The Sree Meenakshi Mills, Ltd vs Their Workmen (And Connected Appeals)

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 217 of 1956

Decision Date: 5 November 1957

Coram: P.B. Gajendragadkar, Natwarlal H. Bhagwati, Syed Jaffer Imam

In the case titled The Sree Meenakshi Mills, Ltd. versus Their Workmen and Connected Appeals, the judgment was delivered on 5 November 1957 by the Supreme Court of India. The opinion was authored by Justice P. B. Gajendragadkar, and the bench consisted of Justices P. B. Gajendragadkar, Natwarlal H. Bhagwati, and Syed Jaffer Imam. The matter was recorded under the citation 1958 AIR 153 and 1958 SCR 878, and it involved issues arising under the Industrial Disputes Act, specifically concerning the computation of bonus, the determination of available surplus, and the treatment of depreciation under the Income‑Tax Act as a prior charge. The workmen had claimed a bonus for the financial year 1950‑51 on the ground that the employer’s accounts showed a profit for that year. The employer, The Sree Meenakshi Mills, Ltd., resisted the claim, contending that a trading loss had been incurred and therefore no surplus existed to justify a bonus. To calculate the surplus, the employer had deducted from its gross profits an amount for depreciation that was allowable under the Income‑Tax Act. The industrial tribunal, however, disallowed a portion of that depreciation, found that profits did indeed exist, and consequently awarded the workmen a bonus equivalent to three months’ wages. The employer appealed the tribunal’s decision to the Labour Appellate Tribunal, but the appellate tribunal dismissed the appeal. Thereafter, the employer sought a review of the appellate tribunal’s order. The Tribunal denied the review, holding that it possessed no power to review its own decision and, even assuming such power existed, it would not grant a review because the employer had not made out a case warranting one.

The Supreme Court held that the entirety of depreciation permissible under the Income‑Tax Act could not be treated as a prior charge when determining the surplus available for bonus payment. The Court distinguished between “initial depreciation” and “additional depreciation,” describing them as abnormal additions to the tax depreciation that should not be considered prior charges before ascertaining the surplus. The Court explained that allowing such depreciation to reduce the surplus would be unfair to the workmen, because considerations that justify additional depreciation under tax law differ from the considerations of social justice and equitable apportionment that underlie the bonus formula. Accordingly, only normal depreciation, including multiple‑shift depreciation, could be treated as a prior charge. The Court approved the earlier authority of U. P. Electric Supply Co. Ltd. v. Their Workmen, [1955] L.A.C. 659, and affirmed that the Labour Appellate Tribunal possessed the power to review its own orders, following the precedent set in M/s. Martin Burn Ltd. v. R. N. Banerjee, [1958] S.C.R. 514. Furthermore, the Court observed that the method employed by industrial tribunals to determine the employer’s trading profits did not conform to the requirements of the Income‑Tax Act, and therefore it would be erroneous to assume that the gross profits calculated by the industrial tribunal were necessarily the same figures that would be taxable under the Income‑Tax Act. Consequently, the Court concluded that a higher income‑tax provision could not be made solely because the employer’s claim to initial and additional depreciation had been disallowed, since such disallowance merely increased the computed gross profit without altering the proper method of assessing taxable income.

The Court observed that, when the surplus available for bonus payment is being calculated, a higher provision for income‑tax may not be allowed simply because a claim for initial and additional depreciation has been disallowed, a circumstance that would otherwise increase the amount of gross profits. The present judgment concerned Civil Appeal No. 217 of 1956, which had been filed by special leave against the decision dated 7 December 1953 of the Labour Appellate Tribunal of India at Madras, recorded as Miscellaneous Case No. 111‑C. 387 of 1953. The appellants were represented by counsel for the petitioners, while the respondents were represented by counsel for the opposite side. The judgment was delivered on 5 November 1957 by Justice Gajendragadkar.

