Workmen of Assam Co. Vs. Assam Co. Ltd. - Court Judgment

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the case debated if the 'unit scheme' of payment of bonus would be applicable to the tea industry - on the claim for bonus made by the appellants, the industrial tribunal accepted the unit scheme for the payment of bonus, under which units were credited to each workman and he was paid bonus in proportion to the units to his credit - on appeal, the labour appellate tribunal modified the award and raised the return on the reserves from 5% to 6% - it was held that, the formula for ascertaining the surplus on the basis of which bonus becomes distributable could be applied to the tea industry with suitable adjustments - further, the increase of 6% was unsupportable in absence of any claim in the respondent's written statement - this, the unit scheme was suitable for the payment of bonus - [ a.k. sarkar,; j.r. mudholkar and; r.s. bachawat, jj.] the assessee-firm, consisting of 14 partners, applied for registration under s. 26a of the income-tax act, 1922. one g, who was a partner of the assessee-firm, was also partner of another firm, the ferozepore firm. the ferozepore firm consisted of 8 partners who had agreed that if any work was carried on by any one of them with others the profits and losses arising out of that work would be divided amongst all the partners in proportion to their shares in that firm. in the course of the proceedings for the registration of the assessee-firm all its partners had stated before the income- tax officer that g was a partner in the as firm, not in his individual capacity but on behalf of the ferozepore firm. it was found by the income-tax officer that the capital of the assesseefirm was supplied by g who had taken the amount from the ferozepore firm, and, that the assessee-firm was to carry on the same kind of business as the ferozepore firm. the incom-tax officer rejected the application for the reason that 'in reality it was not g but the ferozepore firm that was the partner of the assessee-firm and consequently, the assessee-firm was illegally constituted because : (i) ferozepore firm could not legally be a partner in the assessee-firm; (ii) the total number of partners of the assessee-firm would then be 21; and (iii) the individual shares of the partners of the ferozepore firm were not specified in the partnership deed of the assessee-firm. the appellate assistant commissioner, on appeal, reversed that order, holding that g was a partner of the assaw-firm in his individual capacity and not as a representative of the ferozepom am and that the effect of his agreement to share his profits and losses in the assessee-firm with the other partners of the ferozepore firm was only to constitute a sub-partnership between g and the other partners in the ferozepore firm, in respect of the share of g in the assessee-firm. the appellate tribunal upheld the order of the appellate assistant commissioner on the short ground that there was no merit in the appeal in view of certain decisions cited by it, and also dismissed the application under s. 66(1) to refer to the high court four questions of law. the commissioner preferred a petition before the high court under s. 66(2) for directing the tribunal to refer the questions; (1) whether g was a partner of the assessee-firm in his individual capacity or representing the partners of the ferozepore, firm, and (ii) whether the ferozepore firm was a sub-partnership; but the high court dismissed the application holding that the questions of law were well settled. in appeal to this court, it was contended that : (i) under the circumstances, g was a partner of the assessee-firm not in his individual capacity but on behalf of the ferozepore firm; (ii) the high court held that there was a sub- partnership on the erroneous assumption that the: ferozepore firm came into existence after the assessee-firm was constituted; and since a sub-partnership can be entered into only after a partnership was constituted, there could be no sub-partnership between the members of the ferozepore, firm; and (iii) as a question of law arose out of the order of tribunal, the high court was bound to call for a statement of case. held : (per sarkar and bachawat, jj.) on the materials on record, the appellate tribunal was entitled to come to the conclusion that g and not the ferozepore firm was the partner in this assessee-firm [181 d-e] commissioner of income-tax v. sivakasi match exporting. co. [1964] 8 s.c.r. 18, followed. (ii) the question whether there was a sub-partnership between the members of the ferozepore firm in respect of the share of g is not materail, because, assuming that there was no sub-partnership, the members of the ferozepore firm did not become partners in the assessee-firm by virtue of the clause which only regulated the relationship of the partners of the ferozepore firm inter se and created a partnership between them in respect of the share of g in the assessee- firm. [183 b-d] commissioner of income-tax v. bagyalakshmi & co. [1965] 2 s.c.r. 22, followed. (iii) though a question of law arose out of the order of the appellate tribunal, since it was not a substantial question of law and the answer to the question was self- evident, the high court was not bound to require the tribunal to refer the question. [184 d] per mudholkar, j. (dissenting) : the main question which arose in the present cast was whether in the circumstances of the case, the assesseefirm was registrable under s. 26a. ascertainment of the legal effect of &we circumstances would be a question of law. the appellate assistant commissioner and the tribunal had not considered the question whether the application for registration reflected the true position as regards the real partners in the assessee-firm. the reasoning of the appellate assistant commissioner was pertinent only to a case of sub-partnership, and the tribunal merely referred to certain decisions and dismissed the department's appeal. since the finding of the appellate assistant commissioner and also of the tribunal was arrived at by ignoring the relevant facts found by the income-tax officer, the finding was vitiated by an error of law. the high court has also committed an obvious error as to when the ferozepore firm was constituted and that error has led to the further error that the ferozepore firm was