The facts of the case have been stated with sufficient fulness, yet briefly, in the statement of the case submitted by the Income-tax Appellate Tribunal (Calcutta Bench) and may be conveniently set out in its own words (1) 1955 27 I.T.R. 202. The applicant had received sums of Rs. 3,831, Rs. 6,606, Rs. 7,954 and Rs. 8,304 in the four assessment years, 1944- 45, 1945-46, 1946-47 and 1947-48 as income from dividends. The shares in respect of which this dividend income was received were the property of the Applicant but in the books of the various companies these stood in the names of other persons. It appears that these shares were purchased by the Applicant from other persons under a blank transfer but the transfers had not been registered with the various companies. The Applicants claim in these income-tax proceedings was that these shares although not registered in the name of the applicant were the property of the applicant. It was further claimed that this dividend income should be grossed up under s. 16(2) and credit for the tax deducted should be allowed to the Applicant under s. 18(5). The Income-tax Officer did not accept this claim, and the appeals of the assessee were rejected by the Appellate Assistant Commissioner of Income-tax, Calcutta, A Range and by the Appellate Tribunal. The Tribunal, however, on being moved, referred the following question to the High Court Whether in the facts and circumstances of this case, the Applicant (the assessee) was entitled to have this dividend income grossed up under section 16(2) and claim credit for tax deducted at source under section 18(5) of the Income-tax Act? The High Court answered the question in the negative, thus affirming the decisions of the Department and the Appellate Tribunal.
 The assessee contends that the decision of the High Court is erroneous, and that it is entitled to have the dividend income I grossed up under s. 16(2) and also to claim credit for tax deducted at source, under s.18(5) of the Income-tax Act. The relevant sections are as follows 16(2) For the purposes of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or distributed to him, and shall be increased to such amount as would, if income-tax (but not super-tax) at the rate applicable to the total income of the company without taking into account any rebate allowed or additional income-tax charged for the financial year in which the dividend is paid, credited or distributed or deemed to have been paid, credited or distributed, were deducted therefrom, be equal to the amount of the dividend (proviso omitted). 18 (5) Any deduction made and paid to the account of the Central Government in accordance with the provisions of this section and any sum by which a dividend has been increased under sub-section (2) of section 16 shall be treated as a payment of incometax or super-tax on behalf of the shareholder and credit shall be given to him therefor on the production of the certificate furnished undersection 20 in the assessment, if any, made for the following year under this Act (proviso omitted). 49B(1) Where any dividend has been paid, credited or distributed or is deemed to have been paid, credited or distributed to any of the persons specified in section 3 who is a shareholder of a company which is assessed to income- tax in the taxable territories or elsewhere, such person shall, if the dividend is included in his total income, be deemed in respect of such dividend himself to have paid income-tax (exclusive of super-tax) of an amount equal to the sum by which the dividend has been increased under sub- section (2) of section 16. It was contended in the High Court that inasmuch as s. 16(2) referred to an I assessee, the assessee company was entitled to have the dividend grossed up by the addition of income- tax paid by the various companies at source and consequently to have the benefit of the credit allowed under the two remaining sections. In the opinion of the High Court, an assessee whose name was not in the register of members of the companies was not entitled to the benefit of these provisions.
 The learned Judges of the High Court were of the opinion that the word shareholder in s.18(5) had the same signification as the word member used in the Indian Companies Act and that the assessee was not qualified to be considered as a shareholder, even though by a blank transfer it had ,purchased the relevant shares. In our opinion, the High Court was right in its conclusion. A company when it pays income-tax, does not do so on behalf of the shareholders. It is itself chargeable under the Act, In Cull v. Inland Revenue Commissioners (1), Lord Atkin stated the law (which in substance is also the law in our country) thus My Lords, it is now clearly established that in the case of a limited company the company itself is chargeable to tax on its profits, and that it pays tax in discharge of its own liability and not as agent for its shareholders At one time it was thought that the company, in paying tax, paid on behalf of the shareholder but this theory is now exploded by decisions in this House, and the position of the shareholders as to tax is as I have stated it. When the company pays its own income-tax and declares a dividend from the balance of its profits, it deducts from such dividend a proportionate part of the amount of the tax paid by it.
 This principle is explained in another English case, and it is substantially also the law in this country. In Inland Revenue Commissioners v. Blott (2), Viscount Cave stated the law in these words Plainly, a company paying income-tax on its profits does not pay it as agent for its shareholders. It pays as a tax- payer, and if no dividend is declared, the shareholders have no direct concern in the payment. If a dividend is declared, -the company is entitled to deduct from such dividend a proportionate part of the amount of the tax previously paid by the company and, in that case, the payment by the company operates in relief of the shareholder. But no agency, properly so called, is involved. The share-holders, however, get the benefit of the payment of the tax by the company. Though under (1) 1940 A.C. 51, 56 (1939) 22 Tax Cas. 603, 636. (2) 1921 2 A.C. 171, 201. s.16(2) of the Act their dividend is increased by a proportionate amount of tax paid by the company, the payment of the tax by the company is deemed tinder ss. 18(5) and 49B(1) to be payment by the shareholders. The rates of income-tax applicable to the company are, in most instances, higher than the rates applicable to the individual shareholders, and by this process of grossing up, as it is commonly called, the recipient of the dividend gets some benefit. The position of a shareholder who gets dividend when his name stands in the register of members of the company causes no difficulty whatever. But transfers of shares are common, and they take place either by a fully executed document such as was contemplated by Regulation 18 of Table A of the Indian Companies Act 1913, or by what are known as blank transfers. In such blank transfers, the name of the transferor is entered, and the transfer deed signed by the transferor is handed over with the share scrip to the trans- feree, who, if he so chooses, completes the transfer by entering his name and then applying to the company to register his name in place of the previous holder of the share. The company recognises no person except one whose name is on the register of members, upon whom alone calls for unpaid capital can be made and to whom only the dividend declared by the company is legally payable.
 Of course, between the transferor and the transferee, certain equities arise even on the execution and handing over of a blank transfer, and among these equities is the right of the transferee to claim the dividend declared and paid to the transferor who is treated as a trustee on behalf of the transferee. These equities, however, do not touch the company, and no claim by the transferee whose name is not in the register of members can be made against the company, if the tranferor retains the money in his own hands and fails to pay it to him. A glance at the scheme of the Indian Companies Act, 1913, shows that the words member , shareholder and holder of a share have been used interchangeably in that Act.
 Indeed, the opinion of most of the writers on the subject is also the same. Buckley on the Companies Act, 12th Edition, page 803 has pointed out that the right of a transferee is only to call upon the company to register his name and no more.- No rights arise till such registration ,takes place. Section 2(16) of the Indian Companies Act, 1913, defines share as share in the share capital of the company Section 5 deals with the mode of forming incorporated companies, and in the case of companies limited by shares, the liability of the members is limited to the amounts, if any, unpaid on the shares respectively held by them. By s. 18, Table A is made applicable to companies, unless by the Articles of any company the terms of Table A have been excluded or modified. Regulation 18 of Table A reads as follows The instrument of transfer of any share in the company shall be executed both by the transferor and transferee, and the transferor shall be deemed to remain holder of the share until the name of the transferee is entered in the register of members in respect thereof. The words holder of a share are really equal to the word shareholder and the expression holder of a share denotes, in so far as the company is concerned, only a person who, as a shareholder, has his name entered on the register of members. A similar view of the Companies Clauses Consolidation Act, 1845, was taken in Nanney v. Morgan(1). The learned Lord Justices held that under s. 15 of that Act, the transferee bad not the benefit of a legal title till certain things were done, which were indicated by Lopes, J., in the following passage Therefore the transferor, until the delivery of the deed of transfer to the secretary, is subject to all the liabilities and entitled to all the rights which belong to a shareholder or stockholder, and, in my opinion until the requisite formalities are complied with, he continues the legal -proprietor of the stock or shares subject to that proprietorship being divested, which it may be at any moment, by a compliance with the requisite formalities. (1) (1888) 37 Ch. D. 346, 356.
 The same position obtains in India, though the completion of the transaction by having the name entered in the register of members relates it back to the time when the transfer was first made. See Nagabushanam v. Ramachandra Rao (1). During the period that the transfer exists between the transferor and the transferee without emerging as a binding document upon the company, equities exist between them, but not between the transferee and the company. The transferee can call upon the transferor to attend the meeting, vote according to his directions, sign documents in relation to the issuance of fresh capital, call for emergent meetings and inter alia, also compel the transferor to pay such dividend as he may have received. See E. D. Sassoon Co. Ltd. v. Patch-(2) approved in Mathalone v. Bombay Life Assurance Co. Ltd. (3 ). But these rights though they, no doubt, clothe the transferee with an equitable ownership-, are not sufficient to make the transferee a full owner, since the legal interest vis-a-vis the company still outstands in the transferor so much so, that the company credits the dividends only to the transferor and also calls upon him to make payment of any unpaid capital, which may be needed. The cases in Black v. Homersham (4) or Wimbush, In re Richards v. Wimbush (5) hardly advance the matter further than this. The position, therefore, under the Indian Com- panies Act, 1913, is quite clear that the expression shareholder or holder of a share in so far as that Act is concerned, denotes no other person except a member . The question that arises in the present case is whether by reason of ss. 16(2) and 18(5) the assessee, who was a transferee on a blank transfer is entitled to the benefits of the grossing up of the dividend income. Learned counsel for the assessee strenuously contends that the assessee being an owner in equity of the shares and thus also of the dividend is entitled to this benefit.
 He refers to the use of the word I assessee in s. 16(2). The Department, on the (1) (1922) I.L.R. 45 Mad. 537. (3) 1954 S.C.R. 117. (2) (1922) 45 Bom. L.R. 46. (4) (1878-79) L. R. 4 Ex. D. 24. (5) 1940 1 Ch. D. 92. other hand, says that the dividend can be increased under s. 16(2) and credit allowed under s. 18(5) if the assessee is a shareholder, because the benefit of s. 18(5) can go only to the shareholder, i. e., a person with his name on the register of members, and not to a person holding an equity against such shareholder. The assessee contends that the word shareholder includes even a person who holds a share as a result of a blank transfer, and does not necessarily mean a member of the company, whose name is on the register of members. Authorities on this point are not wanting, and indeed, in the judgment of the Calcutta High Court they have all been referred to. They are all against the assessee. See Shree Shakti Mills Ltd. v. Commissioner of Income-tax (1), Jaluram Bhikulal v. Commissioner of Income-tax (2), Arvind N. Mafatlal v. Incometax Officer (3) and Bikaner Trading Co. v. Commissioner of Income-tax (4).
 The question that falls for consideration is whether the meaning given to the expression shareholder used in s. 18(5) of the Act by these cases is correct. No valid reason exists why shareholder as used in s. 18(5) should mean a person other than the one denoted by the same expression in the Indian Companies Act, 1913. In In re Wala Wynaad Indian Gold Mining Company (5), Chitty, J., observed I use now myself the term which is common in the Courts, I a shareholder, that means the holder of the shares. It is the common term used, and only means the person who holds the shares by having his name on the register. Learned counsel for the assessee cited a number of authorities in which the ownership of the dividend was in question, and it was held that the transferee whose name was not registered, was entitled to the dividend after transfer had been made.
 These cases are Commissioners of Inland Revenue v. Sir John Oakley (6), Spence v. Commissioners of Inland Revenue (7) (1) 1948 16 I.T.R. 187. (3) 1957 32 I.T.R. 350. (5) (1882) 21 Ch. D. 849, 854. (2) 1952 22 I.T.R. 490. (4) 1953 24 I.T.R. 419. (6) (1925) 9 Tax Cas. 582, (7) (1941) 24 Tax Cas. 311. and others cited at page 367 in Multipar Syndicate, Ltd. v. Devitt (1). No one can doubt the correctness of the proposition in these cases, but from an equitable right to compel the transferor to give up the dividend to the transferee, to a claim to the dividend by him as a shareholder against the company is a wide jump. In so far as the company is concerned, it does not even issue the certificate under s. 20 of the Income-tax Act in the name of an unregistered transferee but only in the name of the transferor whom it recognises, because his name is borne on its books. Section 20 lays down The principal officer of every company shall, at the time of distribution of dividends, furnish to every person receiving a dividend a certificate to the effect that the company has paid or will pay income-tax on the profits which are being distributed, and specifying such other particulars as may be prescribed. The meaning of s. 20 as also of s. 18(5) is clear if they are read with s. 19A, under which information regarding dividends has to be supplied by the company when demanded by the Income-tax Officer.
 It lays down The principal officer of every company shall, on or before the 15th day of June in each year, furnish to the prescribed officer a return in the prescribed form and verified in the prescribed manner of the names and of the addresses, as entered in the register of shareholders maintained by the company, of the shareholders to whom a dividend or aggregate dividends exceeding Such amount as may be prescribed in this behalf has or have been, distributed during the, preceding year and of the amount so distributed to each such shareholder. (Italics supplied). Section 19A makes it clear, if any doubt existed, that by the term shareholder is meant the person whose name and address are entered in the register of shareholders maintained by the company. There is but one register maintained by the Company. There (1) (1945) 26 Tax Cas. 359. is no separate register of shareholders such as the assessee claims to be but only a register of members . This takes us immediately to the register of members, and demonstrates that even for the purpose of the Indian Income- tax Act, the words ,member and shareholder can be read as synonymous. The words of s. 18(5) must accordingly be read in the light in which the word shareholder has been used in the subsequent sections, and read in that manner, the present assessee, notwithstanding the equitable right to the dividend, was not entitled to be regarded as a shareholder for the purpose of s. 18(5) of the Act.
DECISION ??