These three appeals originated from two industrial disputes, numbered 24 and 26 of 1951, that were between the appellants and their workmen. Dispute No. 24 of 1951 involved the management and workers of Sree Meenakshi Mills Ltd., located in Madurai, whereas Dispute No. 26 of 1951 involved the management and workers of Thiakesar Alai at Manapparai. Both disputes dealt with the claim by the workmen for a bonus for the financial year 1950‑51. The workmen argued that the two mills should be regarded as a single unit that had earned profits in the relevant year, and therefore a bonus was justified. The appellants, on the other hand, maintained that the two mills were separate entities and that the bonus claims should not be aggregated; they further contended that a trading loss had occurred in that year, making any bonus payment impossible. The Industrial Tribunal rejected the appellants’ contentions, held that the two mills constituted one unit, and found a surplus of Rs 2,87,676 from which the workmen’s claim for bonus was deemed justified, resulting in an award of three months’ bonus.

Subsequently, the appellants filed two appeals, numbered 133 and 134 of 1952, before the Labour Appellate Tribunal of India at Madras, challenging the tribunal’s findings and asserting that no bonus was payable for the year in question. At the same time, the workmen filed appeal No. 168 of 1952, seeking a larger bonus than that awarded by the tribunal below. The appellate tribunal affirmed the earlier finding that the two mills formed a single unit. It calculated the net surplus available for distribution as bonus to be Rs 2,57,496. When examining the appellants’ claims for various deductions, the appellate tribunal substantially disallowed deductions on three specified items. Regarding the claim of Rs 8,43,927 made by the appellants as depreciation on machinery and buildings, the appellate tribunal concurred with the industrial tribunal in holding that only a sum of Rs

The appellate tribunal held that only Rs 4,00,000 of the depreciation claim could be allowed; consequently the balance of Rs 4,43,927 that the appellants sought to deduct was disallowed. This specific finding is the subject of the present appeals. At this point it is appropriate to note that, in computing the net surplus that could be distributed as bonus, the appellate tribunal concurred with the industrial tribunal that the tax provision of Rs 1,75,000 made by the appellants was sufficient. Because of these conclusions, the appellate tribunal dismissed the appeals filed both by the appellants and by the respondents.

Following the dismissal, the appellants obtained special leave and filed Civil Appeals Nos. 218 and 219 of 1956 before this Court. In addition, the appellants filed an application for review before the Labour Appellate Tribunal, designated as Miscellaneous Case No. III‑C‑387 of 1953. The review application alleged that the tribunal’s order was manifestly erroneous, asserting that a mistake apparent on the face of the record required correction under the tribunal’s review powers. The tribunal responded that it possessed no power of review, and even assuming such a power existed, it found no case for its exercise because no apparent mistake existed in the record that could not have been discovered when the order was pronounced in the presence of the parties. Dissatisfied with that decision, the appellants again obtained special leave and filed Civil Appeal No. 217 of 1956 before this Court.

In Civil Appeals Nos. 218 and 219 of 1956, the appellants contend that the appellate tribunal erred in law by disallowing their depreciation claim amounting to Rs 4,43,927. In the review appeal against the tribunal’s refusal to revisit its decision, the appellants’ counsel argued that the tribunal was wrong to hold that it lacked jurisdiction to review its own order under section 47 of the Code of Civil Procedure, and further maintained that, on the merits, the tribunal improperly concluded that the appellants had not established a basis for exercising that jurisdiction.

For the purposes of these appeals it is useful to set out the financial position of the appellants for the relevant year as recorded in the appellate tribunal’s judgment. The tribunal listed the following figures: Net profit as per Exhibit M‑1 amounted to Rs 2,40,302. To this, the sum wrongly debited as cost of repairs and similar items—calculated as Rs 2,57,793 less Rs 1,00,000—was added, yielding Rs 1,57,793. An amount of Rs 1,49,920 representing bonus for the year 1949‑50 that had been wrongly charged to 1950‑51 was added. Bonus paid to clerical staff for 1950‑51 of Rs 37,896 was also added. Depreciation debited by the company, amounting to Rs 8,43,927, was included. A provision for taxation of Rs 1,75,000 and a donation were likewise added to the total.

