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Dealing with the problem from this point of view the appellate tribunal conceded that investment necessarily implies the legitimate expectation of the investor to secure recurring returns on the money invested by him in the industrial undertaking, and so it held that it was essential that the plant and machinery should be kept continuously in good working order for the purpose of ensuring that return. Such maintenance of the plant and machinery would necessarily be to the advantage of labour because the better the machinery the larger the earnings and the brighter the chance of securing a good bonus. On this consideration it was held that the amount of money that would be necessary for rehabilitation, replacement and modernisation of the machinery would be a prior charge on the gross profits of the year. Since the depreciation allowed by the income-tax authorities is only a percentage on the written-down value the depreciation fund set apart on that basis would not be sufficient for the purposes of rehabilitation and an extra amount would have to be annually set apart nationally under the heading of 'reserves' to make up the deficit. This position was apparently not disputed by the employees. The claim made by the industry that a fair return on the paid-up capital must be secured and that ordinarily it should be paid at the rate of 6% per annum was also not disputed. The employees, however, challenged the claim of the industry that reserves employed as working capital should carry any interest; but their objection was overruled and it was held that working capital also would be entitled to interest though at a much lower rate than that on the paid-up capital. Then the question of taxes was considered and it was agreed that a provision had to be made for taxes which would be payable on the amount determined after deducting depreciation from the gross profits less any bonus which may be awarded. In the result the appellate tribunal laid down the manner and method in which the available surplus should be determined. The notional accounting for this purpose starts with the figure of the gross profits which are arrived at after payment of wages and dearness allowance, to the employees and other relevant items of expenditure. Then a deduction for depreciation is made, and on the notional balance thus derived a provision for taxes payable is allowed. Then follow the provisions for reserves for rehabilitation, return on paid-up capital and return on reserves employed as working capital. That gives the amount of surplus if' any. Whenever the working of this formula leaves an amount of available surplus, labour was held entitled to claim a reasonable share in this amount by way of bonus for the current year. This formula is based on considerations of social justice and is intended to satisfy the legitimate claims of both capital and labour in respect of the profits made by the industry in a particular year. It takes the particular year' as a unit and makes all its notional calculations on the basis of the gross profits usually taken from the profit and loss account; in this particular case the available surplus determined by the application of the formula was found to be 2.61 crores; and out of this surplus 0.30 crores were awarded as bonus to clerks and other staff and 1.86 crores was awarded as bonus to the employees leaving a net notional balance of 0.45 crores.

This Court had occasion to consider the said formula in Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur (1). The judgment in that case indicates that without committing itself to the acceptance of the formula in its entirety, this Court in general accepted as sound the view that since labour and capital both contribute to the earnings of the industrial concern, it is fair that labour should derive some benefit if there is a surplus after meeting the four prior or necessary charges specified in the formula. It is relevant to add that in dealing with the concept of bonus this Court ruled that bonus is neither a gratuitous payment made by the employer to his workmen nor can it be regarded as a deferred wage. According to this decision, where wages fall short of the living (1) [1955] S.C.R. 991 standard and the industry makes profit part of which is due to the contribution of labour, a claim for bonus can be legitimately made. However, neither the propriety nor the order of priority as between the four prior charges and their relative importance nor their content was examined by this Court in that case; and though the formula has subsequently been generally accepted by this Court in several reported decisions (Baroda Borough Municipality v. Its Workmen (1), Sree Meenakshi Mills, Ltd. v. Their Workmen (2) and The State of Mysore v. The Workers of Kolar Gold Mines (3) ) the question about the adequacy, propriety, or validity of its provisions has not been examined nor has the general problem as to whether the formula needs any variation, change or addition been argued and considered. It is for the first time since 1950 that, in the present appeals, we are called upon to examine the formula carefully and express our decision on the merits of its specific provisions. As we have already indicated, in dealing with the present dispute the tribunal has held that, in working out the formula, it could relax its provisions even though the proposed relaxation may mean a material variation of the formula itself. On behalf of the appellant Mr. Kolah has taken strong exception to this approach. He has argued that, in the last eight years and more, on the whole the formula has worked fairly well in the interest of both capital and labour, and so the tribunal was not justified in departing from it in the present case. This argument undoubtedly raises a question of considerable importance. Before examining this argument, however, it is necessary to consider one preliminary point: Was the tribunal justified in holding that the appellant could not be allowed to add to its previous claim for rehabilitation ? The decision of the tribunal on this point seems to indicate that the tribunal thought that the appellant was estopped from making any such claim; and the correctness of this conclusion is challenged by the appellant.

In support of this view reliance has also been placed on the recommendations of the Committee on 'Profit-sharing'. This Committee had been appointed in 1948 to advise the Government of India " on the principles to be followed for the determination of (a) fair wages to labour, (b) fair return to capital employed in the industry, (e) reasonable reserves for the maintenance and expansion of the undertaking, and (d) labour's share of the surplus profits, calculated on a sliding scale normally varying with production, after provision has been made for (b) and (c) above ". The Committee viewed its problem from three im- portant angles, viz., " profit-sharing as an incentive to production, profit-sharing as a method of securing industrial peace, and profit-sharing as a step in the participation of labour in management ". The Committee recognised that putting back profits into the industry is one of the most useful forms of capital investment and this should be encouraged and it recommended that a figure of 20% for reserves should be generally aimed at, though it considered that, as a first charge, 10% of the net profits should be compulsorily set aside for reserves, leaving it to the good sense of the management to allocate the balance or more out of their own share of surplus profits. In regard to the labour's share in the surplus profits, the Committee stated that, having due regard to the conditions prevailing in the industry selected for an experiment in profit- sharing, it had come to the conclusion that labour's share should be 50% of the surplus profits of the undertakings. It is a matter of common knowledge that so far Government have not thought it desirable, expedient or possible to legislate in this matter in the light of the recommendations made by this Committee; but it is suggested that these recommendations afford a rational basis for reconstructing the formula.

be treated as a prior charge just like the claim for the rehabilitation of plant and machinery " (1). :This position is not disputed before us, and we think rightly. That takes us to the item of rehabilitation and it is this item which poses a very difficult problem. We have already noticed that the object of providing depreciation of wasting assets in commercial accounting is to recoup the original capital invested in the purchase of such assets; but the amount of depreciation which is allowed under the formula can hardly cover the probable cost of replacement. That is why the formula has recognised the industry's claim for rehabilitation in addition to the admissible depreciation. Since the Second World War prices of industrial plant and machinery have registered a continuous upward rise and its inevitable consequence has been a proportionate rise in the claim for rehabilitation. In considering the claim for rehabilitation it is first necessary to divide the blocks into plant and machinery on the one hand and other assets like buildings, roads, railway-sidings, etc., on the other. Then the cost of these separate blocks has to be ascertained and their probable future life has to be estimated. Once this estimate is made it becomes possible to anticipate approximately the year when the plant or machinery would need replacement; and it is the probable price of such replacement on a future date that ultimately decides the amount to which the employer is entitled by way of replacement cost. This problem can be considered item wise where the industry does not own too many factories and item wise study of the plant and machinery is reasonably possible; but if the industry owns several factories and the number of plants and machines is very large it would be difficult to make a study of the replacement costs item- wise, and in such a case the study has to be blockwise. In either case what the tribunal has to estimate is the probable cost of replacement of plant and machinery at the time when such replacement would become due. It would be clear that the decision of this question would inevitably depend upon several uncertain (11) (1952) 1 L.L.J. 518, 522.