The position, therefore, under the Indian Com- panies Act, 1913, is quite clear that the expression shareholder or holder of a share in so far as that Act is concerned, denotes no other person except a member .

A glance at the scheme of the Indian Companies Act, 1913, shows that the words member , shareholder and holder of a share have been used interchangeably in that Act.
 Indeed, the opinion of most of the writers on the subject is also the same.

The words holder of a share are really equal to the word shareholder and the expression holder of a share denotes, in so far as the company is concerned, only a person who, as a shareholder, has his name entered on the register of members.

The assessee contends that the decision of the High Court is erroneous, and that it is entitled to have the dividend income I grossed up under s. 16(2) and also to claim credit for tax deducted at source, under s.18(5) of the Income-tax Act.

In so far as the company is concerned, it does not even issue the certificate under s. 20 of the Income-tax Act in the name of an unregistered transferee but only in the name of the transferor whom it recognises, because his name is borne on its books.

The assessee contends that the word shareholder includes even a person who holds a share as a result of a blank transfer, and does not necessarily mean a member of the company, whose name is on the register of members.

In our opinion, the High Court was right in its conclusion. A company when it pays income-tax, does not do so on behalf of the shareholders

a company paying income-tax on its profits does not pay it as agent for its shareholders

A glance at the scheme of the Indian Companies Act, 1913, shows that the words member , shareholder and holder of a share have been used interchangeably in that Act

The same position obtains in India, though the completion of the transaction by having the name entered in the register of members relates it back to the time when the transfer was first made

The position, therefore, under the Indian Com- panies Act, 1913, is quite clear that the expression shareholder or holder of a share in so far as that Act is concerned, denotes no other person except a member

The question that arises in the present case is whether by reason of ss. 16(2) and 18(5) the assessee, who was a transferee on a blank transfer is entitled to the benefits of the grossing up of the dividend income

Section 19A makes it clear, if any doubt existed, that by the term shareholder is meant the person whose name and address are entered in the register of shareholders maintained by the company. There is but one register maintained by the Company

The assessee contends that the decision of the High Court is erroneous, and that it is entitled to have the dividend income I grossed up under s. 16(2) and also to claim credit for tax deducted at source, under s.18(5) of the Income-tax Act

the right of a transferee is only to call upon the company to register his name and no more.- No rights arise till such registration ,takes place

Learned counsel for the assessee cited a number of authorities in which the ownership of the dividend was in question, and it was held that the transferee whose name was not registered, was entitled to the dividend after transfer had been made

In our opinion, the High Court was right in its conclusion.

The position, therefore, under the Indian Com- panies Act, 1913, is quite clear that the expression shareholder or holder of a share in so far as that Act is concerned, denotes no other person except a member .

The question that arises in the present case is whether by reason of ss. 16(2) and 18(5) the assessee, who was a transferee on a blank transfer is entitled to the benefits of the grossing up of the dividend income.

The question that falls for consideration is whether the meaning given to the expression shareholder used in s. 18(5) of the Act by these cases is correct.

No valid reason exists why shareholder as used in s. 18(5) should mean a person other than the one denoted by the same expression in the Indian Companies Act, 1913.

In In re Wala Wynaad Indian Gold Mining Company (5), Chitty, J., observed I use now myself the term which is common in the Courts, I a shareholder, that means the holder of the shares.