The statement of accounts showed that after adding a donation of Rs 40,000 to a college, the total gross profit for the year amounted to Rs 16,44,838. From this gross figure the tribunal required several deductions before arriving at the amount that could be distributed as a bonus. The deductions listed were as follows: depreciation allowed of Rs 4,00,000; a bonus paid to clerical staff for the year 1950‑51 of Rs 37,896; a provision for taxation of Rs 1,75,000; a return on capital, which included both preference and ordinary shares, of Rs 2,94,500; a return on the reserve that had been used as working capital calculated at four per cent, amounting to Rs 2,23,946; and a provision for rehabilitation calculated as the difference between Rs 6,56,000 and Rs 4,00,000, giving Rs 2,56,000. Adding these deductions gave a total of Rs 13,87,342. Consequently, the net surplus that was available for distribution as a bonus was the gross profit of Rs 16,44,838 less the total deductions of Rs 13,87,342, leaving a balance of Rs 2,57,496.

Because the appeals before this Court concerned only the quantum of depreciation that the appellants had charged, the Court found it necessary to set out the depreciation analysis that had been explained by the appellants’ representative before the Industrial Tribunal. According to that explanation, the depreciation calculation was made in accordance with the provisions of the Income‑Tax Act and was broken down into three components described as “Normal”, “Extra” and “Initial”. The figures given were as follows: for the Madurai unit, which operated for 245 days, the normal depreciation was Rs 3,17,331, the extra depreciation was Rs 38,465, and the initial depreciation was Rs 2,87,250; for the Usil‑ampatti unit, which operated for 250 days, the normal depreciation was Rs 2,23,206 and the extra depreciation for the ampatti portion was Rs 16,077. When these amounts are summed, the total depreciation claimed by the appellants totals Rs 8,82,329.

The Court then observed that the character of a workmen’s claim for bonus is well settled in law. A bonus is not a gratuitous bounty nor is it merely deferred wages. In the earlier decision of Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur (1) the Court explained that a bonus is a cash payment made in addition to wages and is generally intended as an incentive, conditioned on the attainment of certain standards of attendance and efficiency. The rationale behind this principle is that both labour and capital contribute to the earnings of an industrial concern, and therefore it is equitable that labour should share in any surplus that is available for that purpose. The Court noted that a claim for bonus can be made only when two conditions are satisfied: first, the wages paid to the workmen must be less than what can properly be described as a living wage; and second, the industry must have earned a profit, at least in part, because of the workmen’s contribution to increased production.

To determine whether a profit exists and, if so, how much net surplus is available in a given year, it is necessary first to make provisions for prior charges. This principle is embodied in what is commonly referred to as the Full Bench formula, laid down in The Mill Owners Association, Bombay v. The Rashtriya Mill Mazdoor Sangh, Bombay (1). According to that formula, the distributable surplus is ascertained after deducting from the gross profits the amounts required for: (1) depreciation; (2) rehabilitation; (3) a return of six per cent on the paid‑up capital; (4) a return on the working capital calculated at a reasonable, though lower, rate; and (5) an estimated amount for the payment of income tax.

