EMPLOYERS IN RELATION TO THE MANAGEMENT OF INDIAN CABLE CO. versus THEIR WORKMEN

Citation: [1973] 1 S.C.R. 105 · Decided: 11-04-1972 · Supreme Court of India · Bench: C.A. VAIDYIALINGAM · Disposal: Case Partly allowed

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Judgment (excerpt)

105 
• 
EMPLOYERS IN RELATION TO THE MANAGEMENT OF 
INDIAN CABLE CO .. 
• 
c 
D 
E 
F 
H 
v. 
TIIEIR WORKMEN 
April 11, 1972 
[C. A. VAIDL\LINGAM, D. G. PALEKAR AND K. K. MATHEW, JI.] 
Payment of Bonus Act, 1965, ss. 4 & 6-<alculation of available 
surphu--Notional tax liability must be worked out 
without 
deducting 
bonus from gross profit..--Ceiling oJ Rs. 750/- under s. 1(13)-Payments 
made in rtspect of emoluments ·above ceiling whethb deductible-Re-
turn on provision for tloubtjul debis whether deductibl.....Compensation 
to workmen for premature-retlremen~ whether must be added back-
Right· of respondent to support decision of Tribunal on 
grounds 
not 
accepted or noticed by Tribunal. 
The appellant company declared bonus for the year 1955-56 at 13.51 % 
The workmen demal)lled bonus at the rate of 20%, the maximum pro-
videc! in the Payment of Bonus Ac~ 1965. The dispute about the rate of 
bonus and calculation of the a\'ailable surplus was referred to the llldustrial 
Tribunal. The Tribunal heid that a sum of Rs. 21,06,576 being bonus at 
20% of the gross effective salaries and wages was payable foi the year in 
question and it directed the surplus amount of Rs. 1,46,252/- to. be set on 
As· the bonus at the rate of 13.51 % had already been declared and paid 
by the Company, the Tribunal directed the 
payment of the 
balanc,e 
6.49% within a prescribed period. 
In appeal to this Court against the 
Tribunal's award the appellant company contended : (i) that the Tribu-
nal erred in holding that under ss. 6 . and 7 of the payment of Bonus 
Act tile bonus payable for the relevant accounting year has to be deduct-
ed from the gross profits for 
the calculation of direct tax, (ii) 
that 
the Tribunal erred in refusing to deduct from tha gross profits the ex· 
gratia paynr.nt made to employees in respect of salary above the ceiling 
of Rs. 750 fixed by the Act; (iii) that the Tribunal wrongly refused to 
deduct the reserve for doubtful debts from the gross profits. 
On behalf 
of the respondent workmen it was urged that the Tribunal was not justi-
fied in allowing deduction of certain items frqm the gross-profits 
for 
purposes of computing the available and allocable surplus. 
HELD : (i) In the case of Metal Box Co., it was held by this Court 
that the notional tax liability is to be worked out by firs~ working out 
the gross profits and deducting therefrom the prior charges' under s. 6, 
but not the bonus payable to the employees. It is clear ,from the above 
decision that an employer is .entitled to deduct his tax liability without 
deducting first the amount of bonus he would be liable to pay from and out 
of tire amount computed under ss. 4 & 6 of the Act. Thjs principle has been 
upheld by the Court in later cases. This Court has also held that the 
amendment of the Act in 1969 has not effected any change in the ear-
lier decision that the tax' liability under the Act is to be worked aut first 
by working out the gross-profits and deducting therefix;m bonus payable 
to the employees. It followed that the Tribunal committed an error in 
law in computing direct tax after deducting bonus .. [109H-llODJ 
Metal Box Co. of India Ltd. v. Thplr Workmen, [19691 1 S.C.R. 
7SO, The Workmen of William lack; and 
Company Ltd. 
Madras v. 
Management of William Jacks and Co. Ltd., Madras, A.I.R. 1971 S.C. 
:S-1208SupCl/72 
106 
SUPREME COURT REPORTS: 
[1973] 1 S.C.R. 
1821, Delhi Cloth and General Mills Co. Ltrl. v. Workmen, [1971] 2 
S.C.C. 695, and Indian Oxygen Ltd. etc. v. Their Workmen, A.LR. 
1972 S.C. 471. applied. 
(ii) Though officers drawing salary upto Rs. 1600 per mensem are 
employees under s. 2 (13) of the Act and eligible for bonus, the salary 
or wages per month will be taken at the maximum of Rs. 7 50 /- per-
mensem. 
What the company had done was to pay such men not ollly 
the bonus as calculated under the Act, but also an additional amount 
representing bonus on the emoluments above the ceiling of Rs. 750 /-. 
Such additional amount paicl to all such officers totalling Rs. 2.5 lakhs 
could not be considered to be an expenditure debited directly to Reserves. 
The Tribunal was justified in adding back this amount to the gross-profits. 
[112A-Cl 
(iii) In view of the decision of this Court in Indian Oxygen Lid. 
the Tribunal's decision adding back the deduction claimed by the appel .. 
!ant on account of return on the provision for doubtful debts must be 
upheld. f!12E.PJ 
(iv) The respondents were cutitled 

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