WORKMEN OF NATIONAL & GRINDLAYS BANK LTD v. THE NATIONAL & GRINDLAYS BANK LTD

the 'iUn1 falling under item 3 (a) of the First Schedule. c HELD : 1. The workmen are not enti1led to contend that though the claim for bonus for the year 1964 was settled on an ad hoc basis without making D computation under the provisions of the Act. such computation mu~t now be made. not for the purpose of determining the bonus payable to them, but for the purpose of detern1ining whether there is any amount 1iab1e to be carried forv; ard and set on. Section 15 ( 1) can have no application where no compu tation is made under the Act and bonus is paid, not in accordance with the statutory forn1ul~ but on an ad hoc basis. Then it is not possible to say what It may be less or mo~ than the W3S really the bonus payable under the Act. bonus in fact paid. That enquiry being rendered the ad hoc settl<.!ment, there can be no question of carry forward and set on of any amount, unL::-,s specifically agreetl upon as part of tha settlement. [137 F-138 G] irrelevant by E' • -I

#2. The workmen cannot be permitted to raise a new contention for the first time in this Court that the provision for bonus liable to be added back was not n1erely the provision for bonus payable to employees as defined in s. 2(13) of the Act but also the provision for bonus payable to workmen who are not such empl_oyees. What is liable to be added back under item 2(a) of the First Schedule is not the amount of bonus payable to the workmen nor the amount of bonus in fact paid, but the provision for. b?nps made in the profit and, loss account, 3(a) Though the amount of dcprec1at1on calculated in accordance with account. [139 B-CJ J. (a) Though the amount of depreciation calculated in accordance with m.eth_ods kno\vn to a~countancy practice may be unexceptionable from the point of vte\v _of commercial accountancy, it would not necessarily be admissible as a deduction from gross profits under s. 6(a). What is allowable as a deduction from the gros~ profits under that clause is not depreciation calculated according to any recognised method but only such depreciation as is adniiss;b[c in accor- da1~ce with th~ provisions of s. 32(1) of the lncon1c Tax Act, 1961. rt39 E-FJ (b) The burden of providing that the depreciation claimed by the Bank v.·a5 the correct amount admissible under s. 32(1) of the Income Tax Act 1961 \Va5 on tile Baf!k cn1d th~t ?urden had to be discharged by the Bank by producing prot1er and satisfactory evidence. rt 41 Cl F G . Cc) A certificate issued by the Tncomc Tr1x Officer was not admissible ._ ... _. cv1~cnce to ~rove the.d~preciation admissible under s. 32(! )." It is the Industrial TnbunaI ~'h1ch fl!US~, in the exercise of its quasi-judicial duty, calculate amount of deprec1at1on. by adopting the n1ethod set out ins. 32(1). The Tri- buna~ cannot S?Y that 1t would accept the figure of depreciation arrived at by anot.er authonty charged with the function of determining depreciation under the H A B c D E F G H 132 SUPREr-..IE COURT REPORTS [ 1976] 3 S.C.R. a different statute. There is nothing in the Jncome Tax Act or in the Payn1ent of Bonus Act or in any other provision of lnw which attaches a presumption of accuracy to the determination of the Jncome Tnx Officer in· this matter or invest<; it with probative or evidentiary value in the J>TOcec<lings before the Industrial Tritunal. l142 F-143 Cl • In the ino.;tant case. however, there is no reason to interfere with the decision of the Tribun<1l in rcg:ird to the amount of depreciation deductible under s. 6(a). The certific;1te of the lncome Tax Officer was admitted in evidence without any objection by the workmen. Had the wcrkn1en objecled to its ndmis sibility before the Tribunal the Bank could hnve led other evidence to substan tiate its claim for depreciation. Since no such objection was taken before the Tribunal the BaFJk contented it.,clf by tenUering in evidence only th: ccrtificati: of the Jncon1;; 'Tax ()fticer. l 143 C-D_l

#4. No reliance can be placed by the workmen on the bG..~ance sheet for 1966 for repelling the Bank's claim to deduct from the gross profit the amount de posited with the Reserve Bank of India under s. 11(2) (b)(ii) of the Banking Regulation Act, 1949. The balance sheet for the accounting year 1966 would not show the amount deposited by the Bank \Vith the Reserve Bank in respect of tllar acco1111ti11u year, because that amount would ordinarily be deposited only that <H.:connting year. after the expiration, and riot during the currency of [144 C-FJ

