Case Note & Summary
The dispute arose between the workmen and the management of an electricity supply company regarding the computation of bonus payable under the Payment of Bonus Act, 1965 for the accounting year 1964-65. The management initially offered 4% bonus, later revised to Rs. 34,492, but the workmen disputed the calculations. The parties reached a settlement referring three items to the Industrial Tribunal: a sum of Rs. 18,086 provided as rebate to consumers under the Sixth Schedule to the Electricity Supply Act, 1948; Rs. 23,455 on account of development rebate under the Income Tax Act, 1961; and Rs. 35,682 on account of development reserve. The Industrial Tribunal held that the consumer rebate must be added back to gross profits and not deducted; the development rebate must be added back; and the development reserve was rightly deducted. On writ petitions, the Patna High Court partly quashed the Tribunal award, holding that the consumer rebate and development rebate should not be added back, while maintaining the development reserve deduction. The workmen appealed to the Supreme Court challenging the findings on consumer rebate and development reserve. The Supreme Court examined the statutory scheme of the Bonus Act: gross profits are computed under the Second Schedule, and deductions under Section 6 include depreciation, development rebate, direct taxes, and sums specified in the Third Schedule. On the consumer rebate, the Court held that the amount payable to consumers under paragraph 11(1) of the Sixth Schedule to the Electricity Supply Act is not revenue retained by the undertaking; consumers had already paid for electricity and the rebate reduces the effective price. Therefore, it must be deducted before computing gross profits and cannot be added back. On the development reserve, Item 6 of the Third Schedule permits deduction of sums required to be appropriated by the licensee to a reserve under the Sixth Schedule. The words 'required to be appropriated' and 'in respect of' confine the deduction to the accounting year. Paragraph 5A of the Sixth Schedule does not allow appropriation for earlier years in a later year. Consequently, only Rs. 10,555 being the proportionate development reserve for 1964-65 was deductible, not amounts for 1961-62 to 1963-64. The appeal was partly allowed and the High Court judgment modified accordingly.
Headnote
A) Labour Law - Bonus Computation - Payment of Bonus Act, 1965, Section 6, Second Schedule, Third Schedule - Bonus is computed unit-wise using gross profits per Second Schedule and deductions under Section 6, including depreciation, development rebate, direct taxes, and sums specified in Third Schedule - Court reiterates statutory scheme while resolving deduction disputes for non-banking company; gross profits are calculated per Second Schedule and available surplus after statutory deductions (Paras 764G-765G). B) Electricity Law - Consumer Rebate - Electricity Supply Act, 1948, Sixth Schedule Paragraph 11(1) - Rebate payable to consumers from excess profits is not retained revenue of the undertaking - Since consumers had already paid for electricity, the rebate reduces effective price and must be excluded from gross profits; thus it is a deductible item and cannot be added back - Held that the amount to be returned as rebate to consumers is deductible from gross profits, following Poona Electric Supply Ltd. and Jabulpur cases (Para 766B). C) Bonus Act - Development Reserve Deduction - Payment of Bonus Act, 1965, Third Schedule Item 6; Electricity Supply Act, 1948, Sixth Schedule Paragraph 5A - Only sums required to be appropriated by licensee to development reserve in respect of the accounting year are deductible - Words 'required to be appropriated' and 'in respect of' import legal obligation connected with accounting year; Paragraph 5A does not allow belated appropriation for earlier years - Held that only Rs. 10,555 on account of development reserve for accounting year 1964-65 is deductible, not amounts for 1961-62 to 1963-64 (Paras 767D-F, 768F-H, 769C, 770A).
Issue of Consideration
Whether consumer rebate payable under Electricity Supply Act, 1948 and development reserve appropriation under Sixth Schedule are deductible from gross profits for computing available surplus under Payment of Bonus Act, 1965, and whether only proportionate development reserve for accounting year 1964-65 is deductible.
Final Decision
Appeal partly allowed. The Supreme Court held that the sum of Rs. 18,086 provided as rebate to consumers under paragraph 11(1) of Sixth Schedule to Electricity Supply Act, 1948 is deductible from gross profits and should not be added back; the development rebate issue was not pressed before Supreme Court; and only Rs. 10,555 on account of development reserve for accounting year 1964-65 is deductible under Item 6 of Third Schedule to Payment of Bonus Act, 1965. The High Court judgment was modified accordingly.
Law Points
- Gross profits under Payment of Bonus Act
- 1965 computed per Second Schedule
- deductions from gross profits under Section 6 include depreciation
- development rebate
- direct taxes
- and sums specified in Third Schedule
- rebate payable to consumers under Electricity Supply Act is not retained revenue and must be deducted before computing gross profits
- under Item 6 of Third Schedule only amounts legally required to be appropriated to development reserve in respect of the accounting year are deductible
- belated appropriation for earlier years not permissible.
