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TMI Blog1976 (1) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... nd loss account for its world business, but also a separate balance sheet and profit and loss account for its Indian business. There was an industrial dispute between the Bank and its workmen in regard to bonus for the years 1956 to 1964 and as a result of negotiations, this industrial dispute was settled between the parties on an ad hoc basis under a Memorandum of Settlement dated 28th r. December, 1965. The material terms of the settlement were: "1. The Bank will pay and the workmen and non-work men staff will receive a sum of ₹ 27 lakhs (Rupees twenty seven lakhs only) in full and final settlement of all bonus claims covering the periods from 1st January 1956 to 31st December 1964, including any claims relating to Centenary Bonus. 2. The above sum of ₹ 27 lakhs will be allocated as to one-third thereof to Award-staff only and as to the remaining two-thirds to both the Award and non- Award staff, in both cases based on the basic salary paid over the period, namely, 1st January, 1956 to 31st December, 1964, and unrelated to any particular year. 8. The parties agree that this Settlement shall not be taken as the basis or govern the principle for this determinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention to them. But before we deal specifically with these items, it could be convenient to refer to some of the relevant provisions of the Payment of Bonus Act. We will refer only to those provisions which have a bearing on the items in dispute between the parties. Section 2 is the definition section and cl. (13) of that section defines 'employees to mean any person employed on a salary or wage not exceeding one thousand and six hundred rupees per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward. The mode of computation of gross profits in the case of a banking company is laid down in section 4, cl. (a) which provides that the gross profit shall be calculated in the manner specified in the First Schedule. The First Schedule sets out in items 2, 3 and 4 various amounts which are to be added and in item 6, various amounts which are to be deducted from the net profit as shown in the profit and loss account. We are concerned in this is appeal only with items 2, 3(a) and 6(e) which read as follows:- Item No. Particulars Amount of Amount of Remarks sub-items main items 2. Add bac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or wage earned by the employees, irrespective whether or not there are profits in the accounting year, and sub-sec. (1) of s. 11 lays down that where the allocable surplus exceeds the amount of minimum bonus payable under s. 10, sub-s. (1) "the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in the accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary or wage". Sec. 15 is the next material section and it provides, inter alia: " (1) Where for any accounting year the allocable surplus exceeds the amount of maximum bonus payable to the employees in the establishment under sec. 11, then, the excess shall, subject to a limit of twenty per cent, of the total salary or wage of the employees employed in the establishment in that accounting year, be carried forward for being set on in the l succeeding accounting year and so on up to and inclusive or the fourth accounting year to be utilised for the purpose of payment of bonus in the manner illustrated in the Fourth t Schedule. (2) Where for any accounting ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward and set on out of the profits of the accounting year 1964 did not form the subject-matter of the reference and hence this Court, in appeal from the Industrial Tribunal, had no jurisdiction to adjudicate upon this question. We do not think there is any substance in this preliminary objection. Question No. 2, referred to the Industrial Tribunal, in terms raises the issue "whether any amount is to be carried forward for being set on in the accounting year 1966", and this issue is wide enough to cover the question in regard to carry forward and set on of an amount out of the profits of the accounting year 1964. The Bank then contended that since the bonus payable for the accounting year 1964 was settled on an ad hoc basis, it was not possible to say that the allocable surplus exceeded the maximum bonus payable for that year and hence there could be no question of any excess to be carried forward and set on in the succeeding year. There is great force in this contention. Sec. 15, sub-s. (1) provides for carry forward and set on and, on its plain terms, it comes into operation only when, in a given accounting year, the allocable surplus exceeds the maximum bonus pay abl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and it is required to be added back in the computation of the gross profits under s. 4(a). Now, so far as the profit and loss account of the Bank in respect of its Indian business was concerned, the provision for bonus to employees did not figure in it as a separate item, but, according to the Bank, it was included under the heading "Salaries and Allowances" or "other Expenditure" and it came to ₹ 19.52 lakhs. The Bank thus agreed to an add back of ₹ 19.52 lakhs in respect of provision for bonus to employees. The workmen, however, contended that the provision for bonus made by the Bank was for a much larger amount and the amount of ₹ 19.52 lakhs represented provision for bonus only in respect of those workmen who were 'employees' within the meaning of s. 2, cl; (13) and the Bank had failed to take into account the provision for bonus in respect of those workmen who were