Bengal Kagazkal Mazdoor Union and Another vs The Titaghur Paper Mills Co. Ltd

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

Court: supreme-court

Case Number: Civil Appeal Nos. 550 and 551 of 1962

Decision Date: 11 April 1963

Coram: WANCHOO J.

In this matter, the Court observed that an industrial dispute had arisen between the Bengal Kagazkal Mazdoor Union and another petitioner on the one side and The Titaghur Paper Mills Co. Ltd. on the other. The Government of West Bengal had referred the dispute to the Second Industrial Tribunal of West Bengal for determination of the bonus payable for each of the four years covered by the period 1955‑1959 and for the method of distribution of that bonus among the various categories of workmen, including temporary hands. After examining the material placed before it and applying the Full Bench Formula, the Tribunal concluded that there was no surplus in any of the four years and therefore rejected the claim for bonus. The appellants obtained special leave to appeal to this Court and challenged the Tribunal’s award on four specific grounds: first, that the Tribunal erred in computing gross profits for the year 1956‑57; second, that it miscalculated income‑tax liability for all four years; third, that it incorrectly assessed the amount of working capital for the four years; and fourth, that it was wrong in its determination of the rehabilitation component for the same period.

The Court held that any increase in profit which arose solely from a revaluation of stock represented an extraneous profit and could not be credited to the workmen; such profit must be excluded when calculating the surplus available for bonus distribution. The revaluation, the Court explained, did not imply that the increased value was to be treated as consumption of raw material, a point the Tribunal had overlooked in applying the ratio from a previous case to the facts before it. Referring to the decision in Tats Oil Mitts Go. Ltd. v. Its Workmen ([1960] 1 S.C.R. 1), the Court clarified that when stocks are revalued the revalued price must not be shown on the debit side as consumption because it does not reflect the actual cost incurred by the mill for raw material consumption. Consequently, the correct determination of profit on the sale of paper must be based on the original valuation of the paper stock rather than the revalued figure. Further, the Court noted an error in the printed judgment of The Associated Cement Companies Ltd. v. Its Workmen ([1959] S.G.R. 925) at page 962, where the word “not” had been misprinted. The correct principle, as stated by the Court, required that the Tribunal consider the concession granted under the Income‑Tax Act while calculating the tax payable. Accordingly, the Tribunal was found to have been wrong in computing income tax by deducting a notional normal depreciation instead of the statutory depreciation prescribed under the law.

In this case, the Court cited the decision in Meenakshi Mills Ltd. v. Their Workmen, reported in 1958 S.C.R. 878, and reiterated a well‑settled principle that a balance sheet alone could not be relied upon as proof of how much of a company’s reserves had actually been applied as working capital. The Court explained that an employer who claimed that a portion of its reserves had been used for working capital must back that claim with evidence, such as an affidavit or other documentary proof, and must also give the workmen an opportunity to challenge the evidence through cross‑examination. The Court observed that in the present matter no satisfactory proof had been produced and that the method by which proof was sought was not proper. The Court then referred to the case of Petled Turkey Red Dye Works Ltd. v. Dye and Chemical Workers Union, reported in 1960 S.C.R. 906, and held again that the issue of whether particular investments had actually been employed as working capital was a question of fact that required proper evidential support. Accordingly, the Court found that the Tribunal had erred in assuming, without any supporting evidence, that all of the employer’s investments had been used as working capital. The Court clarified that advances granted for the purpose of obtaining raw materials or similar inputs would indeed form part of the amount used as working capital, but advances that were merely loans, or advances not made for business purposes, could not be treated as working‑capital expenditures.