#5. (a) The Industrial Tribun; il had committed a manifest error in regard to the calculation of Proportionate Administrative (Overhead) Expenses of head otlice all@cablc to Indian business. Although item 1 of the First Schedule requires the Industrial Tribunal to take as the starting point of computation ''net profit as shown in the profit and loss account after making usual and necessary provisions", The fact that item 6( e) provides for deduction of proportionate administrative expenses of hend office allocable to Indian business in arriving at the gross profit for the purpose of bonus under item 7 shows that the net profit contem1)lated in item 1 is the net profit arrived at without (lcducting proportion.1te .1dn1inistn1- tive expenses of head office allocable to India business. The amount in respect of the actual head office administrative expense<; allocable to lndian husinc~s should be added back in arriving at the figure of net profit for the purp0~c of item 1. [145 D-146 BJ (b) In con1puting the Indian gross profit the Industrial Trib_un.al added back only the amounts representing bonus to employees a~d depreciation a~ set out in item 2 of the First Schedule. Fo?t _note 3 requtres that t~e lnd1an gross profit should be determined as shown tn Item 7 and, therefore, it \Vas necessary to add back not only amounts under ite-m 2 but also an1ounts ~n~der item 3 an~ .i and to deduct amounts under item 6 for the purpose of 1unv1ng at the Indian gross p1ofit under item 7. 1146 A-Bl (c) In calculating the total gross profi.t~ the Industrial Tribunal committed an error by adding back merely the prov1s1on made under the pi:o~t and loss account of the Indian business for bonus to employees and depreciation .. Foot note 3 requires that the- total v.:or19 gro&s. pr?fit should. be as p:r consoh<lat.ed profit and lo~s account a~ter ad1ust1ng as 111 item 2 \vh1ch_ mean~ that the pro,· vision made in the consohdated profit and loss account for bonus to employees. depreciation development rebate reserve and any other reserves should be added back to the' net profit as shown in the consolidated profit and loss .accou!1t for the purpose of arriving at the total. ~orld gros.s profit. Th~ Industrial Tnbunal did not examine \vhat was the proviston, made tn the_ ~onsohd;1ted pro~t and los~ account of the Bank under this head. 1 f any prov1s1on were made 1n the con solidated profit and loss account for bonus to en1ploy~e~. which would mean em· toyees of the Bank throughout the world. depre.c1al1on on world assets and ~evelopment rebate and other rese~ves such p_roy1st~n \V~uld ~ave to. b.e ?dded t . k to the n··t profit a'i 'ihO\Vn 1n the conso\ltlah:d prpfit ,1nd lo~'> account. '"c [146 C-FJ '

#6. (a) 'Ihe Industrial Tribunal was rig~.~ in _its interpi:etatio~ of the tern1 ··working funds" occurring in cl. (ii) and (1n) of tl:e pr.oy1so to_c1ti;:~1 2.,o~,.1,~~ Third Schedule. The tern1 n1ust be construeJ to n1cdll p,ud up c.ip1\al. ti.:"o..:. \1.:s L • • • • WORKMEN v. GRINDLAYS BANK (Bhagwati, J.) 133 and average deposits for 52 weeks of each year for which weekly returns of depvsits are sub111itted to the Reserve Brink of India. It could hardly be disputed that borrowings from other banking 'ompanies, the amounts of bills issued by the Bank and the balance of pr~)fit and loss account are neither reserves.nor <lepusits and they are not liable to be shown in the weekly returns of deposit subn1itted to the: Reserve Bank of India. ll47 F-HJ (b) The term "'working funds'' was firsl defined in the award of Mr. K. C. Sen in 1949 in regard to Banks, and it was also used in the Shastri award made in 1953 in reg'<tr<l to industrial disputes between certain banking companies and their work1nen. These words have ahvays been understood in the above sense and that is the sense in which they must be deemed to have been used by the legislature when it enacted clauses (ii) and (iii) of the proviso to item 2 of the ThirJ Schedule. J 147 D-F]