not such 'employees'. The argument of the workmen was that the word 'employees' in item 2(a) of the First Schedule was not limited to 'employees' as defined in s. 2, cl. (13), but covered all employees, because the object of adding back provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a capital asset when applied to the purpose of making profit or gain. There are various methods known to accountancy practice for measuring such diminution in value and a banking company, like any other firm or company, may follow any one of these methods in maintaining its accounts and the amount of depreciation calculated according to such method would be reflected in its profit and loss account. But, though such amount of depreciation shown in the profit and loss account may be unexceptionable from the point of view of commercial accountancy principles, it would not necessarily be admissible as a deduction from gross profits under s. 6,. d. (a). What is allowable as a deduction from the gross profits under that clause is not depreciation calculated according to any recognised method of accountancy followed by a banking company, but only such depreciation as is admissible in accordance with the provisions of sub-s. (1) of s. 32 of the Income-tax Act. The profit and loss account of the Bank for the accounting year 1966 showed an amount of ₹ 22.40 lacs debited against the composite item "Depreciation and Repairs to the Banking Company's Property" and according t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Industrial Tribunal and while the Bank, in its computation, claimed to deduct the amount of ₹ 12.79 lacs as depreciation, the workmen agreed to deduction only of the amount of ₹ 1.89 lacs as appearing in the profit and loss account. The workmen did not at any time accept the position that the correct amount of depreciation admissible under s. 32, sub-s. (1) of the Income-tax Act came to ₹ 12.79 lacs as claimed by the Bank. They seriously disputed it before the Industrial Tribunal and hence the Industrial Tribunal had to go into that question and come to a finding upon it. Even prior to the making of the reference, when the calculation sheet regarding bonus payable for the accounting year 1966 was sent by the Bank to the` workmen with its letter dated 26th July, 1967, the workmen by their letter dated 3rd August, 1967 called upon the Bank to furnish particulars in regard to the amount of ₹ 12.79 lacs claimed by the Bank as depreciation and the only reply given by the Bank to this demand was that the information required by the workmen went "far beyond any legal requirements" and the Bank was not in a position to accede- to the same. Vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the oral evidence of A. K. Basu who was the Officer examined on behalf of the Bank. We will first consider the oral evidence of A. K. Basu and then examine how far the certificate Ex. 12 helps to establish the claim of the Bank. The statement in the 'oral evidence of A. K. Basu which was strongly relied upon on behalf of the Bank, was: "Under the Heading 'Prior Charge', the figure against 'depreciation' was collected from the income-tax assessment order" and it was contended that since there was no cross examination of A. K. Basu in regard to this statement, it must be accepted as correct and that was sufficient to prove that the depreciation admissible under s. 32 sub-section (1) was ₹ 12.79 lacs. This contention is wholly fallacious and it proceeds upon a misreading of the statement made by A. K. Basu. It is no doubt true that A. K. Basu stated that the figure against depreciation was collected from income-tax assessment order, but this statement was made in reference to the figure against depreciation appearing in the First Enclosure to Annexure (C) to the written statement of the workmen, which was the computation sheet containing calculat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cl. (a) that what is deductible under that clause is "depreciation admissible in accordance with the provisions of sub-s. (1) of s. 32 of the Income-tax Act" and not "depreciation allowed by the Income tax Officer in making assessment on the employer". It is the Industrial Tribunal which has to find for itself what is the amount of depreciation admissible under sub-s.(1) of s. 32 and it cannot abdicate its duty and surrender its judgment to what has been done by the Income-tax officer while making assessment under the Income-tax Act. Since depreciation . may be computed according to various methods recognized by accountancy principles, section 6, clause (a) while providing for deduction of depreciation, had to specify the method according to which depreciation to be deducted shall be calculated and it adopted the method specified in sub-s. (1) of s. 32. But the calculation of depreciation in accordance with this method would necessarily have to be done by the Industrial Tribunal which is entrusted with the task of determining the amount of bonus by applying the statutory formula. Therefore, it is the industrial Tribunal which must in the exercise of its quasi ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded on behalf of the workmen that it was an inadmissible piece of evidence. If the workman had contended before the Industrial Tribunal that the certificate of the Income-tax officer was not admissible in evidence, the Bank could have led other evidence to substantiate its claim for depreciation, but since no objection was raised on behalf of the workmen, the Bank contented itself by producing and tendering in evidence only the certificate of the Income-tax officer. We do not, in the circumstances see why reason to interfere