No one can doubt the correctness of the proposition in these cases, but from an equitable right to compel the transferor to give up the dividend to the transferee, to a claim to the dividend by him as a shareholder against the company is a wide jump.

In so far as the company is concerned, it does not even issue the certificate under s. 20 of the Income-tax Act in the name of an unregistered transferee but only in the name of the transferor whom it recognises, because his name is borne on its books.

The applicant had received sums of Rs. 3,831, Rs. 6,606, Rs. 7,954 and Rs. 8,304 in the four assessment years, 1944- 45, 1945-46, 1946-47 and 1947-48 as income from dividends.

The shares in respect of which this dividend income was received were the property of the Applicant but in the books of the various companies these stood in the names of other persons.

The Income-tax Officer did not accept this claim, and the appeals of the assessee were rejected by the Appellate Assistant Commissioner of Income-tax, Calcutta, A Range and by the Appellate Tribunal.

The High Court answered the question in the negative, thus affirming the decisions of the Department and the Appellate Tribunal.

In the opinion of the High Court, an assessee whose name was not in the register of members of the companies was not entitled to the benefit of these provisions.

It pays as a tax- payer, and if no dividend is declared, the shareholders have no direct concern in the payment.

If a dividend is declared, -the company is entitled to deduct from such dividend a proportionate part of the amount of the tax previously paid by the company and, in that case, the payment by the company operates in relief of the shareholder.

The share-holders, however, get the benefit of the payment of the tax by the company.

The company recognises no person except one whose name is on the register of members, upon whom alone calls for unpaid capital can be made and to whom only the dividend declared by the company is legally payable.

Indeed, the opinion of most of the writers on the subject is also the same.

The words holder of a share are really equal to the word shareholder and the expression holder of a share denotes, in so far as the company is concerned, only a person who, as a shareholder, has his name entered on the register of members.

A similar view of the Companies Clauses Consolidation Act, 1845, was taken in Nanney v. Morgan(1).

The same position obtains in India, though the completion of the transaction by having the name entered in the register of members relates it back to the time when the transfer was first made.

During the period that the transfer exists between the transferor and the transferee without emerging as a binding document upon the company, equities exist between them, but not between the transferee and the company.

Authorities on this point are not wanting, and indeed, in the judgment of the Calcutta High Court they have all been referred to. They are all against the assessee.

Shree Shakti Mills Ltd. v. Commissioner of Income-tax (1), Jaluram Bhikulal v.

Commissioner of Income-tax (2), Arvind N. Mafatlal v.

Incometax Officer (3) and Bikaner Trading Co. v. Commissioner of Income-tax (4).

It is the common term used, and only means the person who holds the shares by having his name on the register.

The meaning of s. 20 as also of s. 18(5) is clear if they are read with s. 19A, under which information regarding dividends has to be supplied by the company when demanded by the Income-tax Officer.

Section 19A makes it clear, if any doubt existed, that by the term shareholder is meant the person whose name and address are entered in the register of shareholders maintained by the company. There is but one register maintained by the Company.

appears that these shares were purchased by the Applicant from other persons under a blank transfer but the transfers had not been registered with the various companies.

When the company pays its own income-tax and declares a dividend from the balance of its profits, it deducts from such dividend a proportionate part of the amount of the tax paid by it.

This principle is explained in another English case, and it is substantially also the law in this country. In Inland Revenue Commissioners v. Blott (2), Viscount Cave stated the law in these words Plainly, a company paying income-tax on its profits does not pay it as agent for its shareholders.

The position of a shareholder who gets dividend when his name stands in the register of members of the company causes no difficulty whatever.

The transferee can call upon the transferor to attend the meeting, vote according to his directions, sign documents in relation to the issuance of fresh capital, call for emergent meetings and inter alia, also compel the transferor to pay such dividend as he may have received.

Sassoon Co. Ltd. v. Patch-(2) approved in Mathalone v. Bombay Life Assurance Co. Ltd. (3 ).

These cases are Commissioners of Inland Revenue v. Sir John Oakley (6), Spence v. Commissioners of Inland Revenue

Learned counsel for the assessee strenuously contends that the assessee being an owner in equity of the shares and thus also of the dividend is entitled to this benefit.
 He refers to the use of the word I assessee in s. 16(2).

The assessee contends that the word shareholder includes even a person who holds a share as a result of a blank transfer, and does not necessarily mean a member of the company, whose name is on the register of members.

Learned counsel for the assessee cited a number of authorities in which the ownership of the dividend was in question, and it was held that the transferee whose name was not registered, was entitled to the dividend after transfer had been made.

even for the purpose of the Indian Income- tax Act, the words ,member and shareholder can be read as synonymous.

The shares in respect of which this dividend income was received were the property of the Applicant but in the books of the various companies these stood in the names of other persons.

The words holder of a share are really equal to the word shareholder and the expression holder of a share denotes, in so far as the company is concerned, only a person who, as a shareholder, has his name entered on the register of members.

It appears that these shares were purchased by the Applicant from other persons under a blank transfer but the transfers had not been registered with the various companies.

The company recognises no person except one whose name is on the register of members, upon whom alone calls for unpaid capital can be made and to whom only the dividend declared by the company is legally payable.

the transferor shall be deemed to remain holder of the share until the name of the transferee is entered in the register of members in respect thereof.

No valid reason exists why shareholder as used in s. 18(5) should mean a person other than the one denoted by the same expression in the Indian Companies Act, 1913.

Section 19A makes it clear, if any doubt existed, that by the term shareholder is meant the person whose name and address are entered in the register of shareholders maintained by the company.

A company when it pays income-tax, does not do so on behalf of the shareholders.

and it is substantially also the law in this country.

A glance at the scheme of the Indian Companies Act, 1913, shows that the words member , shareholder and holder of a share have been used interchangeably in that Act.

The same position obtains in India, though the completion of the transaction by having the name entered in the register of members relates it back to the time when the transfer was first made. See Nagabushanam v. Ramachandra Rao (1).

When the company pays its own income-tax and declares a dividend from the balance of its profits, it deducts from such dividend a proportionate part of the amount of the tax paid by it.

These equities, however, do not touch the company, and no claim by the transferee whose name is not in the register of members can be made against the company, if the tranferor retains the money in his own hands and fails to pay it to him.

In In re Wala Wynaad Indian Gold Mining Company (5), Chitty, J., observed I use now myself the term which is common in the Courts, I a shareholder, that means the holder of the shares. It is the common term used, and only means the person who holds the shares by having his name on the register.