In the present matter, the Court noted that the fifth element of the Full Bench Formula required an allowance for an estimated amount to meet the liability of income‑tax. The Court reiterated that both parties agreed that the merit of the workmen’s claim for a bonus had to be assessed by applying this Full Bench Formula. The appellants accepted that, for the purpose of ascertaining whether a trading profit had been earned in the year in question, the industrial tribunal was not compelled to use the same basis that the Income‑Tax Act employs for computing profit. Nevertheless, the appellants argued that there was no reason to disregard the specific provisions of the Income‑Tax Act that relate to depreciation when performing that assessment. The Court therefore examined the relevant statutory scheme. Section 10 of the Income‑Tax Act provides three separate categories of depreciation allowances. Section 10(vi) authorises an allowance for the depreciation of buildings, machinery, plant or furniture that are employed in the business and that belong to the assessee. This allowance may be calculated either as a prescribed percentage of the original cost of the asset, where the statute or a class of cases prescribes such a percentage, or, where no specific percentage is prescribed, as a percentage of the written‑down value of the asset, again as prescribed for the particular case or class of cases. This provision is described as the allowance for normal depreciation. Section 10(vi) also contemplates an initial depreciation allowance in circumstances where the buildings have been newly erected or where the machinery or plant is new and not subject to the development rebate mentioned in clause (vi‑b). For such newly erected or newly installed assets, provided they were installed after 31 March 1945, an additional sum may be allowed for the year of erection or installation, pursuant to sub‑clauses (a), (b) and (c) of Section 10(vi). This extra sum, however, is not deductible when computing the written‑down value for the purposes of the same clause. Subsequently, Section 10(vi‑a) creates a provision for an additional depreciation allowance. This additional allowance applies to buildings that have been newly erected or to machinery or plant that is new and was installed after 31 March 1948. Finally, Section 10(vi‑b) provides a development rebate allowance for new machinery or plant that was installed after 31 March 1954, provided the equipment is wholly employed in the assessee’s business. The rebate is equal to twenty‑five per cent of the actual cost of the machinery or plant for the year of installation, and the allowance may be claimed only if the assessee has furnished the particulars required under clause (vi). The question that fell for determination, therefore, was whether an industrial tribunal, when deciding if a net surplus existed that could be distributed as a bonus, was required to incorporate the entire amount of depreciation permitted under these Income‑Tax provisions into its calculation of surplus.

The matter before the Court required determination of whether the entire depreciation permitted under the relevant provisions of the Income‑tax Act must be treated as a prior charge when assessing net surplus for bonus distribution. Before addressing that issue, the Court found it necessary to record a factual point that both the industrial tribunal and the appellate tribunal had emphasized in the present proceedings. During the pendency of the case before the industrial tribunal, the workmen filed an application urging the tribunal to order the appellants to permit the workmen to inspect the company's accounts. The tribunal subsequently issued an order granting the requested inspection, and the inspection was duly carried out in accordance with the procedural rules. Following the inspection, the workmen submitted on 28 February 1952 an application seeking detailed particulars concerning the sum of Rs 8,44,000 claimed by the appellants as depreciation. The appellants gave an assurance that the required information would be supplied by 8 March 1952, but later informed the tribunal that they were unable to provide the requested details. Both the industrial tribunal and the appellate tribunal expressed disapproval of this failure and appear to have drawn an adverse inference against the appellants regarding the depreciation amount in dispute. Counsel for the appellants, Mr Viswanatha Sastri, argued before this Court that although the lower tribunals were justified in criticizing the appellants’ non‑compliance, such criticism did not warrant a drastic reduction of the claimed depreciation. He contended that the appellants’ balance sheet had been properly audited and that it would be unreasonable for the tribunals to disallow a substantial sum of Rs 4,43,927 claimed as depreciation. He further conceded that if the tribunals were not authorized to grant claims for initial and additional depreciation, he could not challenge the propriety of their decision. Accordingly, he accepted that the tribunals might lawfully disallow the items listed in the depreciation account that related to those specific categories. In view of these facts, the Court held that the question raised by the appellants required careful consideration in light of the earlier decision of a Full Bench of the Labour Appellate Tribunal in U.P. Electric Supply Co. Ltd. v. Their Workmen. That precedent, although decided primarily under the provisions of the U.P. Electricity (Supply) Act, 1948, addressed the bonus issue on general principles and resolved the conflicting views expressed by different tribunals. The Full Bench observed that initial depreciation and additional depreciation, as defined in the Income‑tax Act, constitute abnormal additions intended to meet particular contingencies for a limited period. Consequently, the Bench held that it would be unfair to the workmen to treat these two forms of depreciation as prior charges before determining the surplus available for bonus distribution. The decision further suggested that in many instances, allowing such depreciations as prior charges could eliminate any surplus, even when the enterprise had performed well and the workers had laboured diligently throughout the year.

