The Ahmedabad Miscellaneous Industrial Workers' Union Vs. The Ahmedabad Electricity Co. Ltd

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 479 of 1960

Decision Date: 28/07/1961

Coram: K.N. Wanchoo, K.C. Das Gupta

The case titled Ahmedabad Miscellaneous Industrial Workers’ Union versus Ahmedabad Electricity Co. Ltd was decided by the Supreme Court of India on 28 July 1961. The judgment was authored by Justice K.N. Wanchoo, who sat with Justice K.C. Das Gupta on the bench. The petitioner is identified as the Ahmedabad Miscellaneous Industrial Workers’ Union, and the respondent is Ahmedabad Electricity Co. Ltd. The decision is recorded under the citation 1962 AIR 1255 and 1962 SCR (2) 934, and it appears in several reporter references including RF 1967 SC 691, RF 1969 SC 530, RF 1972 SC 70, and R 1972 SC 330. The matters considered involve the calculation of bonus payable by an electricity company, the method of computing depreciation, and the relevant statutory provisions of the Indian Income‑Tax Act of 1922, its rules, and Section VII of the Electricity (Supply) Act, 1948.

In the headnote, the respondent, an electricity company, contested the petitioner’s claim for three months’ wages to be awarded as a bonus. The respondent argued that applying the Full Bench formula, which had been developed by the Labour Appellate Tribunal and later approved by this Court in the Associated Cement Companies Ltd. v. Its Workmen case, would leave no surplus from which a bonus could be paid. The central question for determination was whether depreciation should be calculated according to the provisions and rules of the Income‑Tax Act or in accordance with the Seventh Schedule of the Electricity (Supply) Act, 1948. The Court held that the Income‑Tax rules must be applied in calculating depreciation under the Full Bench formula, even for electricity companies, thereby giving precedence to the tax rules over the schedule of the Electricity (Supply) Act. The judgment also considered earlier authorities such as U.P. Electric Supply Company Ltd. v. Their Workmen (1955), Shree Meenakshi Mills Ltd. v. The Workmen (1958), Tinnevelly Tuticorin Electric Supply Co. v. Its Workmen (1960), and the Mill Owners Association v. Rashtriya Mill Mazdoor Sangh, Bombay (1950).

The appeal before this Court was Civil Appeal No. 479 of 1960, filed by special leave against an award dated 13 August 1959 rendered by the Industrial Court of Bombay in reference (f.C.) No. 159 of 1957. Counsel for the appellant were C.T. Daru, L. Udayarathnam and S.S. Shukla, while counsel for the respondent were D. Vimadalal, J. B. Dadachanji, Revinder Narain and O. C. Mathur. Justice Wanchoo delivered the judgment, noting that the matter concerned an industrial dispute. The petitioner, representing the workers’ union, demanded that three months’ wages for the year ending September 1956 be awarded as a bonus by the Ahmedabad Electricity Company Limited. The respondent contended that if the Full Bench formula were applied, there would be no surplus available to meet the bonus claim, and the Industrial Court had accepted this contention, rejecting the petitioner’s claim. The judgment set out the legal reasoning and concluded that depreciation must be computed using the Income‑Tax rules, leading to the conclusion that no surplus existed for the payment of the bonus.

The Industrial Court accepted the respondent’s contention that no surplus was available for the payment of any bonus and consequently dismissed the appellant’s claim. The dispute before the Industrial Court revolved around three principal issues. First, it considered whether depreciation should be calculated according to the provisions of the Income‑Tax Act and the rules framed thereunder, or in accordance with the provisions contained in the Seventh Schedule to the Electricity (Supply) Act, No. LIV of 1918. Second, it examined whether any deduction should be allowed as a prior charge towards the contingencies reserve created under the Electricity (Supply) Act. Third, it addressed whether any deduction should be allowed on account of income‑tax. The Industrial Court ruled against the appellant on all three points and concluded that there was no surplus from which a bonus could be awarded. Consequently, the present appeal by special leave arose. The parties did not dispute that calculating depreciation in line with the Income‑Tax Act rules would eliminate any surplus for bonus purposes. Therefore, the pivotal question for this appeal was whether depreciation ought to be computed according to the Income‑Tax Act rules or according to the Seventh Schedule of the Electricity (Supply) Act. The Court noted that once this question was decided against the appellant, it would be unnecessary to resolve the other two points on which the parties differed in the Industrial Court.

