J. K. SYNTHETICS LTD. versus J. K. SYNTHETICS MAZDOOR UNION

Citation: [1972] 1 S.C.R. 651 · Decided: 09-09-1971 · Supreme Court of India · Bench: C.A. VAIDYIALINGAM · Disposal: Dismissed

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Judgment (excerpt)

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J. K. SYNTHETICS LTD. 
v. 
J. K. SYNTHETICS MAZDOOR UNION 
September 9, 1971 
65I 
lC. A. VAIDIALINGAM AND P. JAGANMOHAN REDDY, JJ.J 
Bonus-When dividends on shares are extraneous inconie for the 
purpose of pay111ent of Bonus Act, 1965-The principle for determining 
the sha1e rt'qriired for rehahilitation. 
A dispute for Bonus was raised by the workers of the Appellant com-
pany before the Tribunal for the Bonus year 
1962-63, 
as the appellant 
company which made profit during the year, did not pay any bonus to the 
workers; hut only a gratuity of one month was paid to them. According 
to revised returns filed by the workers, there was an available surplus of 
Rs. 5.34 lakhs: hut according to the n1anagemcnt, there was a deficit. 
There were two main points of dispute : ( 1) the workers challenged the 
deduction of Rs. 4.1 lakh received as dividend by the company as extrane-
ous income.. 
According to the management however, as the company in-
vested part of the paid up capital in shares which earned an income of 
Rs. 4.1 lakh, the company was entitled to claim this amount as an extrane-
ous income because the workers had made no contribution in its ea.ming 
and so this amount should be deducted from the groos profit. (2) 
The· 
workers also disputed Rs. 75.89 lakhs shown by the management as the· 
annual share required for rehabilitation. The management divided 
the 
plant and machinery of the company into two blocks. The original cost 
of the plant and machinery for first block was Rs. 
133.00 lakhs and 
Rs . .15.0 lakhs for the second block. The appellant company claimed the 
'Multiplier' (which is the probable increase. in the price of assets at the 
time of rehabilitailion over the original cost) for each of the two blocks 
as 6 and the 'deviser' (number of years after which the asset requires re-
plaooment), for the first block as 10 and for the second block as 11. 
The Tribunal decided the first point against the management because 
even though there was share capital available to the appellant, instead of 
utilising it as working capital, it had borrowed amount'i 
to 
work the 
Nylon factorv for which it had to pay an interest of over Rs. 5 lakhs. Jn 
these circumstances, it disallowed the claim for deduction on the ground 
that it would be unfair to allow the management to treat the income 
from investments as extraneous income and still reduce the profits 
bv 
raising loans and pay interest'\ resulting in diminution o'f the surplus. on 
the second point the Tribunal admitted 
only a fraction 
of the total 
amount as annual share required for rehabilitation. It held the 'Multi-
plier' as 4 for the first block and 2 for the second block and the 'deviser' 
as 13 and 14 respectively. 
After deducting the prior charges from the 
gross profits, the tribunal computed the available surplus to be Rs. 3.25 
lakhs and of this, 
60 per cent payable as bonus would · come to 
Rs. 2,11,000/-. As the company had already distributed Rs. 90,000 the 
tribunal directed payment of the balance of Rh 1,21,000/- as bonus. 
In 
appeal by special leave, a. further point was a.oitated before the Court as 
to whether the Respondent can challenge a finding by the Tribunal in the 
absence of an appeal by it. 
Dismissing the appeal, 
HELD : (i) Since the divictend in the present case is the return from 
investments of part of the paid up capital of the company whjch is in-
vested •for the purpooe of earning an income, it cannot be construed as 
•652 
SUPREME COURT REPORTS 
[1972] [ S.C.R. 
extraneous income and the Tribunal is justified in disallowing the dividend 
.on shares as a valid deduction. 
The return on paid up capital is· one of 
the prior charges admissible 
as. a valid deduction and if any amount is 
earned from the employment of capital unconnected with the business of 
the company, the labour cannot claim the right to participate in its re-
turns. 
Further if any reserve is utilised for working capital, whether this 
.reserve is depreciation reserve or any reserve, a return in respect of these 
arc also allowed as prior charges, at a reduced rate. 
The company has 
the discretion to invest its capital in various activities; but it cannot de-
.Prive the workmen of the benefits of the returns derived therefrom unless 
the investments in such activity is extraneous to the activities of the com-
pany, in the earning of which the workers had not made any contribution. 
In the present case, the return fr

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