The Court further addressed the question of rehabilitation, describing it as a long‑term undertaking that, once determined, could not be allowed to increase each year except in limited circumstances. Those circumstances included a sudden and appreciable rise in prices or the addition of new blocks that, after purchase, caused a further price increase. The Court noted that any rehabilitation amounts that had been authorized for the employer in earlier years but had remained unused must be taken into account when calculating the amount presently required for rehabilitation. In support of this analysis, the Court referred to the decision in The Associated Cement Companies Ltd. v. Its Workmen, reported in 1959 S.C.R. 925. The Court also relied on the ruling in Kandesh Spinning & Weaving Mills Co. Ltd. v. The Rashtriya Girni Kamgar Sangh Jalgaon, reported in 1960 S.C.R. 841, which held that before a particular reserve could be said to be unavailable for rehabilitation, it must be shown that the reserve had been reasonably earmarked for a binding purpose or that the whole or part of it had been used as working capital. Only those portions of reserves meeting either of these criteria could be excluded from the gross rehabilitation amount. The Court illustrated this principle by explaining that a reserve set aside for a specific, binding purpose—such as an assessment kept to meet future debenture obligations—or a reserve representing raw‑material working capital could not be deducted from the total rehabilitation sum. Finally, the Court concluded that the Tribunal had misunderstood and misapplied the ratio from the Kandesh Spinning decision to the facts of the present case, leading to an erroneous determination of the amounts available for rehabilitation.

The appeals were filed under appellate jurisdiction as Civil Appeal Numbers five hundred fifty and five hundred fifty‑one of the year 1962. Both appeals were taken by special leave from an award dated 20 March 1961 that had been rendered by the Second Industrial Tribunal of West Bengal in case number VIII‑27 of 1960. Counsel for the first appellant, identified as Civil Appeal 550 of 1962, consisted of legal representatives. Counsel for the second appellant, identified as Civil Appeal 551 of 1962, also consisted of legal representatives. The respondents were represented by their own counsel. The judgment was delivered on 11 April 1963 by Justice Wanchoo.

The two appeals arose from the same award of the Second Industrial Tribunal, West Bengal, and consequently they were considered together. Both appeals were lodged by two separate unions of workmen, one representing the employees of Titaghar Paper Mills Company, Titaghar No. 1, and the other representing the employees of Titaghar Paper Mills Company, Kankinara No. 2. Although the two mills were distinct in name, they were treated as a single establishment and were managed under a common management structure. The Government of West Bengal had referred the dispute concerning profit‑bonus claims for the financial years 1955‑56, 1956‑57, 1957‑58 and 1958‑59 to the tribunal. The purpose of the reference was to enable the tribunal to determine the amount of bonus due for each financial year and to decide the method of distribution of that bonus among the various categories of workmen, including temporary hands.

The tribunal examined the matter and applied the Full Bench formula, which had been developed by the Labour Appellate Tribunal in 1950 and subsequently endorsed by this Court in the case of Associated Cement Companies Ltd. v. Its Workmen. After applying that formula, the tribunal concluded that there was no surplus profit in any of the four years that could be used to grant a bonus, and consequently it rejected the workmen’s claim for a bonus. The two unions appealed that award, arguing that the tribunal’s finding of no available surplus in any of the years was incorrect. The appellants identified four specific points on which they claimed the tribunal had erred, namely: (1) the calculation of gross profits for the year 1956‑57, (2) the calculation of income‑tax for all four years, (3) the assessment of working capital for all four years, and (4) the computation of rehabilitation for all four years. The Court indicated that it would address each of these points individually.

Regarding the first point, the appellants contended that for the financial year 1956‑57 the mills had revalued their stock of raw materials, chemicals, dyes, general stores, machine furnishings, paper stock and coal. This revaluation led to an increase of Rs 38,81,618 as of 1 April 1956. The appellants argued that this increase was only a paper entry reflecting a higher valuation and that the actual cash had not been spent. They claimed that the revaluation caused the profit‑and‑loss account to present inflated figures for that year. The tribunal, however, had disregarded this aspect and, according to the appellants, had therefore miscalculated the gross profits for 1956‑57. The tribunal had relied on the decision of this Court in Tata Oil Mills Co. Ltd. v. Its Workmen, holding that any profit arising from a mere increase in the value of stock constituted an extraneous profit that could not be credited to the workmen and therefore should be excluded from the surplus calculation. The appellants asserted that the tribunal misapplied the principle laid down in the Tata Oil Mills case to the facts of the present matter.