with the decision of the Industrial Tribunal in regard to the amount of depreciation deductible under section 6, clause (a). . We then come to item 3(a) of the First Schedule which requires bonus paid to the employees in respect of the previous accounting years to be added back in computing gross profits. The amount paid to the employees in the accounting year 1965 was ₹ 13.27 lacs and the work- men claimed that this amount of ₹ 13.27 lacs should be added back under item 3(a) of the First Schedule. The Bank, in the computation sheet filed by it, also showed this amount of ₹ 13.27 as an add back and, therefore there should really have been no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposited by the Bank with the Reserve Bank of India in respect of that accounting year, for, on a plain reading of s. 11(2)(b)(ii) of the Banking Regulation Act, 1949, that amount would ordinarily be deposited only after the expiration and not during the currency of that accounting year. No reliance can, therefore, be placed on behalf of the workmen on the balance sheet of the Bank for the accounting year 1966 for the purpose of repelling the claim of the Bank. On the other hand, the evidence given by A. K. Basu on behalf of the Bank clearly showed that the Bank had deposited with the Reserve Bank of India securities adequate to fulfil the requirements of s. 11(2)(b)(ii) of the Banking Regulation Act, 1949 and this statement made by the witness was sought to be supported by the certificate issued by the Reserve Bank of India. The workmen did question A. K. Basu on this point, but he clearly stated that the deposit was made in securities. Having regard to this evidence of A. K. Basu supported by the certificate of the Reserve Bank of India, we must hold that the claim of the Bank to deduction of the amount of ₹ 13.48 lacs was well founded and it was rightly allowed by the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses allocable to India. This amount of ₹ 43.10 lacs was obviously required to be added back, since Item 6(e) provided for deduction of proportionate Head office administrative expenses allocable to Indian business and the same item could not be deducted twice over in arriving at the Indian gross profit. It is true that Item 1 of the First Schedule requires the Industrial Tribunal to take as the starting point of computation "net profit as shown in the profit and loss account after making usual and necessary provisions". But the fact that Item 6(e) provides for deduction of proportionate administrative expenses of Head office allocable to Indian business in arriving at the gross profit for the purpose of bonus under Item 7 shows that the net profit contemplated in Item 1 is net Profit arrived at without deducting proportionate administrative expenses of head office allocable to Indian business. That is not regarded by the Legislature as usual and necessary provision should be deducted for the purpose of ascertaining net profit under Item 1. This position was indeed not disputed by the learned counsel appearing on behalf of the Bank and it is therefore, obvious th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This would have to he done by the Industrial Tribunal when the matter goes back to it on remand. The Industrial Tribunal will, thus, after calculating the Indian gross profit above, apply the proportion of Indian gross profit/total world gross profit to the amount of ₹ 120.52 lacs representing the administrative expenses of Head Office and determine the proportionate administrative expenses of head office allocable to Indian business for the purpose of deduction under Item 6(e) of the first Schedule. We must also refer to one other ground of challenge put forward on behalf of the Bank against the decision of the Industrial Tribunal in regard to the amounts deductible under cls. (ii) and (iii) of the proviso to Item 2 of the Third Schedule. This ground of challenge was urged on behalf of the Bank in support of the ultimate award of the Industrial Tribunal determining the bonus payable to the workmen at a little over 9 per cent. Of their salary or wage. It was clearly open to the Bank to urge this ground of challenge since the Bank was entitled to support the award of the Industrial Tribunal even on a ground decided against it. Vide J. K. Synthetics Ltd. v. A J. K. Syntheti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be assumed that those words have been used by the Legislature in the same sense. The words 'working funds' in cls. (ii) and (iii) of the proviso to Item 2 of the Third Schedule must, therefore, be construed to mean Paid up capital, reserves and average of the deposits for 52 weeks of each year for which weekly returns of deposits are submitted to the Reserve Bank of India. It could hardly be disputed that borrowings from other banking companies the amounts of bills issued by the Bank and the balance of profit and loss account are neither reserves nor deposits and they are not liable to be shown in the weekly returns of deposits submitted to the Reserve Bank of India. The Industrial Tribunal was, therefore right in excluding them from the category of 'working funds' and this round of challenge urged on behalf of the Bank must be rejected. We accordingly set aside the award made by the Industrial A Tribunal and remand the case to the Industrial Tribunal with a direction to dispose it according to law in the light of the decisions given and observations made in this judgment. Since the workmen have partly succeeded and partly failed, we think that the fair order of co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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