The award made by the Industrial Tribunal, Bombay, in Reference (IT) No. 75 of 1956 between the appellant and the respondents whereby the Industrial Tribunal awarded to the respondents 4 1/2 months basic wages as bonus for the year 1954-55 (year ending June 30, 1955). The appellant is a subsidiary of the Premier Construction Co., Ltd., and manufactures Hume Pipes. It has factories in different parts of India, Pakistan and Ceylon. The respondents are the workers employed in the appellants factory at Antop Hill, Wadala, Bombay. In October 1955, respondent I who are workmen represented by the Engineering Mazdoor Sabha made a demand for the payment of six-months wages as bonus for the year 1954-55. The matter was also referred to the Conciliation Officer requesting him to initiate Conciliation Proceedings. The Conciliation Proceedings went on before the Conciliation Officer upto March 23, 1956, on which date both the parties arrived at and executed an Agreement to refer the matter to an Industrial Tribunal for adjudication.
 Accordingly, on April 30, 1956, both the parties drew up and signed a joint- application for referring the dispute for adjudication to a Tribunal and the Government of Bombay thereupon in exercise of the powers conferred by sub-s. (2) of s. 10 of the Industrial Disputes Act, 1947, by its order dated June 11, 1956, referred the following dispute to the Tribunal - DEMAND Every Workman (daily rated) should be paid bonus for the year 1954-55 (year ending 30th June, 1955) equivalent to six-months wages without it attaching any condition thereto . Respondent No. I filed their statement of claim before -the Tribunal on June 29, 1956. They alleged that the profits of the appellant during the year 195455 were higher than those during the year 1953-54 for which year the appellant had paid four months basic wages as bonus. They also alleged that the wages paid to them by the appellant fell short of the, living wage and therefore the appellant should pay the in six months basic wages as bonus for the relative year. The appellant filed its written statement in answer on August 14, 1956. The appellant submitted that, after providing for the prior charges according to the formula laid down by the Labour Appellate Tribunal the profits made during the year under consideration did riot leave any surplus and tile, respondents were not entitled to any bonus. It denied that it bad made huge profits during the year in question and submitted that the profits made were not even sufficient to provide for the prior charges , etc. The Tribunal after hearing the parties came to the conclusion that even if payment of a bonus equal to 4 1/2 months basic wages were made a fair surplus would be left in the hands of the appellant to the tune of Rs. 3.30 lacs and therefore awarded the same subject to the following conditions-
Any employee who has been dismissed for misconduct resulting in financial loss to the company shall not be entitled to bonus to the extent of the loss caused. Persons who are eligible for bonus but who are no longer in the service of the company on the date of the payment shall be paid the same provided that they make a written application for the same within three months of publication of this award. Such bonus shall be paid within one month of receipt of application provided that no claim can be enforced before six weeks from the date this award becomes enforceable. Being aggrieved by the said award of the Tribunal, the appellant applied for and obtained from this Court special leave to appeal against the same under Art. 136 of the Constitution and hence this appeal. The formula evolved by the Full Bench of the Labour Appellate Tribunal in Millowners Association, Bombay v. Rashtreeya Mill Mazdoor Sangh, Bombay(1) is based on this idea that as both labour and capital contribute to the earnings of the industrial concerti, it is fair that labour should derive some benefit, if there is a surplus after meeting prior or necessary charges . The following were prescribed as the first charges on (1) (1950) L.L.J. 1247 gross profits, viz., (1) Provision for depreciation (2) reserves for rehabilitation (3) a return at 6on the paid up capital (4) a return on the working capital at a lesser rate than the return on paid up capital and (5) an estimated amount in respect of the payment of income-tax. The surplus that remained after making the aforesaid deductions would be available for distribution among the three sharers, viz., the shareholders, the industry and the workmen See Muir Mills Co., Ltd. v. Suti Mills Mazdoor Union, Kanpur (1) and Sree Meenakshi Mills Ltd. v. Their Workmen (2). This Full Bench -Formula has been working all throughout the country since its enunciation as aforesaid and has been found to be, in the main, fairly satisfactory. It is conducive to the benefit of both labour and capital and even though certain variations have been attempted to be made therein from time to time the main features thereof have not been substantially departed from. We feel that a formula which has been thus adopted all throughout the country and has so far worked fairly satisfactorily should be adhered, to, though there is scope for certain flexibility in the working thereof in accordance with the exigencies of the situation. In the working of the said formula, however, regard must be had both to the interests of capital and labour. In any given industry there are three interests involved, viz., the shareholders, the Company and the workmen and all these interests have got to get their proper share in the surplus profits ascertained after due provision is made for these prior charges . The shareholders may look to larger dividends commensurate with the prosperity of the industrial concern, the company would, apart from rehabilitation and replacement of buildings, plant and machinery, look forward to expansion and satisfaction of other needs of the industry and the workmen would certainly be entitled to ask for a share in the surplus profits with a view to bridge the gap between the wages earned by them and the living wages. All these interests (1) 19551 1,s.C.R. 991, 998. (2) 1958 S.C.R 878, 884, have, therefore, got to be duly and properly provided for having regard to the principles of social justice and once surplus profits available for distribution amongst these respective interests are determined after making due provision for the prior charges as aforesaid the Industrial Tribunal adjudicating upon the dispute would have a free hand in the distribution of the same having regard, of course, to the considerations mentioned hereinabove. But so far as the determination of the surplus profits is concerned the formula must be adhered to in its essential particulars as otherwise there would be no stability nor uniformity of practice in regard to the same.
 It maybe noted, however, that in regard to the depreciation which is a prior charge on the gross profits earned by a concern there is always a difference in the method of approach which is adopted by the income-tax authorities and by the industrial tribunals. It was pointed out by us in Sree Meenakshi Mills Ltd. v. Their Workmen (1) that the whole of the depreciation admissible under the Income-tax Act was not allowable in determining the available surplus. The initial depreciation and the additional depreciation were abnormal additions to the income-tax depreciation and it would not be fair to the workmen if these depreciations were rated as prior charges before the available surplus was ascertained. Considerations on which the grant of initial and additional depreciations might be justified under the Income-tax Act were different from considerations of social justice and fair apportionment on which the Full Bench Formula in regard to the payment of bonus to workmen was based. This was the reason why we held in that case that only normal depreciation including multiple shift depreciation, but not initial or additional depreciation should rank as prior charge. We approved of the decision of the Labour Appellate Tribunal in U. P. Electric Supply Co., Ltd. v. Their Workmen (2) in arriving at the above conclusion and disallowed the claim of the company there to deduct the initial or additional depreciation as prior charge in bonus calculations. (1) 1958 S.C.R. 878. (2) (1955) L.A.C. 659. When this decision was reached we had not before us the decision of the Labour Appellate Tribunal in Surat Electricity Companys Staff Union v. The Surat Electricity Co., Ltd. (1) where a Bench of the Labour Appellate Tribunal had negatived the contention that if only the normal depreciation allowed by the Income-tax law were allowed a company would be able to recoup the original cost of the assets and observed that For the purpose of bonus formula the initial and additional depreciation, which are disallowed by that formula, must be ignored in fixing the written down value and in determining the period over which the normal depreciation will be allowed. The result will be a notional amount of normal depreciation but, as we have said repeatedly the bonus formula is a notional formula. We have already expressed in the judgment delivered by us in Associated Cement Co., Ltd. v. Its Workmen (1) that for the purpose of the bonus formula the notional normal depreciation should be deducted from the gross profits calculated on the basis adopted in Surat Electric Supply Co. Staff Union v. Surat Electricity Co., Ltd. (1) and not merely the normal depreciation including multiple shift depreciation allowed by the income-tax authorities as stated in U. P. Electric Supply Co., Ltd. v. Their Workmen (3).
 It is well settled that the actual income-tax payable by the company on the basis of the full statutory depreciation allowed by the income-tax authorities for the relevant accounting year should be taken into account as a prior charge irrespective of any set off allowed by the Income-tax authorities for prior charges or any other considerations such as building up of income-tax reserves for payment of enhanced liabilities of income-tax accruing in future. It is also well settled that the calculations of the surplus available for distribution should be made having regard to the working of the industrial concern in the relevant (1) (1956) L.A.C. 443. (2) 1959 S.C.R. 925. (3) (1955) L.A.C. 659. accounting year without taking into consideration the credits or debits which are referable to the working of the previous years, e.g., the refund of excess profits tax paid in the past or loss of previous years carried forward but written off in the accounting year as also any provision that may have to be made to meet future liabilities, e.g., redemption of debenture stock, or provision for Provident Fund and Gratuity and other benefits, etc., which, however, necessary they may be, cannot be included in the category of prior charges. If regard be had to the principles enunciated above it is clear that the items of Rs. 1.14 lacs representing the Lahore factory balance written off, Rs. 0.34 lacs being patents written off, and Rs. 0.09 lacs shown as loss on sale of Tardeo property cannot be allowed as proper deductions from the gross profits for the purposes of bonus calculations. The first two items represented debits in connection with the working of previous years. Loss of the Lahore factory had been incurred during the three previous accounting years and had been carried forward from year to year and the only thing which was done during the year under consideration was that it was then written off as irre- coverable. The patents also had been worked off in previous years and the amounts spent in the purchase thereof were therefore to be written off but had reference to the working of the company during the previous years. The last item of Rs. 0.09 lacs was trivial and was therefore not pressed with the result that all these three items were rightly added back in the calculations of the gross profits of the appellant and the figure of gross profits taken at Rs. 36.21 lacs was correctly arrived at by the Tribunal. The depreciation allowed by the Tribunal was Rs. 9.82 lacs which was the full statutory depreciation allowed by the Income-tax authorities. That should not have been done and the only depreciation allowed should have been the notional normal depreciation which was agreed between the parties before us at Rs. 6.23 lacs. Working the figure of income-tax deducted by the appellant on the basis adopted in Shree Meenakshi Mills Ltd.