In the present matter, the parties argued that the revaluation of stock undertaken by the mills for the financial year 1956‑57 created an apparent increase of Rs 38,81,618 in the value of raw materials, chemicals, dyes, general stores, machine furnishings, paper and coal as on 1 April 1956. This increase was reflected in the accounts as a paper entry rather than as an actual outlay of money. The appellants contended that because the tribunal ignored this paper entry, it failed to compute the gross profits for that year correctly. The tribunal, relying on the decision of this Court in Tata Oil Mills Co. Ltd. v. Its Workmen, held that any profit arising solely from an increase in the value of stock should be treated as extraneous profit, which cannot be claimed by the workmen and should not be considered in calculating the surplus available for distribution.

The appellants submitted that the tribunal misapplied the principle laid down in the Tata Oil Mills case to the facts of the present dispute. They argued that, although the Tata Oil Mills judgment treated a profit of Rs 3 lakh arising from a change in accounting method as extraneous income, that case did not involve a situation where the revaluation of stock was taken into account in the consumption of raw materials. The appellants maintained that the tribunal overlooked this distinction when it applied the ratio from Tata Oil Mills to the present case.

The respondents, on the other hand, argued that the profit‑and‑loss account contains a contra‑entry for the same amount of Rs 38,81,618 on the credit side, indicating that the tribunal was correct in disregarding the effect of the revaluation on the debit side. They asserted that because the revaluation amount was recorded as a credit, there could be no error in the calculation of gross profit for the year.

The Court observed that it could not discern how the credit‑side entry affected the computation of gross profit, and noted that the respondent’s counsel was unable to explain the position clearly. Consequently, the Court expressed the view that a detailed inquiry is necessary to determine how the revaluation of stock, shown as consumption on the debit side at revalued cost, actually influences the true profit of the mills. The Court indicated that further evidence may be required to ascertain the impact of the revaluation on the profit‑and‑loss account and that the issue should be investigated.

Finally, the Court emphasized that revaluation of stock does not justify recording the revalued cost as consumption, since the revalued price does not represent the actual amount paid by the mills for the raw materials consumed. To obtain an accurate picture of the mills’ actual profit, the original cost price of the stocks should be considered, not the inflated revalued figures. The Court therefore concluded that the matter warrants additional investigation and possibly expert testimony to resolve the question of the correct calculation of gross profit for the year 1956‑57.

In this matter the Court observed that the only figure that should be taken into account when assessing the profit of the mills is the original cost price of the raw materials, because that amount represents what the mills actually paid to acquire them. Consequently, when paper is sold the profit must be calculated on the basis of the original valuation of the paper stock and not on any re‑valued figure, since the re‑valued amount does not reflect the cost incurred by the mills in manufacturing the paper. The Court further noted that it is necessary to examine the effect of the so‑called contra‑entry that appears on the credit side of the profit‑and‑loss account for the relevant year. To determine the correct profit for that year, the Court held that expert evidence may be required to explain the position properly. Because the material placed on record did not enable the Court to reach a final conclusion, it ordered that the question be remanded to the tribunal for further investigation and determination.

