WORKMEN OF WILLIAM JACKS & CO. LID., MADRAS versus MANAGEMENT OF WILLIAM JACKS & CO. LID., MADRAS

Citation: [1971] SUPP. 1 S.C.R. 540 · Decided: 28-04-1971 · Supreme Court of India · Bench: J.M. SHELAT · Disposal: Dismissed

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Judgment (excerpt)

A 
B 
c 
D 
G 
B 
W(}RKMEN OF WILLIAM .JACKS .& CO. LTD., 
MADRAS 
11. 
MANAGEMENT OF WILLIAM JACKS & CO. LID., 
MADRAS 
April 28, 1971 
(J. M. SHELAT, I. D. DUA AND V. BHARGAVA, JJ.J 
The Payment of Bonus Act (21 of 1965), s. 23, Second Schedule, item 
2(c) and Third Schedule, item (1)-A.dvance made by head office to branch 
office-Interest paid by branch offiu-lf deductible expenditure in calcu-
lating profit and loss of branch office-Provision for gratuity etc.-Diffe· 
renee between provision and reserve-Provision when deductible-Deduc· 
tible income tax calculated without taking into occoHnt bonus payable-If 
correct-Payment of Bonus (Amendment) Act (8 of 1969)-Effect of. 
The appellant! workmen of the respondent claimed that for the two 
yean 196-4 and 1965 they were entitled to bonus at the maximum rate of 
20% of their annual wages while the respondent contended that there was 
no available surplm and consequently the liability to pay bonus for these 
two years could not exceed the minimum of. 4% of the wages. The manage-
ment, inter alia, claimed deductions: (1) with respect to interest charged 
by the London office on advances made by the London office to the res-
pondent-branch during those two years; (2) provision for gratuity and 
other contingencies; and (3) income tax calculated without taking into 
account the bonus which would be payable to the workmen. 
The Tribunal allowed the claim_s. 
In appeal to this Court, 
HELD: (1) (a) The amounts claimed as interest are really payments 
by the 'branch of the company to its head office. 
A payment of interest 
could be justified only on the basis that the head office was a creditor 
and the branch office a debtor. But a company could not be a creditor 
and its own debtor simultaneously. The interest paid really represented 
amount! of money transferred by the respondent-branch to the head office, 
and similarly, the advances made by London office to the respondent-branch 
were amounts which continue to be used by the company for its own busi-
ness at a different place. 
[544F] 
(b) This is also made manifest by the proviso to item 1 of the Third 
Schedule to the Act. In the deduction of the current liabilities any amount 
shown as payable by a company to its head-office whether towards any 
advance made. by the bead-office or otherwise, or any interest paid by the 
company to its head-office is not to be treated as a deductible liability, be-
cause, the advance made by the head office is also treated as a part of the 
investment by the company. [5450] 
(c) Under s. 23 of the Payment of Bonus Act, 1965, there is a presum-
ption as to the correctness of the statements and particulars contained in 
the balance-sheet and the profit and loss account of a company, if the 
accounts had been properly audited by qualified auditors. The presump-
tion, however, is confined to the accuracy of the statements and particulars 
contained in the balance sheet and the profit and loss account. 
If any 
item in the accounts is wrongly shown aS' expenditure, when on the face 
WOI.I:MEN l'. WILWW 1ACD .& CO. (B/targava, J.) 
of it it is not ao, the. court is not bound to hold that th~ method adoptee 
in preparing the accounta is correct simply beCause tho auditors raisc>d no 
objection. [S44H-S4SCJ 
. 
Therefore, in the calculation of Jl'Oii pcofitl for purpoaes of bonus 
the sums deducted as interest for the two years must be added back since 
they were wrongly shown as deductible expenditure in calculating the pro-
fit and loa. 
(2) The provision for gratuity, and other contingencies such as furlough 
salary, passage, service and com.mission, in the present case, was made in 
respect of existing ond known liabilities, though, in some cases the exact 
amount could not be ascertained. It was not a case where it was an anti-
cipated loss or anticipated expenditure which would arise in the future. 
Suob provision is, not a reserve at all and it could not be added back under 
item 2(c) of 'the Second Schedule to the Act. It was therefore rightly 
shown by the respondent as a deductible expenditure in calculating profit 
and loss. [5470] 
Metal Box Co. v. The Workmen, [1969] 1 S.C.R. 750, followed. 
(3) The calculation of the amount of income-tax shown as expenditure, 
without taking into account the bonus which would be payable to the work-
B 
c 
men under the Act, was correctly done in accordance with the decision of 
D 
this Court in the Metal B~x Company ctJSe. In that case, the q

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