INDIAN OXYGEN LIMITED versus THEIR WORKMEN

Citation: [1972] 2 S.C.R. 816 · Decided: 09-12-1971 · Supreme Court of India · Bench: C.A. VAIDYIALINGAM · Disposal: Case Partly allowed

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Judgment (excerpt)

816 
INDIAN OXYGEN LIMITED 
v. 
THEIR WORKMJ):N 
December 9, 1971 
[C. A. VAIDIALINGAM AND K. K. MATHEW, JJ.] 
P~ymen( of Bonus Act, 1964 s. &-Bonus paid in respect of account-
ing year not to be deducted from gross profit for computing direct 1k7Xes--
!J1vidend declared during accounting year-Whether to be deducted from 
teserves "'ihown at co:nmencen1ent of accounting year-Doubtful debts' 
whether rightly treated as part of reserves-Bonus paid in respect of year 
preceding the accounting year to be deducted from gross profits-Set on, 
direc·tions as to. 
For its accounting year 1964-65 the Indian Oxygen Ltd. was liable 
to pay bonus under t.he Payment of Bonus Act 1965. 
The accounts of 
the company for the said year were passed on February 12. 1966. 
The 
company calculated bonus at the rate of 17.58% of the total annual 
wages dr salary plus Dearne: s Allowance and declared the said amount 
payable by notice dated March 23,_ 1966. 
The workmen demanded a 
higher rab> of bonus. 
The resulting industrial dispute was referred to 
the National Industrial Tribunal. 
The Tribunal fixed the rate of bonus 
at 20%. 
Against the decision of the Tribunal appeals were filed in this 
Court. 
The questions that fell for consideration wem: (i) whether the 
tribunal was right in calculating the direct taxes after deducting the 
amount of bonus payable for the accounting year 1964-65 from the gross 
profits; (ii) whether the Tribunal was justified in deducting the amount 
earmarked for distribution of dividends from the rese\'ves shown in the 
balance sheet at· Ifie commencement of the_ accounting year even thoug)I 
the dividend had not been declared at the commencement of the account-
ing year: (iii) whether the Tribunal was justified in treating the amount 
shown against doubtful debts as part of the reserves; (iv) whether the 
Tribunal while calculating direct taxes was justified in not taking into 
account the bonus paid for the year 1963-64; (v) whether tl-r. directbm 
given by the Tribunal regarding set on were justified. 
HELD : (i) In Metal Box Co. this Court laid down that an employer 
is entitled to compute his tax liability without deducting first the amount 
of bonus, he would be liable 1o pay, from and out of the amount com-
puted under ss. 4 and 6 of the Act. After the above decision Parliament 
enacted the Payment of Bonus (Amendment) Act 1969. 
Parliament at 
that time was fully aware of the principle laid down by this Court that 
the tax liability has to be worked out by first working out the gross-profits 
and deducting therefrom the prior charges under s. 6 but not the bonus 
payable to the employ.,es. 
Nevertheless Parliament did not make anv 
c'bange in the Act enacting that a different method is to be adopted for 
computing the cfir_ect taxes. If Parliament intended to make a departure 
from. the principles laid down by this Court in Metal Box Co. that bonus 
amount should be calculated after a provision for tax was made and 
not ~dore a provision to that effect would have been incorporated by 
the Amendment Act. 
'Tmit not having been done, the law as laid down 
by this Court in Metal Box Co. and reaffirmed by two later decisions 
namely William Jacks & Co. Ud. and Delhi Cloth and General Mills Co. 
still holds the field. 
It follows that the view of the National Tribunal 
that bonus must be deducted from the gross-profits before income-tBx is 
calculated, was not c<irrect. [826 F-G; 829 C-F] 
A 
B 
c 
D 
E 
F 
G 
H 
A 
B 
c 
D 
E 
F 
G 
H 
INDIAN OXYGEN LTD. v. WORKMEN (Vaidialingam, I.) 
817 
Further the view of the Tribunal that the tax concessions by way of 
rebate that an employer will get under the Indian Ineome-tax Act 011 
the bonus found to be payable has also to be taken info consideration in 
dividing tne •urplus between the workmen and the company, was also 
erroneous in view of the fact that the Act which is a self contained Code 
has prescribed the manner in which available surplus and the allocable 
surplus are to be calculated. [829 G] 
Metal Box Co. of ltfdia Ltd. v. Workmen, [1969] 1 S.CR. 750, Work-
men of William Jacks & Co. Ltd. v. Management of William Jack9 & Co. 
[1971] 1 L.L.J. 503 and Delhi Cloth & General Mills Co. Ltd. v. Work· 
men [1971] 2 S.C.C. 695, applied. 
(ii) The ~elevant accounting year in the present case was October l, 
1964 to September 30, 1965. 
In its balance sheet as on September 30, 
1964 the appellant had shown a sum of Rs. 2,35,07,686 reserves. Simi-
larly in 

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