The second contention raised by the appellants concerned the manner in which the tribunal had calculated income‑tax. The appellants asserted that the tribunal had considered only the notional normal depreciation rather than the statutory depreciation that the Income‑Tax Act mandates. The Court referred to its earlier decisions in Sree Meenakshi Mills Ltd. v. Their Workmen and the Associated Cement Companies case, where it was held that, for income‑tax purposes, the tribunal must incorporate the concessions provided under the Income‑Tax Act, including the two additional depreciations allowed by section 10(2)(vi). The Court pointed out that a printing error at page 962 of the Supreme Court Reports had mistakenly inserted the word “not,” which incorrectly suggested that the tribunal should ignore these concessions. The correct approach, clarified at page 994, required the tribunal to take the concessions into account. The Court explained that Chart V in the earlier case showed a notional normal depreciation of Rs 100.22 lacs, while Note A indicated that statutory depreciation of Rs 165.49 lacs was deducted from gross profits before computing the tax liability, and a correction slip later confirmed this calculation. In the present case, however, the tribunal appeared to have deducted only the notional normal depreciation and not the statutory depreciation. The appellants contended, citing authorities from 1958 and 1959, that the statutory depreciation should be considerably higher. The respondent was unable to refute this claim, and the record did not contain evidence indicating the exact statutory depreciation allowed for the years in question. The Court observed that the workmen’s side had submitted calculation sheets, but without independent evidence the Court could not determine the correct amount of income‑tax payable, and therefore the matter must be returned to the tribunal for further evidence and proper calculation.

In this case the Court observed that the appellants had submitted calculation sheets for each of the four years showing that the statutory depreciation was considerably higher than the amount of depreciation that the tribunal had deducted from gross profits in computing the tax payable. However, because the appellants could not produce any evidence beyond these charts to establish the precise statutory depreciation for the years in dispute, the Court held that it was impossible to determine the correct taxable amount in the absence of such proof. Consequently, the matter was required to be sent back to the tribunal so that further evidence could be taken on this issue and a proper determination could be made of the income‑tax payable after deducting the statutory depreciation from gross profits.

The Court further noted that three specific contentions were raised by the appellants concerning the use of reserves as working capital. It reiterated the settled principle that a balance‑sheet alone cannot prove what portion of reserves has actually been employed as working capital; the employer must demonstrate such utilization by evidence, either on affidavit or otherwise, and must afford the workmen an opportunity to challenge the evidence through cross‑examination. In the present matter, the respondent’s accountant provided two alternative calculations for the reserves used as working capital, resulting in two different figures for each year. The lower figure was described as representing assets that could be immediately converted into cash, while the higher figure was said to include both cash already invested in the business and liquid cash that would be available. The accountant further asserted that the amount was always available for use as working capital and had indeed been utilized during the relevant years. No effective cross‑examination of these statements occurred before the tribunal. Although the respondent ultimately argued before the tribunal that the lower figure should be accepted as the actual working capital, and the tribunal concurred, the Court found it unusual that the respondent produced two different figures for each year. The Court expected that solid evidence would demonstrate a single, definitive amount of reserves actually used as working capital, since only one figure can accurately represent such usage. While the accountant had sworn that the amount was used as working capital, his oath appeared to cover both figures, and the respondent ultimately settled on the lower figure. The Court considered this approach to be an inadequate method of proving the actual reserves utilized as working capital during the year and emphasized that a firm, unequivocal figure should be provided by the employer. Nevertheless, because there was no effective cross‑examination by the appellants on this point, the Court did not disallow interest on working capital altogether but remanded the matter with the expectation that proper evidence would be presented by the respondent.

The Court ordered that interest on working capital should not be entirely disallowed and that the case be remitted for further consideration. It further directed that the respondent must present proper and reliable evidence concerning the composition of working capital. The appellants contended that any investment should be excluded when calculating the amount of working capital for the relevant accounting year. Such a blanket refusal cannot be accepted because the factual circumstances may show that some investments were indeed utilized as working capital. Conversely, other situations may exist where investments remained untouched and therefore should not be treated as part of working capital. Determining which investments were actually employed requires an examination of the evidence presented by the parties. For illustration, consider that at the beginning of a fiscal year the employer holds a government security, for example, a three‑percent conversion loan worth twenty lakh rupees. If the same security remains unchanged at the end of the year, it cannot be concluded that the amount was utilized as working capital. In contrast, when investments are realised during the year and the proceeds are applied to working capital, evidence can be offered. Such oral and documentary proof would show that the realised amount should be included in the working capital calculation for that year. For example, a balance‑sheet might reveal that the three‑percent conversion loan decreased from twenty lakh rupees at the start to five lakh rupees at the close. That reduction would suggest that fifteen lakh rupees of the investment were likely employed as working capital during the year. Similarly, when investments are pledged as security for business operations, even if the face value remains unchanged, the pledged portion may effectively serve as working capital. Consequently, whether any investment has actually been used as working capital is a factual question that must be established by oral testimony and documentary records. In the present case, the tribunal appears to have presumed that all investments were utilized as working capital, a presumption the Court finds to be incorrect. Therefore, the matter must be sent back to the tribunal to ascertain precisely which investments, if any, were employed as working capital. The appellants also raised a final argument that certain advances had been included in the computation of working capital.