#7. The Industrial Tribunal was wrong in refusing to permit the Bank to add back the sum of Rs. 13.27 lacs on the ground that "a sum out of 1965 account niust not be allowed to adulterate the amount of 1966." This sum paid to the employees in respect of bonus for the accounting year 1965 was, on the plain terms of itc1n 3(a) of the First Schedule, liable to be added back. [143 F-HJ CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2533 of 1969. Appeal by special leave from the Award dated the 25th June, 1969 of the Central Government Industrial Tribunal, Calcutta, in Reference No. 35 of 1968. M. K. Ramamurth;, Ramesh Pathak, Vineet Kumar for the Appel lants. G. P. Pai, 0. C. Mathur, D. N. Mishra and J. B. Dadachanji & Co. for Respondent. The Judgment of the Court was delivered by BHAGWATI, J .-This appeal by special leave is directed against an award made by the Industrial Tribunal, Calcutta in a reference between the National and Grindlays Bank Ltd. (hereinafter referred to as the Bank) and its workmen represented by the All India National & Grindlays Bank Employees Federation. The Bank is a banking company within the meaning of s. 5 of the Banking Companies Act, 1949 and has its Head Office in London and branch offices in dificrcnt .The principal office of the Bank parts of the world, including India. in India is situate in Calcutta. The Bank maintains accounts according to the calender year and it brings out not only a consolidat ed balance sheet and profit and loss account for its world business, but also a separate balance sheet and profit and loss account for its Indian business. There was an industrial dispute between the Bank and its workmen in regard to bonus for the years 1956 to 1964 and as a result of negotiations, this industrial dispute was settled between the parties on an ad hoc basis under a Memorandum of Settlement dated 28th December, 1-965. The material terms of the settlement were : "I. The Bank will pay and the workmen and non-work men staff will receive.a swn of.Rs. 27 lakhs (Rupees twenty seven lakhs only) in full and final settlement of all bonus claims covering the periods from 1st January 1956 to 31st December 1964, including any claims relating to Centenary Jlonus. ' ! , A B c D E F G H A B c D E F G H 134 SUPREME COURT REPORTS [1976] 3 S.C.R.

#2. The above sum of Rs. 27 lakhs will be allocated as to one-third thereof to Award-staff only and as to the remaining two-thirds to both the Award and non-Award staff, in both cases based on the basic salary paid over the period, namely, !st January, 1956 to 31st December, 1964, and unrelated to any particular year. * * 8. The parties agree that this Settlement shall not be taken as the basis or govern the principle for this determina tion of bonus in future, but nevertheless this Settlement shall be final and binding on the parties as regards bonus claims for the years 1956 to 1964 (both inclusive) and any claim relating to Centenary Bonus, as also regards qualifications for eligibility and procedures as set ciut above. far as It may be noted that this Settlement was arrived at between the parties after the Payment of Bonus Act, 1965 came into force on 25th Sep tember, 1965. This Act provided a statutory formula for computa tion and payment of bonus and it was admittedly applicable in res pect of the accounting year 1964, but no separate computation of bonus for that year was made in accordance with this statutory for mula and it was settled on an ad hoc basis as a part of an omnibus settlement for the accounting years 1956 to 1964. So claim for bonus for the accounting year 1965 was concerned, com putation was made in accordance with the statutory formula provided in the Payment of Bonus Act and the maximum 20% of the salary or wage earned during that accounting year was paid by way of bonus to the workmen. The claim for bonus for the accounting year 1966, how ever, could not be settled between the parties and, though the Bank paid 18% of the wage or salary earned by the workmeu during that accoul)t ing year as bonus, the workmen were not satisfied and the industrial dispute arising from their claim had to be referred for adjudication. There were different aspects of this industrial dispute which required consideration and the Central Government, tl1erefore, formulated each aspect as a separate question and referred those questions for adjudica tion to the Industrial Tribunal, Calcutta. The Industrial Tribunal made an award holding that, on an application of the statutory formula, the amount available for paymenut of' bonus was Rs. 22.17 lakhs and the workmen were, therefore, entitled to a little over 9% of their salary or wage as bonus, but since they had already been paid by the Bank bonus at the rate of 18 % of their salary or wage, which was much more