LexCROMPTON PARKINSON (WORKS) PRIVATE LTD., BOMBAY versus ITS WORKMEN AND OTHERS
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r959 May 6. 936 SUPREME COURT REPORTS [1959] Supp. CROMPTON PARKINSON (WORKS) PRIVATE LTD., BOMBAY v. ITS WORKMEN AND OTHERS (S. R. DAS, c. J., N. H. BHAGWATI, s. K. DAS, P. B. GAJENDRAGADKAR and K. N. WANOHOO, .T.J.) I nditstrial Dispute-Bonus-Gross Profits-E xpenditt<rc, when may be disallowed-Service Fee-TFhether allowable expcnditure- Available Surpl1's-Bon1ts, deducted as prior charge-Propriety of. Initially the appellant was a roo% subsidiary of the British company, Crompton Parkinson Ltd. In 1947 an agreement called " Technical Aid Agreement" was concluded between the two companies under which the appellant agreed to pay to the parent company 5% of the net value of its sales every year as service fee for the use of their patterns, valuable designs, techni- cal aid, benefit of research and ancillary services and facilities. As the appellant obtained the benefit of the parent company's technical kno\v1edge and research it did not maintain a separate research establishment on which it \vould otherwise have had to spend far more than the service fee it paid. The agreement had received the approval of the Govern1nent; the incon1e-tax autho- rities had, every year, allowed the service fee as legitimate expenditure; and the remittances to the parent company had been sanctioned by the Reserve Bank of India. In the claim for bonus by the workmen, the Tribunal, in calculating the gross profits, pruned down the allowable expenditure on account of the service fee to one fourth on the grounds that the amount of service fee paid was excessive and beyond the requirements of commercial necessity and that a large part of the pay1nent was in the nature of capital expenditure. In calculating the avail- able surplus the Tribunal deducted as a first charge 4! months basic wages as bonus before deducting depreciation and income- tax contrary to the terms of the l'ull Bench formula. Held, that the entire amount of service fee paid ought to have been allowed as proper expenditure. Unless• it was definitely found that a purported expenditure was sham or had been made with the express object ·of minimising the profits with a vie\v to deprive the workmen of their bonus, the Tribunal could not substitute its own judgment as to what was or was not commer- cially justified in place of that of the appellant and its directors. 1'he service fee was a genuine expenditure and represented a binding contractual obligation which could legally be enforced against the appellant and a breach thereof may have had serious consequences affecting its business. Held further, that the Tribunal acted wrongly in deducting (2) S.C.R. SUPREME COURT REPORTS 937 bonus as a prior charge even before the recognised items of prior 1959 charges. Such departures from the Full Bench Formula by Tribunals were to be deprecated. Crompton · d C C · k C Parkinson (Works) Associate ement ompanies Ltd. v. Its Wor men, .A. Nos. P . 1 d 459 4nd 460 of 1957, decided on 5-5-59, followed. rBivaleb_t ' . om ay CIVIL APPEI,LATE JURISDICTION: Civil Appeals v. Nos. 756 & 757 of 1957. Its Workmm Appeal by special leave from the Award dated January 8, 1957, of the Industrial Tribunal, Bombay, in I. T. Ref. Nos. 109 and 147 of 1956. 0. K. Daphtary, Solicitor-General of India, N. A. Palkhivala and S. N. Andley, for the appellant. Rajani Patel and Janardan Sharma, for the respon- dents. 1959. May 6. The Judgment of the Court was delivered by &· Others DAS, C. J.-These are appeals by special leave filed Das c. J. by Crompton Parkinson (Works) Private Ltd. (here- inafter referred to as the company) against that part of the award made in References (IT) Nos. 109 and 147 of 1956 by the Industrial Tribunal, Bombay, on January 8, 1957, which concerns the demand of its workmen for bonus for the company's financial year 1954-55. That award was published in the Bombay Government Gazette of January 17, 1957, in Part IL at pages 351-364. The material facts and circumstances leading upto the said award, as they appear from the evidence placed on record before the Tribunal, may shortly be stated as follows:- The company was incorporated in India in the year 1937. The registered office of the company is at Bombay. The authorised capital of the company is Rs. 75 lacs divided into 75,000 ordinary shares of the value of Rs. 100 each. Out of the autho- rised capital, shares of the value of Rs. 60 lacs have
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