In the case, the Court observed that the appellants’ contention that all advances could not be treated as working capital could not be accepted in such a sweeping manner. The Court explained that some advances might indeed have been used for working capital, while others might not. When advances were given for the purchase of raw materials or similar purposes, they necessarily formed part of the amount employed as working capital. Conversely, advances that amounted to pure loans, remained outstanding at the end of the year to the same borrower, and were not advanced for the purpose of business, could not be characterised as working capital. The Court further stated that, analogous to the treatment of investments, if advances were actually realised during the year and the realised sums were subsequently employed as working capital, the party relying on such a conclusion must produce evidence, both oral and documentary, to prove the usage. In the present proceedings, the Court found that the tribunal had taken all advances together and treated them as working capital without distinguishing between the two categories, and the Court considered this approach to be incorrect. Consequently, the Court directed that the matter be sent back for a detailed determination of which advances constituted working capital and what interest should be allowed on that portion, in accordance with the observations made by the Court.

The Court then turned to the question of rehabilitation. The appellants argued that the tribunal had previously considered rehabilitation for the year 1954‑55 and had arrived at a required amount of Rs 43.39 lacs per year. For the four disputed years, however, the tribunal had increased the rehabilitation figure to Rs 63.56 lacs for 1955‑56, Rs 67.66 lacs for 1956‑57, and, for the years 1957‑58 and 1958‑59, it had fixed amounts of Rs 64.59 lacs and Rs 64.71 lacs respectively for the pre‑1939 block. The appellants maintained that these calculations were erroneous because rehabilitation was a long‑term matter and there was no substantial rise in prices during the disputed period to justify the increase from the 1954‑55 level. While acknowledging that rehabilitation might have risen slightly due to the addition of new blocks after 1954‑55, the appellants alleged two fundamental mistakes by the tribunal. First, the tribunal allegedly failed to consider the rehabilitation amounts that had already been allowed for previous years, calculating each year as if nothing had been previously permitted, thereby inflating the figures. Second, the tribunal supposedly did not give full credit for all reserves available for rehabilitation, which also led to an inflated amount. The Court found merit in this argument and agreed that the tribunal had erred on both counts, noting that rehabilitation should be determined as a long‑term amount and should only increase in response to a sudden and appreciable rise in prices or the acquisition of new blocks followed by price increases.

The Court observed that the tribunal had made two fundamental mistakes which resulted in an inflated rehabilitation amount for the years in dispute. The first mistake, according to the appellants, was that the tribunal failed to consider the rehabilitation amounts that had already been allowed for previous years. By ignoring those earlier allocations, the tribunal effectively calculated the rehabilitation figure as if no amount had previously been granted, which naturally caused the rehabilitation sum to appear larger each year. The second mistake was that the tribunal did not give full credit for all the reserves that were available for rehabilitation, as it should have done. Consequently, the amount determined by the tribunal was also overstated. The Court agreed that there was merit in this line of argument and concluded that the tribunal had indeed erred on both points.