If the two depreciations were treated as prior charges, the calculation would show no surplus remaining, even though the workmen had performed their duties diligently throughout the year and the enterprise itself was, for all practical purposes, thriving. In other words, the Full Bench decision explained that the reasons that may justify granting initial or additional depreciation under the Income‑tax Act differ from the considerations of social justice and equitable distribution that underpin the original Full Bench formula for determining bonus payments to workmen. Consequently, the later Full Bench resolved that only normal depreciation, including multiple‑shift depreciation, should be counted as a prior charge when applying the Full Bench formula for bonus, and that initial and additional depreciation should be excluded from that calculation.

The Court observed that it is undisputed that industrial adjudication is not required to follow the exact procedure laid down in the Income‑tax Act for computing gross profit and then arriving at net surplus. Therefore, the argument advanced by the appellants—that, solely with respect to depreciation, industrial tribunals must invariably apply the provisions of the Income‑tax Act—could not be readily accepted. If that proposition were true, there would be no rational basis for insisting that only the technical rules of the Income‑tax Act govern the treatment of a single debit item in industrial proceedings concerning workmen’s bonus claims.

Overall, the Court found the reasons provided by the appellate tribunal in The U.P. Electric Supply Co. Ltd. case to be satisfactory. Accordingly, the Court declined to agree with the appellants that the tribunal had erred in law by refusing to allow the claim for initial and additional depreciations. In the Court’s opinion, the principal contention raised by the appellants in Appeals Nos. 218 and 219 of 1956, reported in [1955] L.A.C. 659, therefore could not succeed.

The discussion then moved to the remaining two issues raised by the appellants in Appeal No. 217 of 1956. The first issue concerned whether the appellate tribunal possessed jurisdiction to review its own orders in appropriate cases under Order 47 of the Code of Civil Procedure. The Court noted that this question had recently been examined in the context of the applicability of the Code of Civil Procedure to proceedings before the Labour Appellate Tribunal, as considered in the case of Martin Burn Ltd. v. R. A. Banerjee (Civil Appeal No. 92 of 1957). The Court recalled that Section 9(1) and Section 10 of the Industrial Disputes (Appellate Tribunal) Act, 1950, together with the relevant rules made under that Act, were held to bring the Code of Civil Procedure into play for tribunal proceedings. Consequently, the tribunal was empowered to exercise its powers under Order 41, Rule 21, as well as under Section 151 of the Code.

In the present matter the Court observed that although no specific occasion arose to examine the applicability of Order 47 of the Code of Civil Procedure, the absence of such an occasion did not alter the legal position; because the Code was deemed applicable to proceedings before the Labour Appellate Tribunal, the provisions of Order 47 were equally applicable as were Section 151 of the Code and the provisions of Order 41. Consequently, the Court held that the appellate tribunal had committed an error of law when it concluded that it possessed no jurisdiction to review its own order under Order 47. The Court further noted that the tribunal had already expressed the view that, even assuming jurisdiction to review existed, it would not grant the appellants’ request since the appellants had failed to demonstrate any mistake in the original order that could not have been discovered when the order was pronounced in open court before both parties. Counsel for the appellants contended that this conclusion was plainly erroneous and should be reversed. To support this contention, the counsel drew attention to a written statement that the appellants had filed while the appeal was pending before the appellate tribunal, wherein they alleged that the provision for income‑tax required revision in view of the findings recorded by the industrial tribunal. According to that statement, no surplus existed for payment of bonus to workmen, even if the tribunal’s findings were accepted as correct. The appellants argued that a disallowance of Rs 4,43,927 as depreciation would necessarily increase the amount of gross profits, thereby requiring a proportionate increase in the income‑tax provision. They maintained that, rather than the Rs 1,75,000 allowed by the industrial tribunal as the tax provision, an amount of Rs 4,75,582 should have been permitted. The appellants further complained that, although this statement had been filed before the appellate tribunal, the tribunal had omitted to consider it. In contrast, the appellate tribunal’s judgment indicated that the appellants had not raised this point in their oral arguments, had made no grievance, and had not claimed a higher amount to be reserved for taxation. The tribunal also observed that the issue raised in the review petition did not reveal any new or important matter that, despite due diligence, could not have been discovered by the parties at the time of the appeal hearing, and it found no apparent mistake on the face of the record. While the tribunal’s observations possessed some technical merit, the Court emphasized that the written statement filed expressly and specifically raised the tax‑provision issue, and therefore the matter could not be dismissed merely because it had not been urged at a different procedural stage.