sub- partnership in relation to the assessee-firm. moreover the decisions in commissioner of income-tax v. sivakasi match exporting co. [1954] 1 s.c.r. 18 and commissioner of income- tax v. bagyalakshmi & co. [1965] 2 s.c.r. 22 do not apply to the facts of this case, because, the observations in those cases are based on the fact that the person admitted as a partner in the firm seeking registration was admitted as an individual, whereas in the present case one of the partners of the firm seeking registration was a partner in his re- presentative capacity. thus the question in the instant case was a substantial question of law which has not been settled. therefore, the high court should have directed the tribunal to refer the question. [188 h; 190 h. 189 h; 188 a- b; 192 b-d] - counsel for the respondent objected to the applicability of the formula to an industry like the tea industry, his contention being that circumstances and considerations applicable to the textile industry cannot apply to tea industry which, being connected with agriculture, is affected by various factors which must be taken into consideration in the matter of depreciation, return on capital and return on reserves. it may however be noted that the company in the instant case -is more than a century old one faring well all through and has thus been so far a prosperous one and on a sound footing and as such it is expected to have built up a substantial reserve. ' these additional risk factors are no doubt present in an industry connected with agriculture like the tea industry and in our opinion they justify the giving of a higher rate of return on capital. 11. units would thus be awarded to workmen in the particular category they are in and the more qualified the worker the better his work and the higher his wage, the higher the number of units he would be entitled to.kapur, j. 1. in this appeal brought by special leave against the order of the labour appellate tribunal, calcutta, dated august 31, 1955, the controversy between the parties is confined to the question of bonus. the appellants are the workmen including members of the indian staff and artisans employed by the respondent, the assam company ltd., a company incorporated in the united kingdom and engaged in tea industry in the state of assam. the appellants claimed bonus for the years 1950, 1951 and 1952 at the rate of six months' wages per year. the respondent offered to the indian staff excluding the artisans rs. 51,061 as bonus for 1950, rs. 48,140 for 1951 and rs. 15,493 for 1952 which works out at 2.3% of the net profit for the year 1950, 3.1% for the year 1951 and 3.9% for the year 1952. this dispute was referred to the industrial tribunal by a notification of the assam government dated august 27, 1953. 2. the industrial tribunal allowed depreciation as given in the company's balance-sheets for the three years and allowed as return on the paid-up capital and on the reserve 7 per cent. and 5 per cent. respectively and held the artisans also to be entitled to bonus. for the purpose of mode of payment the industrial tribunal accepted the 'unit scheme' under which the company had been paying bonus since the year 1926. it was of the opinion that the scheme was fair and rational and gave incentive to industrial efficiency and to production. 3. both the appellants and the respondent appealed against this order, the former as to the correctness of the accounts, the amount of the return on capital and reserves and the 'unit scheme' and again claimed six months' wages per year as bonus. the latter appealed against the percentages allowed on the capital and the reserves and claimed 10 per cent. and 8 per cent. respectively as a fair return. it objected to the inclusion of the artisans amongst the workmen eligible for bonus and also to the application of what is known as the bombay formula to tea industry. 4. the labour appellate tribunal varied the tribunal's award and allowed depreciation at the rate allowable under the indian income tax act, confirmed 7 per cent. on the paid-up capital but raised the return on the reserves from 5 per cent. to 6 per cent. in order to meet the claim of the company for rehabilitation which though not claimed before the industrial tribunal, was put forward before it as a basis for increase in return on reserves. in this court the appellants again repeated their objection to the amount of depreciation, the return on capital and on reserves and to the 'unit scheme' but were prepared to confine their claim to two months' wages as bonus. counsel for the respondent objected to the applicability of the formula to an industry like the tea industry, his contention being that circumstances and considerations applicable to the textile industry cannot apply to tea industry which, being connected with agriculture, is affected by various factors which must be taken into consideration in the matter of depreciation, return on capital and return on reserves. 5. the principles on which the ascertainment of the surplus on the basis of which bonus becomes determinable and distributable have been laid down by this court in sree meenakshi mills v. their workmen [1958] s.c.r. 878. the formula there laid down is : 'distributable surplus has to be ascertained after providing from the gross profits for (1) depreciation, (2) rehabilitation, (3) return at 6 per cent. on the paid-up capital (4) return on the working capital at a lesser but reasonable rate, and (5) for an estimated amount in respect of the payment of income-tax.' 6. under this formula the depreciation allowable in cases arising under the industrial disputes act is normal depreciation including shift depreciation. we did not understand counsel for the respondent to contend that there was anything in the formula which was wrong in principle but that it had to be adjusted to suit the circumstances of the tea industry. no circumstances, were, however, given by him which would make it unfair to apply the formula nor were any figures or particulars furnished for varying it in regard to depreciation. 7. the industrial tribunal allowed 7 per cent. return on capital as against 6 per cent. held allowable under the formula. its reasons for this increase were : 'that the tea industry here may have often to face various adverse circumstances - more adverse than those that may come upon other industries and may have more risks than other industries. it may however be noted that the company in the instant case - is more than a century old one faring well all through and has thus been so far a prosperous one and on a sound footing and as such it is expected to have built up a substantial reserve.' 