The question of the appropriate method of depreciation for electricity companies had previously been examined by the Appellate Tribunal in 1955 in the case of U.P. Electric Supply Company Ltd. v. Their Workmen (1), where the Tribunal was urged to apply the Seventh Schedule of the Electricity (Supply) Act to calculate depreciation for electricity companies. The Tribunal observed that, in the long run, both methods would yield the same result, but it preferred to treat income‑tax depreciation as a prior charge because this approach conformed with the Full Bench formula and was unlikely to generate new problems. Since that decision, the Industrial Court observed that various Industrial Tribunals had been allowing depreciation according to the Income‑Tax rates rather than according to the Seventh Schedule for electricity companies as well. The U.P. Electric Supply Company case (1) was later reconsidered by this Court in The Shree Meenakshi Mills Ltd. v. Their Workmen (2), where the Court approved the Tribunal’s decision to disallow initial and additional depreciation in the Full Bench formula while accepting that depreciation based on income‑tax rates should be deducted. Although The Meenakshi Mills case (2) did not involve an electricity company, the Court’s approval indicated that it was aware of the Tribunal’s preference for applying income‑tax rules to depreciation for electricity companies.

In this matter, the Court observed that it had previously approved the decision in the Uttar Pradesh Electric Supply Company case, which concerned the computation of depreciation. The Court could not have been unaware that the Appellate Tribunal, in that case, had applied the income‑tax rules for depreciation to electricity companies rather than the provisions of the Seventh Schedule to the Electricity (Supply) Act, as reported in (1) (1955) 2 L. L. J. 431 and (2) (1958) S. C. R. 878. The Court further referred to the case of The Tinnevelly‑Tuticorin Electric Supply Co. Ltd. v. Its Workmen, where it directly examined the issue involving an electricity company. In that proceeding the Court again considered the Uttar Pradesh Electric Supply Company case and noted that the earlier decision had resolved two legal questions: first, whether the Full Bench formula applied to electricity companies, and second, the extent of statutory depreciation permissible under that formula. The Court pointed out that the ruling on the second question, which approved the use of income‑tax rules for depreciation—excluding initial and additional depreciation—had been endorsed by the Court in the Meenakshi Mill case, cited as (3) (1958) S. C. R. 878.

The Court also recognized that the Tinnevelly‑Tuticorin case had not expressly raised the issue of whether depreciation should be computed according to the income‑tax rules or according to the Seventh Schedule of the Electricity (Supply) Act for the purpose of applying the Full Bench formula. Nevertheless, the Court affirmed that the decision in the Uttar Pradesh Electric Supply Company case, wherein the Appellate Tribunal favored the income‑tax approach over the statutory schedule, had been upheld. Consequently, the Court concluded that the appellant could not successfully contend that the provisions of the Seventh Schedule should be given preference over income‑tax rates when calculating depreciation under the Full Bench formula. The relevant authorities are (1) (1960) 3 S. C. R. 68, (2) (1955) 2 L. L. J. 431, (3) (1958) S. C. R. 878, and (4) (1960) 3 S. C. R. 68.

Nevertheless, even assuming that the question remained open because it had never been directly addressed and definitively decided by this Court, the Court maintained its opinion that the income‑tax rules should continue to be applied in determining depreciation for the Full Bench formula, taking precedence over the Seventh Schedule of the Electricity (Supply) Act. The Court reiterated that, as noted in the Tinnevelly‑Tuticorin case, the provisions contained in Section 57 and the Sixth and Seventh Schedules of the Electricity (Supply) Act were intended for a special purpose: namely, to calculate the charges recoverable from consumers for the supply of electricity. It was further observed that the provisions of the Electricity (Supply) Act and its schedules were designed for operation within the field covered by the Act, and that the principles governing industrial adjudication were distinct and required separate treatment in the industrial context.