 Their Workmen (1) the income-tax on the gross profits of Rs. 36.21 lacs less the statutory depreciation allowed by the income-tax authorities, viz., Rs. 9.82 lacs would be equivalent to 7 annas in the rupee on Rs. 26.39 lacs, i.e., Rs. 11.55 lacs thus leaving a balance of Rs. 16.82 lacs from which the other prior charges would have to be deducted in order to ascertain the distributable surplus. 6 return on the ordinary share capital and 5 return on the preference share capital would come to Rs. 4.30 lacs. The appellant, however, claimed that even on the preference shares 6 return should be allowed and not 5 even though preference shareholders were not entitled to anything beyond 5 under the terms of issue. The appellant obviously relied upon the wording of the formula return at 6 on the paid up capital and contended that the preference shares also being paid up capital it would be entitled to a return of 6 on the preference shares for the purposes of the bonus formula even though in fact it would have to pay only 5 return on the same. We cannot accept this contention. Even though the bonus formula is a notional one we cannot ignore the fact that in no event would the appellant be bound to pay to the preference shareholders anything beyond 5 by way of return. The Full Bench Formula cannot be so literally construed. There is bound to be some flexibility therein, the 6 which is prescribed there as the return on paid up capital is not inexorable, and the Tribunals could if the circumstances warrant vary the rate of interest either by increasing or decreasing the same. On the facts of this case however there is no warrant for allowing anything beyond 5 return on preference share capital and the amount of Rs. 4.30 lacs should therefore be deducted as another prior charge from the grsos profits of the appellant. 4 return on reserves used as working capital was calculated merely at a figure of Rs. 0.29 lacs worked out on a total figure of Rs. 7,42,139. The Tribunal (1) 1938 S.C.R. 876. did not take into consideration another sum of Rs. 41,81,196 which represented the depreciation fund which according to the appellant had been used as working capital during the year. If that had been allowed a further sum of Rs. 1.67 lacs should have been added to Rs. 0.29 lacs and the total amount of 4 return on reserves used as working capital would have amounted to Rs. 1.96 lacs. Two arguments were advanced against this contention of the appellant. One was that there was nothing like a depreciation fund, that it merely represented a credit item introduced in the balance-sheet as against the value of the fixed capital at its original cost and would have disappeared as such if the proper accounting basis had been adopted, viz., the fixed block bad been showed at its depreciated value after deducting the amount of depreciation from the original cost. Such book entries, it was contended, did not convert that credit item into a depreciation fund available to the company and there was therefore no basis for the contention that such a depreciation fund ever existed and could be used as working capital in the business. The other was that there was nothing on the record to show that such a depreciation fund, if any, had been, in fact, used as working capital in the business during that year.
 The answer furnished by the appellant in regard to both these contentions was that on a true reading of the balance- sheet Rs. 41,81,196 were reserves used as working capital, vide calculations in Exhibit C-12. Provision for depreciation was Rs. 1,10,29,954 and the paid up capital was Rs. 80,00,000 thus totaling to Rs. 1,90,29,954. The total capital block as shown in page 5 of the balance-sheet for the year ending June 30, 1955, was Rs. 1,48,48,758 and the working capital therefore was Rs. 41,81,196. This was apart from Rs. 7,42,139 which was the total of the three items at page 4 of the balance-sheet Rs. 98,405 capital reserves, Rs. 4,73,734 other reserves and Rs. 1,70,000 provision for doubtful debts as also the investments, cash and bank balance. This being the true position it follows on the facts of the present case that this amount was available for use as working capital and the balance-sheet showed that it was in fact so used. Moreover, DO objection was urged in this behalf nor was any finding to the contrary recorded by the Tribunal. We are, therefore, of the opinion that the reasoning adopted by the Tribunal was not correct and the appellant was entitled to 4 return on the reserves used as working capital including the sum of Rs. 41,81,196. The appellant was thus entitled to Rs. 1.96 lacs as the 4 return on reserves used as working capital and not merely Rs. 0.29 lacs as allowed by the Tribunal. The provision for rehabilitation bad been claimed by the appellant at Rs. 1.10 lacs on the basis of 10 of the net profits relying upon para. 20 of the Report of the Committee on Profit Sharing in which the Committee had proposed that 10 of the net profits should compulsorily be set aside for reserves to meet emergencies as well as for rehabilitation, modernization and reasonable expansion. No evidence was at all led by the appellant before the Tribunal showing the cost of the machinery as purchased, the age of the machinery, the estimate for replacement etc., in order to substantiate this claim for rehabilitation and the appellant was content merely to rely upon this recommendation of the Committee on Profit-sharing. This was rightly considered by the Tribunal as insufficient to support the appellants claim, though it allowed for rehabilitation, in addition to the statutory depreciation, the amount for which the appellant had actually made provision, viz., the sum by which the depreciation written off for the year exceeded the statutory depreciation (i. e., Rs. 10,00,000 minus Rs. 9,82,799Rs. 17,201).
 The amount was really small and did not affect the bonus to be awarded. The Tribunal, in fact, allowed the same, though it appears that in the absence of evidence of the nature above referred to even that sum of Rs. 0.17 lacs ought not to have been allowed. In this state of affairs it is really impossible for us to allow the appellants claim for rehabilitation in anything beyond the sum of Rs. 0.17 lacs actually allowed by the Tribunal and the claim of the appellant for any further provision for rehabilitation must be disallowed for the purpose of the bonus calculations for the year under consideration. It will however be open to the appellant to claim higher rehabilitation for subsequent years if it can substantiate its claim by adducing proper evidence. In addition to these various sums allowed to the appellant by way of prior charges against the gross profits earned during the accounting year the Tribunal also allowed to the appellant Rs. 2.50 lacs by way of provision for debenture redemption fund. The claim of the appellant was for a sum of Rs. 3.50 lacs for the same and it arose under the following circumstances. The appellant had issued debentures of the value of Rs. 30 lacs in the year 1942-43 and they were redeemable in the year 1962-63. No annual provision had been made from profits for redemption of the same inasmuch as until the year 1949 the appellant was not working at a profit.
 Such provision was made only thereafter. For the year 1950-51, the appellant made a provision for Rs. 75,000 for debenture redemption fund, for 1951.52, Rs. 1,50,000, for 1952-53 Rs. 1,50,000, for 1953-54 Rs. 75,000 and further provision had to be made for redemption of debentures in a sum of Rs. 24,50,000. In so far as 7 more years were left before the due date for redemption the appellant claimed Rs. 3,50,000 as the annual sum to be set apart, though as a matter of fact in the balance-sheet only a provision of Rs. 2,50,000 had been made by it for debenture redemption reserve. The Tribunal pointed out that when the appellant had in its accounts appropriated Rs. 2,50,000 for the debenture redemption fund the claim to have Rs. 3,50,000 for the purposes of bonus formula was clearly untenable. It however was of the opinion that a reasonable provision for redemption fund should be allowed as a prior charge and actually allowed the sum of Rs. 2,50,000 which had been actually provided for the purpose in the balance-sheet, negativing the contention of the respondents that no provision should be allowed for debenture redemption fund in the bonus formula. We are of the opinion that the Tribunal was not justified in allowing the sum of Rs. 2,50,000/- for debenture redemption fund as a prior charge in the bonus calculations. The Full Bench Formula does not envisage any such prior charge. It is no doubt true that capital is shy and it would not be practicable for the industrial concern to raise large amounts by way of fresh debentures when they become due. It is also true that the debentures do not stand on a par with other debts of a concern because the debentureholders would in a conceivable situation be able to enforce their security by bringing the industry to a stand-still by taking over charge of the whole concern. It would therefore appear that the redemption of these debentures would be one of the primary obligations of the industrial concern and due provision has of necessity to be made for redemption thereof on due date. This however does not mean that in the calculations of the distributable surplus the provision for such redemption should be given the status of a prior charge, though of course that would be a relevant con- sideration while distributing the available surplus between the various interests entitled thereto. We are therefore of opinion that the Tribunal was wrong in allowing Rs. 2,50,000/- as a prior charge in the bonus calculations. This disposes of all the contentions which have been urged on behalf of both the parties and calculating the figure on that basis we arrive atthe following Rs. in lacs. Gross Profit as per Tribudals calculations 36.21 Less Notional Normal Depreciation 6.23 29.98 Less Tax 7 as. in a rupee 11.55 18.43 Less 6 return on ordinary share capital and 5 on preference share capital 4.30 14.13 Less 4 Return on reserves used as working capital 7,42,139 29 41,81,196 1.67 --------------------- 49,23,335 1.96 ------------- 12.17 LessProvision for Rehabilitation 0.17 ------------ Available Surplus 12.00 This would bring the available surplusfor distribution to a sum of Rs. 12 lacs and this would be distributable amongst the shareholders, the company and the workmen concerned. It is not feasible to lay down any rigid formula as to what the proportion of such distribution amongst these various interests should be.
 The shareholders as well as the company would both be naturally interested inter alia in providing the debenture redemption reserves as also meeting the needs of the industry for further expansion. The workmen would no doubt be interested in trying to bridge the gap between their actual wage and the living wage to the extent feasible. This surplus of Rs. 12 lacs would have to be distributed amongst them having regard to the facts and circumstances of the case, of course bearing in mind the various considerations indicated above. Before we arrive at the figure of the actual bonus which it will be appropriate in the circumstances of this case to allow to the workmen, we may advert to one argument which was pressed before us. on their behalf and that was that the bonus calculations should not be made on the basis of the All-India figures which were adopted by the Tribunal but on the basis of the actual amounts which the appellant had paid and would have to pay to the workmen concerned. It was pointed out that the respondents here were only the workmen in the Wadala Factory of the appellant.
 The appellant had, however, paid to the various workmen elsewhere as and by way of bonus sums varying between 4 and 29 of the basic wages for the year in question. The sum of Rs. 1,23,138/- only had been paid in full and final settlement to the workmen in some of the factories and the bonus calculations on an All-India basis would thus work to the advantage of the appellant in so far as they would result in saving to the appellant of the difference between the amounts to which those workmen would be entitled on the basis of the All-India figures adopted by the Tribunal and the amounts actually paid to them as a result of agreements, conciliation or adjudication. It was therefore contended that the calculations should be made after taking into account the savings thus effected by the appellant and only a sum of Rs. 1,23,138 - which was the actual sum paid to those workmen should be taken into account and no more. We are afraid, we cannot accept this contention. If this contention was accepted the respondents before us would have an advantage over those workmen with whom settlements have been made and would get larger amounts by way of bonus merely by reason of the fact that the appellant had managed to settle the claims of those workmen at lesser figures.
 If this contention of the respondents was pushed to its logical extent it would also mean that in the event of the non-fulfilment of the conditions imposed by the Tribunal in the award of bonus herein bringing in savings in the hands of the appellant, the respondents would be entitled to take advantage of those savings also and should be awarded larger amounts by way of bonus, which would really be the result of the claimants entitled to the same not receiving it under certain circumstances-an event which would be purely an extraneous one and unconnected with the contribution of the respondents towards the gross profits earned by the appellant. The Tribunal was, therefore, right in calculating the bonus on an All-India basis. By our order dated April 12, 1957, the appellant was ordered to pay to the respondents within a fortnight from the date thereof bonus for the year 1954-55 equivalent to two months basic wages that amount has already been paid and works out at Rs. 3.39 lacs on an All-India basis. The only question which therefore survives is what further bonus, if any, would the respondents be entitled to from the distributable surplus of Rs. 12 lacs. The sum of Rs. 3.50 lacs required for building up the debenture redemption reserve is an all-engrossing need of the appellant and that is a factor which must of necessity be taken into consideration while arriving at the ultimate figure, particularly because such redemption of the debentures would enure not only for the benefit of the Company and its shareholders but also of the workmen employed therein. Having regard to all the circumstances of the case, we feel that an award of four months basic wages as aggregate bonus for the year 1954-55 (which by the way was the bonus awarded for the previous year 1953-54 also) would give a fair share to the labour in the distributable surplus, leaving to the shareholders and the company a balance of Rs. 5.22 lacs to be utilised by them not only towards building up of the debenture redemption reserve but also for building up other reserves, which would be utilised for various other purposes indicated above.
DECISION ??