8. the labour appellate tribunal maintained this higher rate of return on capital on the ground 'of its being exposed to greater risks than any other industry......... namely, weather, pests in the plants and gradual deterioration of the soil over which no man has any control.' these additional risk factors are no doubt present in an industry connected with agriculture like the tea industry and in our opinion they justify the giving of a higher rate of return on capital. 9. instead of 4% allowed by the formula the industrial tribunal fixed the return on reserves at 5 per cent. on the ground of its 'being sufficient to guard the interests of the company' but the labour appellate tribunal increased it to 6 per cent. to meet replacements and rehabilitation charges since the 'usual method of calculating these charges is not possible in the present case' and 'we are to see that the industry does not suffer for want of replacement and rehabilitation funds and must provide such funds in some other way, namely, by allowing a return on the working capital at higher rates.' in the absence of any claim in the respondent's written statement for rehabilitation or any figures for determining this amount, this extra 1 per cent. is insupportable. it is not a case where a claim could not be made or figures could not have been given at the proper stage. the additional one per cent. cannot therefore be allowed. in our opinion the reasons given by the industrial tribunal sufficiently support the giving of 5 per cent. on the reserves as being fair considering the risks of the tea industry which is exposed to various adverse circumstances and elements. the industrial tribunal has not acted unreasonably nor in disregard of any accepted principles in calculating the return on reserves at 5 per cent. and we see no cogent reason for varying this rate. 10. the respondent has, since 1926, been paying bonus to its employees according to a scheme called the 'unit scheme' which according to the industrial tribunal has the merit of being more rational and gives incentive to industrious habits and efficiency leading to more production. the labour appellate tribunal did not go into the merits of the scheme but ordered payment according to it. under this scheme units are credited to each workman, taking into consideration the importance of the job he holds, the wages he gets and the number of years he has been employed in that particular job. the value of units so awarded thus vary commensurate with considerations of efficiency and experience. the establishment is divided into twelve categories and the medical staff into three each based on the relative importance of the nature of work done by a workman. thus, in the descending order of their importance the jobs are classified as : 1. head mohori; 2. head clerk; 3. divisional mohori; 4. land mohori; hazaria mohori; 5. kamjari mohori; 6. godown mohori; 7. second tea house mohori; second kerani; second hazaria mohori; 8. second godown mohori; 9. gunti mohori; 10. third tea house mohori; 11. mondal; 12. apprentices. 11. units would thus be awarded to workmen in the particular category they are in and the more qualified the worker the better his work and the higher his wage, the higher the number of units he would be entitled to. the amount available for distribution as bonus is divided by the aggregate number of units of all the workmen participating in the scheme and each worker would be entitled to a multiple of the amount payable on one unit and the units to his credit. it appears to us that the estimate of the industrial tribunal as to the suitability of the scheme was fully justified and payment of bonus in accordance with this scheme will not only result in fair distribution of bonus but would also lead to improvement in the quality and quantity of work. this scheme is not to be confused with production bonus though it has the merit of combining the fair distribution of the surplus available and the maintenance of efficiency in the establishment. 12. taking the figures on the basis of the award made by the industrial tribunal we find that rs. 7,64,608, would be the surplus for the year 1950, rs. 77,823 for 1951 and a deficit of rs. 10 lakhs for the year 1952. the total sum available for three years will be nil. on the basis of the claim which counsel for the appellant has made before us, i.e., two months' wages, we find that the amount of bonus required for the members of the staff for the year 1950 will be one sixth of rs. 4,63,095 and for the year 1951, one sixth of rs. 4,83,893 and for 1952 one sixth of rs. 5,31,202 which works out to rs. 77,182 for 1950, rs. 80,647 for 1951 and rs. 88,533 for 1952. the amounts required for the artisans further increase these figures. no doubt on the calculations which have now been made the appellant may justify the claim of two months' bonus for the year 1950 but the same cannot be said in regard to the claim for the years 1951 and 1952 because of the available surplus which is only rs. 77,823 for 1951 and there is a deficit of about 10 lakhs of rupees for the year 1952. taking all these figures into consideration, we are of the opinion that the amounts awarded by the industrial tribunal are fair and proper. as the labour appellate tribunal allowed depreciation and rehabilitation on an erroneous basis, we would set aside the order of the labour appellate tribunal and would restore that of the industrial tribunal with this modification that the respondent shall make available the additional amount required for payment of the proportional bonus to the artisans. 13. the appeal is, therefore, allowed to this extent, the order of the labour appellate tribunal set aside and the award of the industrial tribunal restored with this modification that the respondent shall also provide an additional amount for these three years for payment to the artisans of proportionate bonus on the basis of the 'unit system.' as neither of the parties have succeeded in their main contentions, the fair order in regard to costs should be that the parties do bear their respective costs throughout.