The Court observed that the provisions of the Electricity (Supply) Act were intended solely for operation within the field covered by that Act, and that the principles governing industrial adjudication were entirely separate and had to be developed in their own manner in the industrial context. Consequently, the Court held that when the available surplus is calculated using the Full Bench formula, the same rule regarding depreciation should be applied to electricity companies as to all other industrial enterprises. The Court noted that the Appellate Tribunal had pointed out that, although there might be variations in certain years, the ultimate result would be the same over the long term. The Court further explained that when the formula was originally formulated in 1950, as shown in The Mill‑Owners’ Association v. The Rashtriya Mill Mazdoor Sangh Bombay(2), the depreciation to be allowed was the amount prescribed in the rules under the Income‑tax Act. The Appellate Tribunal reaffirmed this point in the U. P. Electric Supply Company’s case(3), stating that the Full Bench formula permitted depreciation in accordance with income‑tax rates. In light of this, the Court concluded that, in the field of industrial relations for which the Full Bench formula was devised (see (1) 1960 3 S.C.R. 68; (2) 1930 2 L.L.J. 1247; (3) 1955 2 L.L.J. 431), it is appropriate to apply the formula as originally intended without inserting the provisions of the Seventh Schedule to the Electricity (Supply) Act. Doing so would preserve uniformity across all industrial concerns, and, as the Associated Cement Companies’ case observed, the formula has generally operated satisfactorily in a wide range of industries throughout the country, allowing tribunals to determine bonus claims on the basis of the formula without seeking to alter it.

The Court warned that if the special‑purpose provisions of the Seventh Schedule to the Electricity (Supply) Act were incorporated into the Full Bench formula, electricity companies would be placed in a separate category from other industrial concerns, thereby destroying the uniformity the formula had achieved in bonus determinations. This separation could lead to situations where, under identical circumstances, electricity companies would be required to pay bonuses while other industries, which apply income‑tax depreciation rates, would not be obliged to do so. The Court found such an outcome undesirable, especially considering that electricity companies function as public utility enterprises. Moreover, the Court reasoned that applying income‑tax depreciation rates under the Full Bench formula benefits electricity companies because those rates facilitate a faster accumulation of a depreciation fund. This accelerated fund building, the Court noted, is advantageous for public utilities that provide electricity, as it positions them to have readily available financial resources when unforeseen difficulties arise, necessitating the replacement of plant and machinery earlier than the timeline prescribed by the Seventh Schedule to the Electricity (Supply) Act.

The Court observed that unforeseen difficulties may arise which force a utility to replace its plant and machinery before the period prescribed in the Seventh Schedule of the Electricity (Supply) Act. The reference to this situation was supported by the decision reported in 1959 at page S‑0, Rule 925. In addition, the Court found another reason to endorse the view adopted by the Appellate Tribunal in the Uttar Pradesh Electric Supply Company case, reported in 1955 at page 431 of the Law Journal. That earlier decision had settled the legal position in 1955 and had been consistently followed across the nation ever since. The Court expressed the view that it should not disturb that precedent unless compelling reasons were shown, and it found that no such reasons had been presented. Moreover, the Court noted that the present matter did not constitute a suitable occasion to overturn a decision that had been uniformly applied for the preceding six years.

The Court further explained that the entire question of bonus was pending before a high‑powered commission, which would re‑examine the matter and would necessarily consider any revision of the Full Bench formula. As earlier indicated in the Associated Cement Company case reported in 1959 at page 925, the problem of revising the Full Bench formula was of such a nature that only a high‑powered commission could properly address it. Since that commission was already engaged in a fresh review, the Court concluded that it was appropriate to leave the decision of the Appellate Tribunal in the Uttar Pradesh Electric Supply Company case undisturbed. Accordingly, the Court affirmed that the Industrial Court had correctly allowed depreciation to be calculated in accordance with the rates prescribed under the Rules framed under the Income‑Tax Act. Because depreciation would be taken in that manner, there would be no surplus from which a bonus could be granted in the present case. Consequently, the Court saw no need to decide the two remaining points concerning the contingencies reserve and income‑tax that had been raised before the Industrial Court. The appeal was therefore dismissed, and no order as to costs was made. The appeal was dismissed.