Case Note & Summary
These two cross appeals by special leave arose from an industrial dispute between Voltas Limited and its workmen regarding the quantum of bonus payable for the financial year 1956-57. The employer had already paid four and a half months' basic wages as bonus, while the workmen claimed six months' basic wages subject to a minimum of Rs. 250 per employee. The Industrial Tribunal, Bombay, in Reference (I.T.) No. 212 of 1958, computed the available surplus according to the Full Bench formula and awarded five months' basic wages as bonus, directing payment of the balance after adjusting the amount already paid. The employer appealed contending that no amount beyond what had already been paid should be allowed, while the workmen cross-appealed seeking six months' bonus. The Supreme Court examined the various disputed items in the calculation of gross profits and available surplus. On the employer's side, the first contested item was a sum of Rs. 1 lakh paid as contribution to a political fund; the Court held that although such donation might be permissible under law or the company's rules, it was not a proper expense to be deducted when computing available surplus under the Full Bench formula because it was not incurred for the business and could reduce the surplus available for low-paid workmen. The Court then considered four items of alleged extraneous income. The first item of Rs. 3.47 lakhs was not allowed as a deduction because counsel had conceded before the Tribunal that it could not be deducted. The second item of Rs. 1.76 lakhs as insurance rebate was held to be part of the appellant's insurance business and not extraneous. The third item of Rs. 3.33 lakhs as foreign exchange gain was held to arise from normal business and thus includible. The fourth item of Rs. 9.78 lakhs as commission on direct transactions with foreign manufacturers was held includible because the employer failed to prove that the goods were not serviced by the workmen; the burden of proving extraneous income lay on the employer. The Court also upheld the Tribunal's allowance of six per cent interest on capital and four per cent on working capital, finding no special reason for higher rates. On the workmen's side, the Court agreed with the Tribunal's allowance of Rs. 4.4 lakhs for income tax due to an increased tax rate in that year, but held that the Tribunal erred in treating Rs. 4.76 lakhs provision for gratuity as a fresh prior charge, since no fresh items of prior charge could be added to the Full Bench formula, though such matters could be considered at distribution stage. The Court further upheld the exclusion of salesmen and apprentices from bonus. Salesmen paid commission on sales were not workmen within the meaning of the Industrial Disputes Act, 1947; their clerical work was incidental, their average commission was about Rs. 1,000 per month, and they had already taken a share in profits. Apprentices were under a definite contract excluding bonus, were merely learning their jobs, and the employer incurred training expenses, so they hardly contributed to profits. After rejecting these contentions, the Court recalculated the available surplus: gross profits Rs. 109.97 lakhs, less depreciation Rs. 3.28 lakhs, income tax at 51.15% Rs. 54.20 lakhs, dividend tax and wealth tax Rs. 7.50 lakhs, return on capital at 6% Rs. 13.20 lakhs, and return on working capital at 4% Rs. 1.66 lakhs, yielding available surplus of Rs. 30.13 lakhs. The Tribunal's award of five months' basic wages amounting to Rs. 16.80 lakhs was found justified. The Court stressed that no more could be awarded because the appellant had to provide for a gratuity fund and had greater liability towards gratuity as a new concern taking over old employees. Accordingly, both appeals were dismissed with costs, and the Tribunal's award was upheld.
Headnote
A) Labour Law - Bonus Computation - Political Fund Donation Deductibility - Full Bench Formula - Donation to political fund, though permissible under law/rules, not a proper expense deductible from gross profits in computing available surplus; payment akin to charity not incurred for business and could reduce surplus of low-paid workmen - Held tribunal correctly disallowed deduction of Rs. 1 lac (Paras Not Numbered). B) Labour Law - Bonus Computation - Extraneous Income - Full Bench Formula - Income from normal business operations such as insurance rebate, foreign exchange gains, and commission on direct foreign transactions not extraneous; employer bears burden to prove extraneous income; workmen's contribution through servicing goods relevant - Held tribunal rightly included these incomes in gross profits (Paras Not Numbered). C) Labour Law - Bonus Computation - Prior Charges - Full Bench Formula - Provision for gratuity cannot be introduced as a fresh prior charge, though may be considered at distribution stage; Tribunal erred in allowing Rs. 4.76 lacs as prior charge, but final available surplus unaffected - Held no fresh prior charges permissible (Paras Not Numbered). D) Labour Law - Bonus Eligibility - Salesmen - Industrial Disputes Act, 1947 - Salesmen paid commission on sales not treated as workmen under Act; clerical work incidental; commission adequate and already a share in profits - Held salesmen not entitled to further bonus (Paras Not Numbered). E) Labour Law - Bonus Eligibility - Apprentices - Contract and Contribution - Apprentices under definite contract excluding bonus, merely learning and not contributing to profits; employer incurs training expenses - Held apprentices not entitled to bonus (Paras Not Numbered). F) Labour Law - Bonus Computation - Interest on Capital and Working Capital - Full Bench Formula - Usual rates of 6% on capital and 4% on working capital allowed absent special reason; higher rates not justified - Held tribunal's rates upheld (Paras Not Numbered). G) Labour Law - Bonus Computation - Available Surplus Calculation - Full Bench Formula - Gross profits Rs. 109.97 lacs, less depreciation, income tax, dividend tax, wealth tax, return on capital and working capital yields available surplus Rs. 30.13 lacs; five months' basic wages (Rs. 16.80 lacs) justified - Held both appeals dismissed, award upheld (Paras Not Numbered).
Issue of Consideration
Whether the Industrial Tribunal erred in disallowing political fund contribution as an expense, whether certain incomes were extraneous and should be excluded from gross profits, whether salesmen and apprentices were entitled to bonus, whether provision for gratuity could be allowed as a prior charge, and whether the available surplus calculation justified five months' bonus.
Final Decision
Both appeals dismissed with costs; Industrial Tribunal award upheld. Available surplus computed at Rs. 30.13 lakhs; five months' basic wages as bonus (Rs. 16.80 lakhs) justified. Political fund donation not deductible; extraneous income claims rejected; no fresh prior charges; salesmen and apprentices excluded; usual interest rates on capital and working capital upheld.
Law Points
- Political fund donations not deductible from gross profit under Full Bench formula
- income from normal business not extraneous
- burden on employer to prove extraneous income
- no fresh prior charges can be added to Full Bench formula
- commission-based salesmen not workmen under Industrial Disputes Act and not entitled to bonus
- apprentices under contract excluding bonus not entitled
- usual interest rates on capital and working capital apply absent special reason
- available surplus must be calculated per Full Bench formula