This being the true position it follows on the facts of the present case that this amount was available for use as working capital and the balance-sheet showed that it was in fact so used. Moreover, DO objection was urged in this behalf nor was any finding to the contrary recorded by the Tribunal.

We are, therefore, of the opinion that the reasoning adopted by the Tribunal was not correct and the appellant was entitled to 4 return on the reserves used as working capital including the sum of Rs. 41,81,196.

In this state of affairs it is really impossible for us to allow the appellants claim for rehabilitation in anything beyond the sum of Rs. 0.17 lacs actually allowed by the Tribunal and the claim of the appellant for any further provision for rehabilitation must be disallowed for the purpose of the bonus calculations for the year under consideration.

We are therefore of opinion that the Tribunal was wrong in allowing Rs. 2,50,000/- as a prior charge in the bonus calculations.

It was therefore contended that the calculations should be made after taking into account the savings thus effected by the appellant and only a sum of Rs. 1,23,138 - which was the actual sum paid to those workmen should be taken into account and no more. We are afraid, we cannot accept this contention.

The Tribunal was, therefore, right in calculating the bonus on an All-India basis.

By our order dated April 12, 1957, the appellant was ordered to pay to the respondents within a fortnight from the date thereof bonus for the year 1954-55 equivalent to two months basic wages that amount has already been paid and works out at Rs. 3.39 lacs on an All-India basis.

That should not have been done and the only depreciation allowed should have been the notional normal depreciation which was agreed between the parties before us at Rs. 6.23 lacs

It will however be open to the appellant to claim higher rehabilitation for subsequent years if it can substantiate its claim by adducing proper evidence. In addition to these various sums allowed to the appellant by way of prior charges against the gross profits earned during the accounting year the Tribunal also allowed to the appellant Rs. 2.50 lacs by way of provision for debenture redemption fund.

We feel that a formula which has been thus adopted all throughout the country and has so far worked fairly satisfactorily should be adhered, to, though there is scope for certain flexibility in the working thereof in accordance with the exigencies of the situation.

That should not have been done and the only depreciation allowed should have been the notional normal depreciation which was agreed between the parties before us at Rs. 6.23 lacs.

The Tribunal (1) 1938 S.C.R. 876. did not take into consideration another sum of Rs. 41,81,196 which represented the depreciation fund which according to the appellant had been used as working capital during the year. If that had been allowed a further sum of Rs. 1.67 lacs should have been added to Rs. 0.29 lacs and the total amount of 4 return on reserves used as working capital would have amounted to Rs. 1.96 lacs.

In any given industry there are three interests involved, viz., the shareholders, the Company and the workmen and all these interests have got to get their proper share in the surplus profits ascertained after due provision is made for these prior charges

But so far as the determination of the surplus profits is concerned the formula must be adhered to in its essential particulars as otherwise there would be no stability nor uniformity of practice in regard to the same.

The result will be a notional amount of normal depreciation but, as we have said repeatedly the bonus formula is a notional formula

for the purpose of the bonus formula the notional normal depreciation should be deducted from the gross profits calculated on the basis adopted in Surat Electric Supply Co. Staff Union v. Surat Electricity Co., Ltd. (1) and not merely the normal depreciation including multiple shift depreciation allowed by the income-tax authorities

The depreciation allowed by the Tribunal was Rs. 9.82 lacs which was the full statutory depreciation allowed by the Income-tax authorities. That should not have been done and the only depreciation allowed should have been the notional normal depreciation which was agreed between the parties before us at Rs. 6.23 lacs

If that had been allowed a further sum of Rs. 1.67 lacs should have been added to Rs. 0.29 lacs and the total amount of 4 return on reserves used as working capital would have amounted to Rs. 1.96 lacs

This being the true position it follows on the facts of the present case that this amount was available for use as working capital and the balance-sheet showed that it was in fact so used.

In this state of affairs it is really impossible for us to allow the appellants claim for rehabilitation in anything beyond the sum of Rs. 0.17 lacs actually allowed by the Tribunal and the claim of the appellant for any further provision for rehabilitation must be disallowed for the purpose of the bonus calculations for the year under consideration

The Full Bench Formula does not envisage any such prior charge. It is no doubt true that capital is shy and it would not be practicable for the industrial concern to raise large amounts by way of fresh debentures when they become due

This however does not mean that in the calculations of the distributable surplus the provision for such redemption should be given the status of a prior charge, though of course that would be a relevant con- sideration while distributing the available surplus between the various interests entitled thereto. We are therefore of opinion that the Tribunal was wrong in allowing Rs. 2,50,000/- as a prior charge in the bonus calculations.