In addressing the first error, the Court explained that the determination of rehabilitation is a long‑term exercise and, once fixed, it should not increase from year to year unless there is a sudden and appreciable rise in prices or the addition of new blocks followed by a subsequent price increase. Referring to the judgment in the Associated Cement Companies case, the Court noted that before awarding the proper rehabilitation amount, the tribunal must make deductions in the following order: first, on account of the break‑down value; second, on account of depreciation and any general liquid reserves that belong to the employer but are not earmarked for specific purposes; and third, on account of any rehabilitation amount that may have been allowed to the employer in earlier years but remained unused. The Court observed that for the year 1954‑55 the net rehabilitation figure arrived at after allowing for depreciation was Rs 33.39 lacs. Because the surplus remaining after deducting other prior charges was only Rs 24.46 lacs, the tribunal did not grant any bonus to the workmen. It was striking, however, that out of the Rs 33.39 lacs rehabilitation amount for that year, Rs 24.46 lacs stayed in the employer’s hands as unspent rehabilitation funds. The tribunal, the Court said, appears to have completely ignored this fact when it calculated the rehabilitation amount for the later years that were in dispute.

The Court reiterated the principle stated in the Associated Cement Companies case that any rehabilitation amount previously allowed but left unused must be taken into account when arriving at the amount required for rehabilitation in subsequent years. The same result can be achieved by adding to the previously determined rehabilitation sum the amounts due for new blocks and the amounts that were not left in the employer’s possession because the surplus after other prior charges was less than the rehabilitation amount fixed. In any event, the Court held that the tribunal was certainly wrong in failing to consider the rehabilitation amounts that had been allowed in earlier years while working out the rehabilitation figure for the years in dispute.

Turning to the second error, the Court noted that the tribunal also erred in the manner it dealt with liquid reserves that were not earmarked for specific purposes. The tribunal had not properly taken these reserves into account nor deducted them from the gross rehabilitation amount it had found due. Instead, it seemed to have held that any sum classified as working capital could not be deducted from the gross rehabilitation amount, relying on a previous judgment of this Court in Khandesh Spg. and Wvg. Mills Co. Ltd. v. The Rashtriya Girni Kamgar Sangh Jalgaon. In that earlier case, the employer had claimed that the balance sheet showed that the entire reserves had been used as working capital and therefore should not be excluded from the rehabilitation claim. The Court had ruled that the employer had failed to prove that the reserves were actually used as working capital, and consequently the industrial court was correct in deducting the amount from the rehabilitation sum. The Court affirmed that the ratio of that case supports the view that the tribunal ought to have deducted the available liquid reserves from the rehabilitation amount, and its failure to do so constituted a further error.

The tribunal was criticised for failing to properly consider the liquid reserves that were not earmarked for specific purposes and for not deducting those reserves from the rehabilitation amount that it had fixed. Instead, the tribunal appeared to hold that any sum forming part of working capital could not be subtracted from the gross rehabilitation amount. In reaching that conclusion the tribunal relied on the Supreme Court’s decision in Khandesh Spg. and Wvg. Mills Co. Ltd. v. The Rashtriya Girni Kamgar Sangh Jalgaon (1). In the Khandesh case the employer contended that the balance‑sheet showed that the entire reserves had been employed as working capital and therefore should not be excluded from the rehabilitation claim. The Court, however, held that the employer had not demonstrated that the reserves had in fact been used as working capital and consequently allowed the industrial court to deduct the amount from the sum fixed for rehabilitation.

The Court observed that the ratio of the Khandesh case had been misinterpreted. The earlier judgment does not establish a rule that every amount on which interest is allowed as working capital must be excluded from the gross rehabilitation amount in order to arrive at a net rehabilitation figure. What the Court actually decided was that, before a particular reserve can be said to be unavailable for rehabilitation, it must be shown that the reserve has been reasonably earmarked for a binding purpose or that the whole or part of it has been used as working capital. Only the portion of reserves falling under either of those two categories may be considered unavailable for rehabilitation. For example, a reserve that has been set aside specifically for the payment of debentures when they become due is a binding earmark and therefore cannot be deducted from the gross rehabilitation amount.