than what they were entitled to receive, nothing further remained to be paid and they were not entitled to any relief. This award is impugn ed in the present appeal brought by the workmen with special leave. There are only certain items in the computation of bonus which are now in dispute in the appeal before us and we shall confine our attention to them. But before we deal specifically .with these items, it could be convenient to refer to some of the relevan~ provisions of the Payment of Bonus Act. We will refer only to those provisions which have a bearing on the items in dispute between the parties. Section 2 is the definition section and cl. (13) of thcit section defines 'cm\,1oyec' • • WORKMEN v. GRIND LAYS BANK (Bf;iagwati, l.) 13 5 to mean any person employed on a salary or wage not exceeding one A thousand and six hundred rupees per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward. The mode of computa- tion of gross profits in the case of a banking company is laid down in section 4, cl. (a) which provides that the gross profit shall be cal culated in the manner specified in the First Schedule. The First Sche -Oule sets out in items 2, 3 and 4 various amo\lnts which arc to be added B and in item 6, various amounts which are to be deducted from the net profit as shown in the profit and loss account. We are concerned in this appeal only with items 2, 3(a) and 6(e) which read as follows:- • Item No. Particul1rs Amount of sub-items Amount of main items Remarks

#2. Add back provi·sion for : to employees (a) Bonus (b) Depreciation {c) D~velopm~nt Rebate Reserve. (d) Any other reserves Total of Item No. 2 Rs.

#3. Add back also (a} Bonus paid to em ployees in respect of previous accounting

#6. Deduct : (;.!) In the case of foreign companies banking proportionate admi- nistrative (overhead) expenses of Head office allocable to In- dian business The concept of 'available surplus' is defined in s. 2, cl. ( 6) to mean available surplus computed under s. 5 and that section lays down that the available surplus in respect of any accounting year shall be the gross profit of that year after deducting therefrom the sums referred to in s. 6. Clauses (a) and ( d) of s. 6 provide that the following sums shall be deducted from the gross profits as prior charge, namely : - • " (a) any amount by way of the depreciation admissible in accordance with the provisions of sub-section ( 1) of section 32 of the Income-Tax Act, or in accordance with the provi- sions of the agricultural income-tax law, as the case may be :'' " ( d) such further sums as are specified in respect of the employer in the Third Schedule." c D . E F G The Third Sched'!le is rather material as it bears on one item in dispute ):ietween t.he par!Ies. Clauses (ii) and (iii) of the proviso to item 2 .!n the Tl.urd Schedule enact that in case of a banking company which H 1s a foreign company within the meaning of s. 591 of the Companies 10-390SCIJ76 . 13 6 SUPREME COURT REPORTS [197 6] 3 S.C. R. A Act, 1956-the Bank in the present case being such banking company- the amount to be deducted shall be the aggregate of- . "(ii) 7.5 per cent. of such amount as bears the same pro portion to its total paid up equity share capital as its total working funds in Ind.ia bear to its total world working funds; (iii) 5 per cent of such amount as bears the same pro portion to its total disclosed reserves as its total working funds in India bear to its total world working funds;~ Then Wf1 come to the concept of allocable surplus which is defined in s. 2, cl. ( 4) and under that clause, 60% of the available surplus is to be taken to be the allocable surplus and it is this allocable surplus which is to be distributed by way of bonus to the workmen, subject to a limit of 20 per cent. of the total salary or wage of the employees employed in the establishment. Sec. I 0, sub-sec. ( l) provides for pay- ment of a minimum bonus of 4 per cent. of the salary or wage earned by the employees, irrespective whether or not there are profits in the accounting year, and sub-sec. ( 1) of s. 11 lays down that where the allocable surplus exceeds the amount of minimum bonus payable under s. 10, sub-s. (I) "the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in the accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent. of such salary or wage". Sec. 15 is the next material section and it provides, inter alia : " (I) Where for any accounting year the