The Court noted that although the appellate tribunal had not addressed the point, a written statement had been filed before the appellate tribunal expressly raising it. Accordingly, the Court proposed to examine the merits of the argument rather than to reject it on the ground that it had not been urged at the proper stage. On the merits, the argument advanced was that if, out of the total amount of Rs 8,43,927 debited by the appellants to depreciation, an amount of Rs 4,43,927 were disallowed, that would inevitably increase the total amount of gross profits. The addition to the gross‑profit figure would, the argument continued, logically necessitate a provision for a higher amount of income‑tax. The Court observed that the argument was simple and at first glance appeared attractive. However, the difficulty in accepting it lay in the fact that the total amount of gross profits determined by the Industrial Tribunals in these proceedings was not and could not necessarily be the taxable gross profits of the employer. The Court reiterated its earlier observation that, in determining the trading profits of the employer in such disputes, the method adopted by the industrial tribunals did not conform to all the requirements and provisions of the Income‑tax Act, and therefore it would be fallacious to assume that the gross profits determined by the tribunal should be taken to be the gross profits that would be necessarily taxable under the Act. Moreover, the Court noted that the provision for taxation in question had been made by the appellants themselves and was presumably based on their anticipation of the amount they would have to pay by way of income‑tax. Nevertheless, there could be no doubt that the appellants would obtain exemption from payment of income‑tax in respect of the amounts of initial and additional depreciation shown in their books of accounts, a right conferred on them by the relevant provisions of section 10 of the Income‑tax Act. The benefit to which the appellants were entitled under that section could not be ignored in deciding whether the provision of Rs 1,75,000 for taxation purposes was adequate. The Court held that it was not open to the appellants to contend that, although they would not be required to pay income‑tax on the amounts covered by normal and additional depreciation, they should nevertheless be allowed to provide for income‑tax in respect of those two items merely because they were disallowed by the industrial tribunal and consequently added to the total of gross profits as determined by the tribunal. The adequacy of the provision for income‑tax had to be judged in the light of the Income‑tax Act, since it was under that Act that the liability to pay tax would ultimately be determined.

In this case, the Court observed that if the appellants’ argument were accepted and a notional amount of income‑tax were added to the estimate of tax provision for the depreciation items that had been disallowed, the purpose of disallowing those two items of depreciation would be substantially defeated. Conversely, the Court noted that rejecting the appellants’ contention would not cause any hardship, because the extra amount that the appellants sought to include in the provision for income‑tax would not actually have to be paid by them. Accordingly, the Court was satisfied that the grievance raised by the appellants against the order of the appellate tribunal, on the ground that it contained a mistake apparent on the face of the record, was not well founded. The Court then turned to the decisions of industrial courts that had been highlighted by counsel for the appellants. In Model Mills etc. Textile Mills Nagpur v. Rashtriya Mill Mazdoor Sangh (1), the Court explained the implications of the Full Bench formula for ascertaining bonus. That decision observed that the formula did not purport to direct what a concern should do or should not do with its own money; rather, in evolving the formula the rights and liabilities of the parties inter se as co‑operating units in the venture were attempted to be equated. Although opinions might differ as to the weight to be attached to the various components of the formula, the decision stressed that the formula must be taken as a whole so that an equitable balance between the rights of capital and labour could be achieved for the ascertainment of bonus. It may be incidentally pointed out that this decision recognises that income‑tax calculated on the trading profits for the year must be deducted as a prior charge from the profits even though exemption under the Income‑tax Act is granted for that year on the basis of losses in the preceding year. The same view was expressed by the appellate tribunal in Mahalaxmi Wollen Mills Ltd. v. Their Work‑Men (1), where it was held that even if a concern is allowed exemption from the levy of income‑tax because of prior losses or unabsorbed depreciation, that fact is no ground for preventing the concern from claiming the amount of income‑tax it would have been liable to pay if the profits of the relevant year alone had been taken into account. Hence, in calculating the amount of available surplus, the amount of income‑tax payable for that trading year is to be deducted irrespective of whether the company actually pays tax for the year. Similarly, in Bennett Coleman and Company, Ltd. v. Their Work‑Men (2) the Labour Appellate Tribunal held that unabsorbed depreciation and loss incurred during prior years are allowed under s. 24 (2) of the Income‑tax Act to be