Furthermore, the Court clarified that the ruling in Khandesh, which stated that reserves actually used as working capital cannot be deducted from the gross rehabilitation amount, does not preclude the deduction of money that may be available for use as working capital in the following year. To understand how the amount of working capital is normally determined, the Court explained that the usual method is to consider the liquid assets of various kinds that are available at the beginning of the relevant year. The total of those assets is regarded as the working capital for that year, provided there is evidence that the amount has been actually employed during the year. At the end of the year, when the balance sheet is examined, the liquid assets that remain available must be identified, as these will form the basis for calculating the working capital that can be deducted for the subsequent year.

The Court explained that the amount of working capital for the succeeding year is derived from the liquid assets that exist at the close of the preceding financial year. At the end of a year, the liquid assets ordinarily fall into two categories. The first category consists of cash held in the various reserves, and the second category consists of assets such as raw materials and similar items. Both categories, after making the required adjustments, form the working capital that may be available for the next year, provided that evidence shows they were actually employed as working capital. The Court then referred to the holding in the Khandesh Spg. and Wvg. Co. case (1) where it was stated that the portion of working capital represented by raw materials and similar items could not be deducted from the gross rehabilitation amount. The Court noted that the distinction it has highlighted was not considered in that earlier case because the court in Khandesh found no evidence that any part of those reserves had been used as working capital, and therefore upheld the industrial court’s award of deducting the entire reserves from the gross rehabilitation amount. To clarify the principle, the Court presented a concrete example using the year 1955‑56. It observed that working capital is normally calculated by identifying the liquid reserves available on 1 April 1955. Those liquid reserves may include various types of cash reserves such as depreciation reserve, general reserve, renewal reserve, and so on, together with investments, advances, and stock of raw materials. All of these items must be taken into account, after appropriate adjustments, to arrive at the working capital figure. The Court reiterated that if evidence demonstrates that the computed working capital was actually used during the year, interest may be allowed in accordance with the Full Bench formula. The Court then moved to the end of that year, i.e., 31 March 1956, and stated that the position of the reserves must be examined again. At that point, the reserves may again consist of cash reserves, investments, advances, and raw materials. From these reserves, the working capital for the next year may be calculated, and if evidence shows it was actually used, interest may be permitted on that amount. However, the Court emphasized that this does not justify retaining the portion of the reserves that is in the form of cash, investments, or advances, on the ground that it is unavailable for rehabilitation, because such amounts can be employed as working capital for the year 1956‑57. Only the portion of the reserves represented by raw materials or similarly earmarked items, as previously indicated, may not be deducted for rehabilitation purposes.

In this matter the Court explained that reserves consisting of raw materials or other earmarked items could not be deducted for rehabilitation because such reserves would not be available for that purpose and would be consumed, sold, or used for a specific purpose during the next year. By contrast, all other reserves that existed on 31 March 1956 were considered available for rehabilitation and therefore had to be deducted from the gross rehabilitation amount calculated for that year. The tribunal, however, failed to apply this principle correctly, having misappreciated the effect of the Court’s decision in Khandesh Spg. & Wvg. Co.’s case. The Khandesh decision merely held that the portion of reserves forming working capital in the shape of raw materials or earmarked reserves should not be deducted from the gross‑rehabilitation amount; it did not state that cash reserves such as depreciation reserve, general reserve, renewal reserve, as well as investments and advances, could not be deducted because they might be used as working capital in the following year. Consequently, the tribunal was required to recompute the rehabilitation amount in accordance with the observations made by this Court. Because the adjudication of the bonus claim had already been delayed, the Court directed the tribunal to recalculate the available surplus after giving the parties an opportunity to adduce further evidence, and to submit its findings within three months of receiving the record. Upon receipt of the tribunal’s findings, notice would be issued to the parties, allowing them ten days to file any objections, after which the appeals would be listed for final disposal. The case was therefore remanded.