allocable surplus exceeds the amount of maximum bonus payable to the em ployees in the establishment under sec. 11, then, the excess shall, subject to a limit of twenty per cent, of the total salary or wage of the employees employed in the establishment in that accounting year, be carried forward for being set on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year to be utilised for the purpose of payment of bonus in the manner illustrated in the Fourth Schedule. (2) Where for any accounting year, there is no available surplus or the allocable surplus in respect of that year falls short of the amount of minimum bonus payable to the em ployees in the esta_blishment under sec. 10, and there is no amount or sufficient amount carried forward and set on under sub-sec. ( 1) which could be utilised for the purpose of pay- ment of the minimum bonus, then, such minimum amount or the deficiency, as the case .may be, shall be carried forward for being set off in the succeeding accounting year and so on up to and inclusive of the fourth accounting year in the man ner itlustrated in the Fourth Schedule. ( 4) Where in any accounting year any a1!1ount. has been carried forward and set on or set off under this sectton, then·, in calculating bonus for the succeeding accounting year, the· B c D E F G H '., • • • WORKMEN v. GR!NDLAYS BANK (Bhagwa.ti, J.) 137 amount of set on or set off carried forward from the earliest accounting yea~ shall first be taken into account." . A Sec. 34, sub-s. ( 3) enables employees employed in any establishment or class of establishments to enter into agreement with their employer for grant of bonus under a formula which is different from that under the Payment of Bonus Act, so long as it does not deprive them of the minimum bonus payable under s. 10,·sub-sec. (1). of these provisions that we have to consider the various points arising for determination in the appeal. It is in the light B I> C We will first take UQ for consideration question No. 2 referred to the Industrial Tribunal. That question raises the issue whether any amount is liable to be carried forward for being set on in the account ing year 1956 and if so, what amount. The claim of the workmen was that there was excess of allocable surplus over the amount of maxi- mum bonus in both accounting; years 1964 and 1965 and the excess in respect of both these years was, by reason of s. 15, sub-s. (1), liable to be carried forward for being set on in the succeeding accounting year 1966. Now, so far as the claim in respect of the accounting year 1965 was concerned, the amount to be carried forward and set on was settled at the figure of Rs. 10.23 lacs under an agreement arrived at between the parties and no dispute, therefore, survived in respect of that claim. But the claim in respect of the accounting year 1964 was strongly resisted on behalf of the Bank and a preliminary objection was raised that the question whether any amount was liable to be carried forward and set on ou~ of the profits of the accounting year 1964 did not form the subject-matter of the reference and hence this Court, in appeal from the Industrial Tribunal, had no jurisdiction to adjudicate upon this question. We do not think there is any substauce in this preliminary objection. Question No. 2, referred to the Industrial Tri bunal, in terms raises the issue "whether any amount is to be carried forward for being set on--in the accounting year 1966", and this issue is wide enough to cover the question in regard to carry forward and set on of an amount out of the profits of the accounting year 1964. The Bank then contended that since the bonus payable for the account- ing year 1964 was settled on an ad hoc basis, it was not possible to say that the allocable surplus exceeded the maximum bonus payable for that year and hence there could be no question of any excess to be carried forward and set on in the succeeding year. There is great force in this contention. Sec. 15, sub-s. (1) provides for carry forward and -set on and, on its plain terms, it comes into operation only when, in a given accounting year, the allocable surplus exceeds the maximum bonus pay- able under the Act, so that after payment of the maximum bonus; there G is surplus left which can be carried forward and set on, subject, of course, to the limit of 20 per cent. of the total salary or wage. It is clear from the scheme of the Act and the context in which this sub section occurs, following closely upon sections 4 to 10, that the basic condition for the applicability of this sub-section is that bonus is com puted in accordance with the statutory formula provided in the preced- ing section_§ of the Act atid as a result of such computation, it is found R that the allocable surplus is more than sufficient ..