Being aggrieved by the said award of the Tribunal, the appellant applied for and obtained from this Court special leave to appeal against the same under Art. 136 of the Constitution and hence this appeal

It maybe noted, however, that in regard to the depreciation which is a prior charge on the gross profits earned by a concern there is always a difference in the method of approach which is adopted by the income-tax authorities and by the industrial tribunals

we held in that case that only normal depreciation including multiple shift depreciation, but not initial or additional depreciation should rank as prior charge

In addition to these various sums allowed to the appellant by way of prior charges against the gross profits earned during the accounting year the Tribunal also allowed to the appellant Rs. 2.50 lacs by way of provision for debenture redemption fund. The claim of the appellant was for a sum of Rs. 3.50 lacs for the same

The appellant had issued debentures of the value of Rs. 30 lacs in the year 1942-43 and they were redeemable in the year 1962-63. No annual provision had been made from profits for redemption of the same inasmuch as until the year 1949 the appellant was not working at a profit.
 Such provision was made only thereafter

The award made by the Industrial Tribunal, Bombay, in Reference (IT) No. 75 of 1956 between the appellant and the respondents whereby the Industrial Tribunal awarded to the respondents 4 1/2 months basic wages as bonus for the year 1954-55 (year ending June 30, 1955)

Respondent No. I filed their statement of claim before -the Tribunal on June 29, 1956

They alleged that the profits of the appellant during the year 195455 were higher than those during the year 1953-54 for which year the appellant had paid four months basic wages as bonus. They also alleged that the wages paid to them by the appellant fell short of the, living wage and therefore the appellant should pay the in six months basic wages as bonus for the relative year

The appellant is a subsidiary of the Premier Construction Co., Ltd., and manufactures Hume Pipes. It has factories in different parts of India, Pakistan and Ceylon. The respondents are the workers employed in the appellants factory at Antop Hill, Wadala, Bombay

The award made by the Industrial Tribunal, Bombay, in Reference (IT) No. 75 of 1956 between the appellant and the respondents whereby the Industrial Tribunal awarded to the respondents 4 1/2 months basic wages as bonus for the year 1954-55 (year ending June 30, 1955).

We are therefore of opinion that the Tribunal was wrong in allowing Rs. 2,50,000/- as a prior charge in the bonus calculations.

Considerations on which the grant of initial and additional depreciations might be justified under the Income-tax Act were different from considerations of social justice and fair apportionment on which the Full Bench Formula in regard to the payment of bonus to workmen was based.

This was the reason why we held in that case that only normal depreciation including multiple shift depreciation, but not initial or additional depreciation should rank as prior charge.

If regard be had to the principles enunciated above it is clear that the items of Rs. 1.14 lacs representing the Lahore factory balance written off, Rs. 0.34 lacs being patents written off, and Rs. 0.09 lacs shown as loss on sale of Tardeo property cannot be allowed as proper deductions from the gross profits for the purposes of bonus calculations.

The first two items represented debits in connection with the working of previous years.

That should not have been done and the only depreciation allowed should have been the notional normal depreciation which was agreed between the parties before us at Rs. 6.23 lacs.

Even though the bonus formula is a notional one we cannot ignore the fact that in no event would the appellant be bound to pay to the preference shareholders anything beyond 5 by way of return. The Full Bench Formula cannot be so literally construed.

We are, therefore, of the opinion that the reasoning adopted by the Tribunal was not correct and the appellant was entitled to 4 return on the reserves used as working capital including the sum of Rs. 41,81,196.

The appellant was thus entitled to Rs. 1.96 lacs as the 4 return on reserves used as working capital and not merely Rs. 0.29 lacs as allowed by the Tribunal.

It will however be open to the appellant to claim higher rehabilitation for subsequent years if it can substantiate its claim by adducing proper evidence.

We are of the opinion that the Tribunal was not justified in allowing the sum of Rs. 2,50,000/- for debenture redemption fund as a prior charge in the bonus calculations.

The Full Bench Formula does not envisage any such prior charge.

This disposes of all the contentions which have been urged on behalf of both the parties and calculating the figure on that basis we arrive atthe following Rs. in lacs.

It is not feasible to lay down any rigid formula as to what the proportion of such distribution amongst these various interests should be.

The Tribunal was, therefore, right in calculating the bonus on an All-India basis.

By our order dated April 12, 1957, the appellant was ordered to pay to the respondents within a fortnight from the date thereof bonus for the year 1954-55 equivalent to two months basic wages that amount has already been paid and works out at Rs. 3.39 lacs on an All-India basis.

The formula evolved by the Full Bench of the Labour Appellate Tribunal in Millowners Association, Bombay v. Rashtreeya Mill Mazdoor Sangh, Bombay(1) is based on this idea that as both labour and capital contribute to the earnings of the industrial concerti, it is fair that labour should derive some benefit, if there is a surplus after meeting prior or necessary charges .

This Full Bench -Formula has been working all throughout the country since its enunciation as aforesaid and has been found to be, in the main, fairly satisfactory.

We feel that a formula which has been thus adopted all throughout the country and has so far worked fairly satisfactorily should be adhered, to, though there is scope for certain flexibility in the working thereof in accordance with the exigencies of the situation.

In the working of the said formula, however, regard must be had both to the interests of capital and labour. In any given industry there are three interests involved, viz., the shareholders, the Company and the workmen and all these interests have got to get their proper share in the surplus profits ascertained after due provision is made for these prior charges .

But so far as the determination of the surplus profits is concerned the formula must be adhered to in its essential particulars as otherwise there would be no stability nor uniformity of practice in regard to the same.

It was pointed out by us in Sree Meenakshi Mills Ltd. v.

Their Workmen (1) that the whole of the depreciation admissible under the Income-tax Act was not allowable in determining the available surplus.

The initial depreciation and the additional depreciation were abnormal additions to the income-tax depreciation and it would not be fair to the workmen if these depreciations were rated as prior charges before the available surplus was ascertained.

We approved of the decision of the Labour Appellate Tribunal in U. P. Electric Supply Co., Ltd. v.

Their Workmen (2) in arriving at the above conclusion and disallowed the claim of the company there to deduct the initial or additional depreciation as prior charge in bonus calculations.

P. Electric Supply Co., Ltd. v. Their Workmen (3).

It is well settled that the actual income-tax payable by the company on the basis of the full statutory depreciation allowed by the income-tax authorities for the relevant accounting year should be taken into account as a prior charge irrespective of any set off allowed by the Income-tax authorities for prior charges or any other considerations such as building up of income-tax reserves for payment of enhanced liabilities of income-tax accruing in future.

Loss of the Lahore factory had been incurred during the three previous accounting years and had been carried forward from year to year and the only thing which was done during the year under consideration was that it was then written off as irre- coverable.

The patents also had been worked off in previous years and the amounts spent in the purchase thereof were therefore to be written off but had reference to the working of the company during the previous years.

The last item of Rs. 0.09 lacs was trivial and was therefore not pressed with the result that all these three items were rightly added back in the calculations of the gross profits of the appellant and the figure of gross profits taken at Rs. 36.21 lacs was correctly arrived at by the Tribunal.

The depreciation allowed by the Tribunal was Rs. 9.82 lacs which was the full statutory depreciation allowed by the Income-tax authorities.

The Tribunal (1) 1938 S.C.R. 876. did not take into consideration another sum of Rs. 41,81,196 which represented the depreciation fund which according to the appellant had been used as working capital during the year.

If that had been allowed a further sum of Rs. 1.67 lacs should have been added to Rs. 0.29 lacs and the total amount of 4 return on reserves used as working capital would have amounted to Rs. 1.96 lacs.

Two arguments were advanced against this contention of the appellant.

One was that there was nothing like a depreciation fund, that it merely represented a credit item introduced in the balance-sheet as against the value of the fixed capital at its original cost and would have disappeared as such if the proper accounting basis had been adopted, viz., the fixed block bad been showed at its depreciated value after deducting the amount of depreciation from the original cost.

Such book entries, it was contended, did not convert that credit item into a depreciation fund available to the company and there was therefore no basis for the contention that such a depreciation fund ever existed and could be used as working capital in the business.

The other was that there was nothing on the record to show that such a depreciation fund, if any, had been, in fact, used as working capital in the business during that year.

This being the true position it follows on the facts of the present case that this amount was available for use as working capital and the balance-sheet showed that it was in fact so used.

Moreover, DO objection was urged in this behalf nor was any finding to the contrary recorded by the Tribunal.

This was rightly considered by the Tribunal as insufficient to support the appellants claim, though it allowed for rehabilitation, in addition to the statutory depreciation, the amount for which the appellant had actually made provision, viz., the sum by which the depreciation written off for the year exceeded the statutory depreciation (i. e., Rs. 10,00,000 minus Rs. 9,82,799Rs. 17,201).

In this state of affairs it is really impossible for us to allow the appellants claim for rehabilitation in anything beyond the sum of Rs. 0.17 lacs actually allowed by the Tribunal and the claim of the appellant for any further provision for rehabilitation must be disallowed for the purpose of the bonus calculations for the year under consideration.