In the matter before the Court, the discussion focused on how a company may treat unabsorbed loss and depreciation for the purpose of calculating income‑tax. The Court observed that if a company seeks to either adjust these items against its gross profits or to deduct the amount of income‑tax that would be payable on profits assuming the two items are not adjusted, the labour side cannot be allowed to deny relief on the basis of those unabsorbed losses and depreciation while simultaneously seeking a benefit for itself by refusing to provide for tax on the very same items that the income‑tax authorities permit to be adjusted. Such an approach would inevitably lead to a reduction of the tax liability or even to a situation where no tax is payable at all. From the authorities cited earlier, the Court noted that industrial tribunals have consistently held that income‑tax calculated on the trading profits for the relevant year must be deducted as a prior charge from the gross profits, even though the employer might be entitled to claim an exemption under the Income‑tax Act because of losses suffered in the preceding year. The decisions referred to include Prima (1) (1956) I L. L. J. 305 and (2) (1955) 11 L. L. J. 60.

On the face of it, the Court explained, if the core criterion for deciding a workmen’s claim for bonus in a particular year is the existence of the net surplus available for that year, it would be inappropriate to challenge the appropriateness of the income‑tax provision made by the employer solely on the ground that the employer’s losses in the previous year might mean that no tax is actually payable for the year in question. The calculations for the bonus are to be made with reference only to the employer’s financial position for the year under consideration, and considerations arising under the Income‑tax Act related to losses incurred in the prior year are not permitted to influence those calculations. Nevertheless, the Court clarified that in the present appeals it was not required to examine the correctness of the Appellate Tribunal’s view in those earlier cases, and consequently it would not pursue that issue further.

Mr. Viswanatha Sastri urged the Court to consider two labour decisions, namely B. E. S. T. Workers’ Union v. Bombay Suburban Electric Supply Ltd. (1) and Greaves Cotton and Crompton Parkinson, Ltd. v. Its Workmen (2). While acknowledging that those decisions appear to support the appellants’ arguments, the Court, for reasons already articulated, held that those authorities are not sound or correct. The last authority highlighted by Mr. Viswanatha Sastri was the Labour Appellate Tribunal decision in Bengal Chemical & Pharmaceutical Works, Ltd. v. Their Workmen (3). That decision states that, for the purpose of providing for income‑tax, the tax payable by the concern on the income earned in the year for which bonus is claimed must be ascertained, and that the amount of income‑tax actually paid during the year, which relates to the income of the previous year, should not be taken into account. The Court considered this observation in the context of the present appeal.

In the case referred to by the tribunal, the tribunal stated that, for the purpose of determining the income‑tax that might be payable by the employer for the particular financial year, the numbers that appear on the expenditure side of the profit and loss account for that year must be gathered and examined. The tribunal cited three authorities to support this observation: the decision reported in (1) (1957) 2L. J. II 2, the decision reported in (3) (1954‑53) 6 F. J. R. 590, and the decision reported in (2) (1956) 1 L. L. J. 486. After considering this passage, the Court observed that the cited case did not provide significant assistance in resolving the specific issue that was before it. Consequently, the Court concluded that the appeals could not succeed on the substantive merits. The Court therefore ordered that the appeals be dismissed, and it directed that the parties bear costs. However, the Court also specified that only a single set of costs would be awarded in respect of all of the appeals that were before it. The final order was that the appeals were dismissed.