•. to cover the maxi mum bonus payable under the Act and where such is the case, the sub section provides that the excess over the amount of the maximum bonus E F .. • ' 138 SUPREME COURT REPORTS [I 976] 3 S.C.R. shall, to the extent of 20 per cent. of the total wage or salary, be car ried forward and set on in the succeeding ygar. This sub-section can have no application where no computation is made under the Act and bonus is paid, not in accordance with the statutory formula, but on an ad hoc basis. Then it is not possible to say what was really the bonus It may be less or more than the bonus in fact payable under the Act. paid. That inquiry being rendered irrelevant by the ad hoc settlement, there can be no question of carry forward· and set on of any amount, unless specifically agreed upon as part of the settlement. The workmen !n the present case were, therefore, not entitled to contend that, though the claim for bonus for the accounting year 1964 was settled on an ad hoc without making computation under the provisions of the Act, such computation must now be made, not for the purpose of determin- ing the bonus payable to them, which is the only purpose for which such computation is contemplated to be made, but for the purpose of determining whether there is any amount liable to be carried forward and set on. The claim of the workmen for carry forward and set on in respect of the accounting year 1964 must accordingly stand rejected. We now, proceed to consider the items in dispute in the computa tion of 'available surplus' for the accounting year 1966, which fall within question No. 1 referred to the Industrial Tribunal. The first item to which wc must refer is the item of provision for bonus to employees made in the profit and loss account. This item figures as item 2(a) in the First Schedule to the Act and it is required to be added back in the computation of the gross profits under s. 4(a). Now, so far as the profit and loss account of the Bank in respect of it& Indian business was concerned, the provision for bonus to employees did not figure in it as a separate item, but, according to the Bank, i,t was included under the heading "Salaries and Allowances" or "Other Expenditure" and it came to Rs. 19.52 lakhs. The Bank thus agreed to an add back of Rs. 19.52 lakhs in respect of provision for bonus to employees. The workmen, however, contended that the provision for bonus made by the Bank was for a much larger amount and the amount of Rs. 19.52 lakhs represented provision for bonus only in respect of those workmen who were 'employees' within the meaning of s. 2, cl. ( 13) and the Bank had failed to take into account _the provision for bonus in respect of those workmen who were not such 'employees'. The argument of the workmen was that tha word 'employees' in item 2 (a) of the First Sche dule was not limited to 'employees' as defined in s. 2, cl. (13), but covered all employees, because the object of adding back provision for bonus to employees was to arrive at the figure of profit available for distribution of bonus and that required that the entire amount set apart as provision for bonus should be added back, for in determining what is the available fund with reference to which bonus should be paid, one cannot exclude the amount already paid or provided as bonus, whether to employees drawing more than Rs. 1600/- or to employees drawing It is true, said the workmen, that the word 'employees' is defined less. in s. 2, cl. ( 13 ), but they contended that every definition is subject to the requirement of the context and here the context clearly showed that the word 'employees' was not used in the restricted sense, but in a wider sense, including all employees. Now, this argument of the Work men would have required serious consideration by us, br;t we do not B c D E - F c H • • WORK~lEN v. ORINDLAYS BANK (Bhagwati, J.) 139 think we can permit the workmen to raise it, as i~ does not appear to A have been advanced by them before the Industrial Tribunal. The award of the Indnstrial Tribunal does not show that this argument was at any time urged by