect its stock-in-trade, and it was therefore an expenditure of a capital nature, and though it was incurred for the purposes of the assessee s business, it was not allowable as business expenditure.
17. In Gillanders Arbuthnot & Co. Ltd. v. Commissioner of Income-tax : 53ITR283(SC) (S.C) it was held that having regard to the vast array of business done by the assessee as agents the acquisition of agencies was in the normal course of business and determination of individual agencies a normal incident not affecting or impairing its trading structure and the amounts received by the assessee for the cancellation of the explosives agency therefore did not represent the price paid for the loss of a capital asset and was in the nature of an income. The basis of the decision was that there is no impairing of the trading structure of the assessee nor of his profit making structure and the amouat received is income.
18. The argument on behalf of the employer based on this decision is that if the assessee's business consisted of the acquisition of import entitlements and disposing of them it would be a business receipt and not where the acquisition of the import entitlements was not its normal business. I am afraid that this argument cannot be accepted because the acquisition of import entitlement was in the normal course of business of the employer. The fact that the amount received by the employer was not for the determination of an agency or an entitlement as in Gillanders Arbuthnot & Co. Ltd. v. Commissioner of Income-tax : 53ITR283(SC) S.C does not make a difference. Indeed it could be said that what was done here was a mere transfer of something acquired in the normal course of employer's business and, therefore, this case far from helping the employer, would be against him. The principle sought to be deduced from Abdul Kayoom v. Commissioner of Income-tax : 44ITR689(SC) , Chintamani Saran Nath Sah Deo v. Commissioner of Income-tax : 41ITR506(SC) , Commissioner of Income-tax v. Rai Bahadur Jairam Valji : 35ITR148(SC) and Hood Bans v. Inland Revenue Commissioners 34 I.T.R. 238 is that where the expenditure is for the acquisition of the stock-in-trade itself, it would be a revenue expenditure and the income derived from the transfer of such asset would be an income receipt; but where an investment is laid out for the acquisition of something which by itself was of no value, but only enabled the assessee to acquire something else, the amount expended is a capital expenditure and when that asset is transferred it should be deemed to be a capital receipt. The principle deduced may be correct. But in the present case no amount was invested by the, petitioner in getting the import entitlement It was one form of receipt from out of the employer's trading activity and instead of making use of it if the employer transfers it to somebody else, the amount so received is only a receipt from the employer's trading activity. This is akin to the transfer of the contract in M.R. Goyel v. C.I.T. 1969 I S.C.C. 659 and the transfer of a permit in the case ID Ex-Soldiers' Motor Transport Co. v. C.I.T. : 47ITR913(All) . Indeed even in the case in Chintamani Saran Nath Sah Deo v. Commissioner of Income-tax : 41ITR506(SC) it is recognised that where the use of the capital of the assessee is granted the amount received would be a revenue receipt. Even if we consider the import entitlement a capital asset the amount received for granting the use of it would be revenue receipt. It is true that the import entitlement and its transfer cannot be said to be an adventure in the part of the employer's business in the sense that the acquisition and sale of import entitlements is its business. But the import entitlement and the amount received by transferring that import entitlement is the result of the business and trading activity of the employer. The import entitlement is one of the receipts of its trading activity and when that has been turned into cash that should be deemed to be an income receipt of the employer's business and trading activity. The import entitlement in this case differs from the licence in Seshasayee Brothers Ltd. v. Commissioner of Income-tax : 42ITR568(Mad) because in the latter case the licence did not arise out of its business activity, but was an independent transaction. Thus, it is clear that even apart from the fact that in calculating the profits for the purpose of the Payment of Bonus Act, the decisions under the Income-tax Act are not quite relevant, the conclusion to be reached even on an application of the principles to be adopted in determining the question whether a certain receipt is an income receipt or capital receipt is that the receipt in the present case should be deemed to be an income receipt.
19. The employer's argument that capital receipts and capital profits should be deducted as provided for in item No. 6 of the Second Schedule is not quite correct, for the reasons (1) that this is not a capital receipt or a capital profit and (2) according to foot note 2, in the Second Schedule to the Act, it is liable to be deducted even if it is a capital receipt only if and to the extent it is credited to the profit and loss account. As this sum of rupees twelve lakhs has not been credited to the profit and loss account, it cannot be deducted in computing the gross profits.
