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Allocable surplus S.2 (a) Payables as bonus 60% Annual wage bill of all the eligible of 5.201.78 plus 101.54 employees Rate of bonus to each employee Workers W-84 (Paper Book p.213)

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Total Lakhs

------------------------------------------------------------ 156.09 Gross Profit .................. .. 156.09 DEDUCTIONS 35.83 Depreciation u/s 6(a) . . . . . . . 35.83 Development rebate u/s 6(b). . . . . . 2.72 2.72 Direct taxes u/s 6(c) as in EX-M-15 10.09 Return on capital under s.6(d) 22.47 52.24 5.48 27.17 1.30 118.74 Available surplus is . . . . . . . .. . .. 84.98 Allocable surplus is 60% of Rs.84.98 50.99 37.35 22.40 306.32 Annual wages . . . . . . . . . . . . . . 306.32

7.31% Rate of bonus . . . . . . . . .. . . . . . 16.64%

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The above brings out the wide divergence between the parties as to the figure of direct taxes. According to the appellant direct taxes which have to be deducted for computation of allocable surplus for payment of bonus are :

Rs. 52-24 lakhs by way of income-tax and Rs. 5-48 lakhs by way of surtax making a total of Rs. 57-72 lakhs, while according to the calculation of the workers direct taxes should be no more than Rs. 10-09 lakhs on the basis of Ex. M- 15, one of the documents produced by the Management itself. If the computation of the Management is accepted, then the allocable surplus in terms of s. 2(4) of the Bonus Act is Rs. 22-40 lakhs and the rate of bonus to each employee is 7.31 per cent while according to the computation of the workers the allocable surplus is Rs. 50-99 lakhs and the rate of bonus should be 16.64%. In order to appreciate the viewpoints of the two parties, it is necessary to refer to some provisions of the Act. It is unnecessary to state that before the enactment of the Bonus Act of 1965 bonus used to be awarded by Industrial Tribunals whenever there was a dispute between the Management and the workers, by applying the Labour Appellate Tribunal Full Bench formula formulated as far back as 1950 and approved of and explained in several decisions of this Court. The Act of 1965 was passed for creating a statutory liability "for payment of bonus to persons employed in certain establishments and for matters connected therewith". Subject to certain exceptions it was made applicable to every factory or other establishment in which twenty or more persons were employed on any day during an accounting year.The accounting year in the present case is 1st July 1964 to 30th June, 1965. Under s. 8 every employee is entitled to be paid by the employer in an accounting year, bonus in accordance with the provisions of the Act. The amount of bonus is to be specified percentages of the allocable surplus of the establishment which is defined in s. 2 sub-s. (4) of the Act. Establishments may be of two kinds. They are either establishments in private sector or establishments in private sector. Although 'establishment' by itself has not been defined in the Act separately, s. 3 gives a clue to the meaning thereof. The said section runs as follows :

Section 3 is the key to the Act in that it fixes the res or the property which is to provide the allocable surplus for the distribution of bonus in terms of the Act. This must be an establishment and a question directly arises when there are a number of establishments in common ownership as to how the allocable surplus is to be found out. If s. 3 had no proviso to it, all departments, undertakings or branches, be they complete factories or not, for turning out commercial products under common ownership could be treated as one establishment for the purpose of computation of 'bonus, A company which is a legal entity owning and running factories of diverse characters whether situate at the same place or located at different places would in such eventuality, form one establishment for the purpose of the Act. The proviso to the section however shows that the legislature intended that each of these factories is to be treated as a separate establishment for the purpose of computation of bonus if a separate balance sheet and profit and loss account were prepared in respect thereof unless such a factory was, immediately before the commencement of the accounting year, treated as a part and parcel of the company i.e., the establishment. In other words, if different units or branches or departments had been treated separately for the purpose of computation of bonus and separate balance sheet and profit and loss accounts had been prepared in respect thereof, they were not to lost their separate identity as establishments because of the main provision of S. 3. Once it is ascertained that a branch, department or a factory is an establishment by itself under the Act, sections 4 to 7 are to have effect in respect of that establishment by themselves without the impact or connection with other branches, departments or factories even if they subserve a common cause. Gross profits ,of such an establishment like the two mills before us would have to be calculated in terms of the Second Schedule to the Act by taking the net profit as per profit and loss account and adding thereto the various amounts therein mentioned and deducting the amounts like capital receipts, profits of and receipts relating to business outside India etc. The gross profits to be computed for the purpose of bonus would not be the same as to be computed under the Indian Companies Act or the Income-tax Act. Under S. 5 of the Act the available surplus in respect of the two units would be the gross profits computed under S. 4 as reduced by the prior charges mentioned in sub-cls. (a) to

S. 33-A provides for development allowance. S. 33-B provides for computation of rehabilitation allowance. S. 34 lays down the conditions for the allowance of depreciation and development rebate. Ss. 35, 35-A, 35,B, 35-C and 36 provide for special allowances. When the total income is 'ascertained after providing for the many allowances specified in the Act, income-tax is charged in respect of the total income of the previous year or previous year as the case may be, at rates laid down in the Finance Act for the relevant, year. The Companies Act however is not concerned with any other allowance except the one for depreciation under s. 32 of the Income-tax Act and the amounts deductible by way of development rebate or development allowance under the said Act. It must follow from the above that the liability for direct tax under S. 6(c) must be the one which would have to be computed by principles followed in the Income-tax Act. In other words, the liability under s. 6(c) must be the notional liability of a venture of which the gross profits are known and the prior charges by way of depreciation and development rebate and development allowance have been computed. The calculation of income-tax in Ex. M-330 proceeds on the basis that the gross profits are Rs. 156.09 lakhs and the depreciation and development rebate allowable under S. 6(a) and (b) are Rs. 38.55 lakhs leaving a margin of Rs. 117.54 lakhs for computation of Incometax, If this tax is quantified at 45% of the said balance it comes to Rs. 52.24 lakhs as shown in the calculation chart of the Management and surtax thereon would be Rs. 5.48 lakhs. The respondents do not. dispute that the figures for income-tax and surtax would be as shown by the Management if their basic calculation is correct; but according to them the Management must accept the figure given in Ex. M-15. Ex. M-15 proceeds on the basis that the total liability of the company being Rs. 16.00 lakhs as shown at page 4 of the Directors' report to the shareholders under the Indian Companies Act for the year ended 30th June 1965, the same would be allocable to the two units of Delhi, Cloth Mills and Swatantra Bharat Mills in the proportion of Rs. 7.37 lakhs and Rs. 2.24 lakhs. These figures however have no bearing on the computation of the liability to tax under s. 6(c) of the Bonus Act for the two particular units involved in this case. It was argued at one stage by the respondents that cl. (c) of s. 6 is not related to cls. (a) and (b) of the said section. If that were so, there is no reason why the tax liability at 45% should not be calculated on the whole of the gross profits i.e., Rs. 156.09 lakhs. Ex M-15 was apparently prepared on the basis that the total tax liability for income-tax purposes of all 'the various units under the ownership of the Delhi Cloth and General Mills Company Ltd. being Rs. 16 lakhs, Rs. 7.85 lakhs and Rs. 2.24 lakhs would be attributable to the working results of Delhi Cloth Mills and Swatantra Bharat Mills. If the direct tax liability be as quantified by the Management in Ex. M-330 the available surplus in terms of s. 5 of the Act is Rs. 37.35 lakhs and allocable surplus under the Act being 60% thereof is to be quantified at Rs. 23.40 lakhs which works out to 7.31 per cent on The annual wage bills of all the eligible employees totalling Rs. 306.32 lakhs.