the workmen. The only argument raised by· the work- men before the Industrial Tribunal was that the amount of bonus pay- able to them for the accounting year 1966 was Rs. 38.66 lacs repre senting 18 per cent. of their wage or salary and this amount of Rs. 38.66 lacs was liable to be added back and not the amount of Rs. 19.52 lacs. This argument was rightly rejected by the Industrial Tribunal because what is liable to be added back under Item 2 (a) of the First Schedule is not the amount of bonus payable to the workmen, nor the amount of bonus in fact paid, but the provision for bonus made in the profit and loss account. We cannot, therefore, permit the workmen to raise a new contention for the first time in this Court that the provision for bonus liable to be added back was not merely the provision for bonus to C 'employees' as defined in s. 2 cl. (13), but also the provision for bonus to workmen who were not such 'employees'. B The next item in dispute relates to the amount liable to be deducted from the gross profits under s. 6, cl. (a). What is required to be de ducted under this. clause is the amount of depreciation admissible in accordance with the provisions of sub-s. (1) of s. 32 of the Income Tax Act. Now, depreciation represents the diminution in value of a capital asset when applied to the purpose of making profit or gain. There are various methods known to accountancy practice for measuring such diminution in value and a banking company, like any other firm or com pany, may follow any one of these methods in maintaining its accounts and the amount of depreciation calculated according to such method would be reflected in its profit and loss account. But, though such amount of depreciation shown in the profit and loss account may be unexceptionable from the point of view of comm.,rcial acc\)untancy principles, it would not necessarily be admissible as a deduction from gross profits under s. 6, cl. (a). What is allowable as a deduction from the gross profits under that clause is not depreciation calculated according to any recognised method of accountancy followed by a bank- ing company, but only such depreciation as is admissible in accordance with the provisions of sub-s. (!) of s. 32 of the Income-tax Act. The profit and loss account of the Bank for the accounting year 1966 showed an amount of Rs. 22.40 lacs debited against the composite item "De preciation and Repairs to the Banking Company's Property" and accord- ing to the Bank, this figure included an amount of Rs. 1.89 lacs by way of depreciation. Now, there would be no difficulty if the Bank clai~ed to deduct only the amount of Rs. 1.89 lacs by way of depre c~al!on under s. 6, cl. (a), as that was the amount of depreciation de ?1ted m th.e profit and loss accoun~. But the Bank claimed that, though 1t had debited by way of deprec1at10n in the profit and loss account only a;i an; ount of Rs. 1.89. lacs, the an~ount of depreciation actually admis sible m accordance with the provisions of sub-s. (1) of s. 32 of the Income-tax Act was Rs. 12.79 lacs and in support of this claim the Bank produced a certificate issued by the Income Tax. officer ,,;hich was marke~ Ex. 12 in evidence. The Industrial Tribunal relying solely on the certificate Ex. 12 held that "depreciation admissible in accord ance with the provisions of sub-s. (1) of s. 32 of the Income-tax Act" D E F G R • , 140 SUPREME COURT REPORTS [1976) 3 S.C.R. A was Rs. 12.79 lacs as evidenced by the certificate Ex. 12 and the Bank was, therefore, entitled to deduct that amount froll). the gross profits under s. 6, cl. (a). B c D E F G H This decision of the Industrial Tribunal was assailed before us and it was contended on behalf of the workmen that the burden of show ing wha\ was the amount of depreciation admissible in accordance with the provisions of sub-s. (1) of s. 32 of the Income-tax Act was on the Bank and this burden, the Bank had failed to discharge by producing proper evidence. The only evidence produced on behalf of the Bank, said the workmen, was the certificate Ex. 12 issued by the Income-tax officer, but that certificate was no evidence and could not be taken into account for the purpose of holding that the depreciation admissible under sub-s. (I) of s. 32 of the Income-tax Act was Rs. 12.79 lacs. The Bank, however, contended that the workmen did not at any time dispute that the depreciation admissible under sub-s. (I) or s. 32 of the Income-tax Act was Rs. 12. 