1972 (4) TMI 100 - SC - Indian Laws

Summary

Issues Involved:

1. Method of computation of notional direct tax.
2. Disallowance of the deduction of ex-gratia payment from gross profits.
3. Disallowance of the claim for return on provision for doubtful debts.
4. Deduction of voluntary retirement scheme payments from gross profits.
5. Deduction of extra shift allowance from gross profits.
6. Deduction of expenditure on repairs and renewals from gross profits.
7. Consideration of surplus from the previous year for set on.

Issue-wise Detailed Analysis:

1. Method of Computation of Notional Direct Tax:

The Tribunal's method of calculating direct tax by deducting the bonus payable for the relevant accounting year was challenged. The Tribunal's approach was based on its previous decision in Indian Oxygen Ltd. v. Their Workmen, which was pending appeal. The Supreme Court agreed with the appellant that the Tribunal's method was contrary to established decisions, specifically referencing Metal Box Co. of India Ltd. v. Their Workmen, and subsequent cases which held that tax liability should be computed without deducting the bonus payable. The Tribunal's error in law was acknowledged, and the point was held in favor of the appellant.

2. Disallowance of the Deduction of Ex-gratia Payment from Gross Profits:

The Company had made ex-gratia payments to employees drawing emoluments exceeding Rs. 750 per month, claiming these should be deducted from gross profits. The Tribunal added back the sum of Rs. 2.65 lakhs to the gross profits, as the ex-gratia payments were made to maintain the practice of paying all staff without a ceiling. The Supreme Court upheld the Tribunal's decision, noting that such payments were not deductible under the Act as they were additional to the bonus calculated under the Act.

3. Disallowance of the Claim for Return on Provision for Doubtful Debts:

The Company claimed a return on provision for doubtful debts, which the Tribunal rejected. The Supreme Court referenced its decision in Indian Oxygen Ltd. etc. v. Their Workmen, which approved the Tribunal's direction to add back such amounts to gross profits. The Tribunal's decision to add back the amount was upheld.

4. Deduction of Voluntary Retirement Scheme Payments from Gross Profits:

The Unions contested the deduction of Rs. 18,24,047 paid under a Voluntary Retirement Scheme. The Tribunal rejected this claim, and the Supreme Court agreed, noting that the Scheme was a commercial expense to facilitate business operations and was allowable under Section 37(1) of the Income-tax Act. The Tribunal's decision to allow this deduction was upheld.

5. Deduction of Extra Shift Allowance from Gross Profits:

The Unions argued that the extra shift allowance of Rs. 65,764 should not be deducted as it was not accepted by the Income-tax Officer. The Tribunal rejected this contention, and the Supreme Court upheld this decision, noting that the Company had filed an appeal against the Income-tax Officer's order and the figures for depreciation were not seriously challenged by the Unions.

6. Deduction of Expenditure on Repairs and Renewals from Gross Profits:

The Unions challenged the heavy expenditure on repairs and renewals. The Tribunal rejected this claim, and the Supreme Court upheld the decision, noting that the Company provided detailed evidence, which was accepted by the Tribunal. The expenditure was justified and properly accounted for.

7. Consideration of Surplus from the Previous Year for Set On:

The Unions claimed that there should have been a surplus set on from the previous year. The Tribunal rejected this claim, and the Supreme Court agreed, noting the evidence showed no surplus after paying the maximum 20% bonus for the year 1964-65. The plea of the Unions was rejected.

Conclusion:

The Supreme Court modified the Tribunal's Award regarding the calculation of direct tax, leading to a recomputation of the available and allocable surplus. The correct figures were provided, resulting in the workmen being entitled to a bonus of 14.02% of their total salary or wages, amounting to Rs. 14,76,706. The additional amount to be paid by the Company was Rs. 53,714, to be paid within two months. The appeal was allowed in part, with each party bearing its own costs.