20. The next question is, whether in respect of the bonus paid for the year 1964 what is to be added back for the purpose of computing the gross profits is the sum of Rs. 3,00,748/- or the sum of Rs. 1,43,784/- as claimed by the employer. According to the workers what is to be added back is the total amount of bonus paid to all the employees of the company and not merely to employees entitled to payment of bonus under the Payment of Bonus Act, who may, for the purpose of convenience, be referred to as eligible employees. Their contention is that as the relevant entry in the Second Schedule (to the Act) refers to bonus paid to employees, the whole of the bonus paid should be added back and not merely the bonus paid to the eligible employees. On the other hand the management contends that when the relevant entry in Schedule II refers to bonus paid to employees, we should refer to the definition of 'employees' in the Act and that definition only refers to eligible employees and, therefore, the bonus paid to eligible employees should be taken into account.
21. Another contention of the employees is that as the bonus paid in the year 1964 which ought to come from the profits of the year 1964, is taken out of the profits of the year 1965 that should be reduced to the minimum because the employees eligible for payment of bonus in 1965 would be different from the employees eligible for payment of bonus in 1964 and the former should not be made to suffer because of the larger bonus paid to the latter. I do not think the difference is so great as to cause any injustice to the workers. Most of the workers who were working in 1964 will be working in 1965 also. The contention on behalf of the employer is that as 60 per cent of the allocable surplus is provided for bonus to be paid to the employees and only 40 per cent is available to the employer, the amount paid as bonus to the non-eligible employees comes out of this 40 per cent. To add that sum so as to find the allocable surplus is like punishing the employer for paying bonus to the non-eligible employees. It was also argued that there should be no further reduction in the amount available for the employer by adding even the bonus paid to the non-eligible employees to the allocable surplus as though such bonus is paid out of the 60% available to the eligible employees, In this case unfortunately the Tribunal has not expressed its opinion on the point. If it had it may be possible for this Court to refrain from interfering with the Tribunal's award on this point on the ground that where it is possible to hold equally plausible views this Court will not interfere. Such an easy solution is not available in this case. A number of decisions by tribunals on this point are gathered together in F.L. Berarwalla's book, Payment of Bonus Law and Practice in India, at pages 173 and 174. There, the decisions in Firestone Tyre etc. Co. v. Workmen 1965 Ind. C. Rep. 202, Forbes Forbes Campbell & Co. Ltd., v. Workmen 1965 Ind. C. Rep. 220 and Voltas Ltd., Bombay v. Workmen Gazette of India Part II, 25th May, 1968, p. 2386 are referred to. See also the decision in : (1968)IILLJ712AP Rallis India Ltd., Bombay v. Its Workmen. On the whole I would prefer to agree with these tribunals and 1 hold that the only sum which can be added back is the bonus paid to eligible employees, that is Rs. 1,43,784/-.
22. The third question is whether in calculating the gross profits, the return of 8.5 per cent on the capital should be on the capital on 1.1.1965 or it should be calculated on the basis of the capital on 21.12.1964. It is found from the annual report of the employer for the year 1965 that the company took over the business of the erstwhile firm of the Mysore Premier Metal Factory during the year under an agreement dated 31st December, 1964 and that this came into effect on the 1st of January 1965. The capital involved was Rs. 15,00,000/-. The shares were allotted and issued as fully paid up shares pursuant to the contract by way of consideration to the partnership for the acquisition of the undertaking of the Mysore I remier Metal Factory, Madras. There can, therefore, be no objection to the deduction for the return of capital or. the basis that it was Rs. 87,00,00 and not merely Rs. 72,00,000.
In the result, it follows that the income from the transfer of import entitlement should be taken into account in the computation of gross profits, that the bonus paid to the eligible employees only should be taken into account, and that the return on capital should be on the basis that it was Rs. 87,00,000/-. The award of the Industrial Tribunal, Madras, is, therefore, quashed. It will have to consider the matter afresh. There will be no order as to costs.