In addition to these various sums allowed to the appellant by way of prior charges against the gross profits earned during the accounting year the Tribunal also allowed to the appellant Rs. 2.50 lacs by way of provision for debenture redemption fund.

The claim of the appellant was for a sum of Rs. 3.50 lacs for the same

No annual provision had been made from profits for redemption of the same inasmuch as until the year 1949 the appellant was not working at a profit.

For the year 1950-51, the appellant made a provision for Rs. 75,000 for debenture redemption fund, for 1951.52, Rs. 1,50,000, for 1952-53 Rs. 1,50,000, for 1953-54 Rs. 75,000 and further provision had to be made for redemption of debentures in a sum of Rs. 24,50,000.

In so far as 7 more years were left before the due date for redemption the appellant claimed Rs. 3,50,000 as the annual sum to be set apart, though as a matter of fact in the balance-sheet only a provision of Rs. 2,50,000 had been made by it for debenture redemption reserve.

The Tribunal pointed out that when the appellant had in its accounts appropriated Rs. 2,50,000 for the debenture redemption fund the claim to have Rs. 3,50,000 for the purposes of bonus formula was clearly untenable.

It however was of the opinion that a reasonable provision for redemption fund should be allowed as a prior charge and actually allowed the sum of Rs. 2,50,000 which had been actually provided for the purpose in the balance-sheet, negativing the contention of the respondents that no provision should be allowed for debenture redemption fund in the bonus formula.

It is no doubt true that capital is shy and it would not be practicable for the industrial concern to raise large amounts by way of fresh debentures when they become due.

It is also true that the debentures do not stand on a par with other debts of a concern because the debentureholders would in a conceivable situation be able to enforce their security by bringing the industry to a stand-still by taking over charge of the whole concern.

This however does not mean that in the calculations of the distributable surplus the provision for such redemption should be given the status of a prior charge, though of course that would be a relevant con- sideration while distributing the available surplus between the various interests entitled thereto.

The shareholders as well as the company would both be naturally interested inter alia in providing the debenture redemption reserves as also meeting the needs of the industry for further expansion.

The workmen would no doubt be interested in trying to bridge the gap between their actual wage and the living wage to the extent feasible.

This surplus of Rs. 12 lacs would have to be distributed amongst them having regard to the facts and circumstances of the case, of course bearing in mind the various considerations indicated above.

It was pointed out that the respondents here were only the workmen in the Wadala Factory of the appellant.
 The appellant had, however, paid to the various workmen elsewhere as and by way of bonus sums varying between 4 and 29 of the basic wages for the year in question.

If this contention was accepted the respondents before us would have an advantage over those workmen with whom settlements have been made and would get larger amounts by way of bonus merely by reason of the fact that the appellant had managed to settle the claims of those workmen at lesser figures.

The only question which therefore survives is what further bonus, if any, would the respondents be entitled to from the distributable surplus of Rs. 12 lacs.

The sum of Rs. 3.50 lacs required for building up the debenture redemption reserve is an all-engrossing need of the appellant and that is a factor which must of necessity be taken into consideration while arriving at the ultimate figure, particularly because such redemption of the debentures would enure not only for the benefit of the Company and its shareholders but also of the workmen employed therein.

The appellant is a subsidiary of the Premier Construction Co., Ltd., and manufactures Hume Pipes.

The respondents are the workers employed in the appellants factory at Antop Hill, Wadala, Bombay.

The Tribunal after hearing the parties came to the conclusion that even if payment of a bonus equal to 4 1/2 months basic wages were made a fair surplus would be left in the hands of the appellant to the tune of Rs. 3.30 lacs and therefore awarded the same subject to the following conditions-
Any employee who has been dismissed for misconduct resulting in financial loss to the company shall not be entitled to bonus to the extent of the loss caused.

Persons who are eligible for bonus but who are no longer in the service of the company on the date of the payment shall be paid the same provided that they make a written application for the same within three months of publication of this award.

Such bonus shall be paid within one month of receipt of application provided that no claim can be enforced before six weeks from the date this award becomes enforceable.

Being aggrieved by the said award of the Tribunal, the appellant applied for and obtained from this Court special leave to appeal against the same under Art. 136 of the Constitution and hence this appeal.

The appellant, however, claimed that even on the preference shares 6 return should be allowed and not 5 even though preference shareholders were not entitled to anything beyond 5 under the terms of issue.

The appellant obviously relied upon the wording of the formula return at 6 on the paid up capital and contended that the preference shares also being paid up capital it would be entitled to a return of 6 on the preference shares for the purposes of the bonus formula even though in fact it would have to pay only 5 return on the same.

The provision for rehabilitation bad been claimed by the appellant at Rs. 1.10 lacs on the basis of 10 of the net profits relying upon para. 20 of the Report of the Committee on Profit Sharing in which the Committee had proposed that 10 of the net profits should compulsorily be set aside for reserves to meet emergencies as well as for rehabilitation, modernization and reasonable expansion.

No evidence was at all led by the appellant before the Tribunal showing the cost of the machinery as purchased, the age of the machinery, the estimate for replacement etc., in order to substantiate this claim for rehabilitation and the appellant was content merely to rely upon this recommendation of the Committee on Profit-sharing.

It was therefore contended that the calculations should be made after taking into account the savings thus effected by the appellant and only a sum of Rs. 1,23,138 - which was the actual sum paid to those workmen should be taken into account and no more.

We are afraid, we cannot accept this contention.

an award of four months basic wages as aggregate bonus for the year 1954-55 (which by the way was the bonus awarded for the previous year 1953-54 also) would give a fair share to the labour in the distributable surplus

The formula evolved by the Full Bench of the Labour Appellate Tribunal in Millowners Association, Bombay v. Rashtreeya Mill Mazdoor Sangh, Bombay(1) is based on this idea that as both labour and capital contribute to the earnings of the industrial concerti, it is fair that labour should derive some benefit, if there is a surplus after meeting prior or necessary charges

This would bring the available surplusfor distribution to a sum of Rs. 12 lacs and this would be distributable amongst the shareholders, the company and the workmen concerned.

The sum of Rs. 3.50 lacs required for building up the debenture redemption reserve is an all-engrossing need of the appellant and that is a factor which must of necessity be taken into consideration while arriving at the ultimate figure, particularly because such redemption of the debentures would enure not only for the benefit of the Company and its shareholders but also of the workmen employed therein.

The surplus that remained after making the aforesaid deductions would be available for distribution among the three sharers, viz., the shareholders, the industry and the workmen

Gross Profit as per Tribudals calculations 36.21 Less Notional Normal Depreciation 6.23 29.98 Less Tax 7 as. in a rupee 11.55 18.43 Less 6 return on ordinary share capital and 5 on preference share capital 4.30 14.13 Less 4 Return on reserves used as working capital 7,42,139 29 41,81,196 1.67 --------------------- 49,23,335 1.96 ------------- 12.17 LessProvision for Rehabilitation 0.17 ------------ Available Surplus 12.00

We are afraid, we cannot accept this contention. If this contention was accepted the respondents before us would have an advantage over those workmen with whom settlements have been made and would get larger amounts by way of bonus merely by reason of the fact that the appellant had managed to settle the claims of those workmen at lesser figures.

The Tribunal was, therefore, right in calculating the bonus on an All-India basis.

The following were prescribed as the first charges on (1) (1950) L.L.J. 1247 gross profits, viz., (1) Provision for depreciation (2) reserves for rehabilitation (3) a return at 6on the paid up capital (4) a return on the working capital at a lesser rate than the return on paid up capital and (5) an estimated amount in respect of the payment of income-tax.

The shareholders may look to larger dividends commensurate with the prosperity of the industrial concern, the company would, apart from rehabilitation and replacement of buildings, plant and machinery, look forward to expansion and satisfaction of other needs of the industry

the workmen would certainly be entitled to ask for a share in the surplus profits with a view to bridge the gap between the wages earned by them and the living wages.

The shareholders as well as the company would both be naturally interested inter alia in providing the debenture redemption reserves as also meeting the needs of the industry for further expansion.

The workmen would no doubt be interested in trying to bridge the gap between their actual wage and the living wage to the extent feasible.

In the working of the said formula, however, regard must be had both to the interests of capital and labour.

In any given industry there are three interests involved, viz., the shareholders, the Company and the workmen and all these interests have got to get their proper share in the surplus profits ascertained after due provision is made for these prior charges .

This surplus of Rs. 12 lacs would have to be distributed amongst them having regard to the facts and circumstances of the case, of course bearing in mind the various considerations indicated above.