79 lacs nor did they at· any time cha!· lenge the correctness of the certificate Ex. 12 issued by the Income-tax officer and in the circumstances, this certificate was sufficient to establish the claim of the Bank. Now, in the first place, it is not correct to say that the workmen did not at any time dispute the correctness of the figure of depreciation claimed by the Bank. Both the workmen and the Bank filed their res pective computations of bonus before the Industrial Tribunal and while the Bank, in its computation, claimed to deduct the amount of Rs. 12.79 lacs as depreciation, the workmen agreed to deduction only of the amount of Rs. 1.89 lacs as appearing in the profit and loss account. The workmen did not at any time accept the position that the correct am@unt of depreciati· n admissible under s. 32, sub-s. ( 1) of the Income tax Act came to Rs. 12. 79 lacs as claimed by the Bank. They seriously disputed it before the Industrial Tribunal and hence the Industrial Tri bunal had to go into that question and come to a finding upon it. Even prior to the making uf tlw reference, when the calculation sheet regard ing bonus payable for the accounting year 1966 was sent by the Bank to the workmen with its letter dated 26th July, 1967, the workm~n by their letter dated 3rd August, 1967 called upon the Bank to furnish particulars in regard to the amount of Rs. 12.79 lacs claimed by the Bank as depreciation and the only reply given by the Bank to this de mand was that the information required by the workmen went "far beyond any legal requirements" and the Bank was not in a position to accede to the same. Vide Bank's letter dated 8th August, 1967. This circumstance would also show that the workmen did not accept the It is true that in the ap· figure of depreciation claimed by the Bank. plication made by the workmen to the Industrial Tribunal for certain clarifications on 8th January, 1969, the workmen did not ask for any clarification in regard to the amount of Rs. 12.79 lacs claimed by the Bank by way of depreciation, but if we look at this application, it will be clear that the clarifications sought by the workmen were 'on various aspects of the published balance-sheet of the company for the account- ing years--1-1-1966 to 31-12-1966 and other figures' and there was no attempt at seeking clarifications in respect of the various items in the computation sheet filed by the Bank. Moreover, when these clari fications were sought by the application dated 8th January, 1969 the • • WORKMEN v. GRINDLAYS BANK (Bhagwati, !.) 14 I controversy between the parties was already crystallised in their plead- ings and it was cle_ar from the computation sheets filed by them that there was real dispute in regard to the amount of deprccia!ion and, there- fore, mere failure on the part of the workmen to ask for clarification in respect of the amount of Rs. 12.79 lacs claimed by the Bank, could not justify an inference that the workmen had conceded the claim of the Bank and abandoned the dispute. There can be no doubt that the dispute in regard to the amount of depreciation was very much B there between the parties and it had to be resolved by the Industrial Tribunal. A the Heading 'Prior Charge', It was not seriously di>puted on behalf of the Bank, and indeed hav- ing regard to the well settled position in law it could not be so disputed, that since the Bank claimed the deduction of depreciation at a figure higher than that appearing in the profit and loss account, the burden of proving that the depreciation claimed by it was the correct amount of depreciation· admissible under s. 32, sub-s. (1) of the Income-tax Act was on the Bank and that burden had to be discharged by the Bank by producing proper and satisfactory evidence. Though the Industrial Tri bunal relied solely on the certificate Ex. 12 issued by the Income-tax Officer for th" purpose of holding that that the correct amount of de preciation admissible under s. 32, sub-s. (1) was Rs. 12.79 lacs, the Bank in the course of its arguments before us, placed reliance not only on this certificate but also on the oral evidence of A. K. Basu who was the Officer examined on behalf of the Bank. We will first consider the oral evidence of A. K. Basu and then examine how far the certificate Ex. 12 helps to establish !he claim of the Bank. The statement in the oral evidence of A. K. Basu which was strongly relied upon on behalf the figure of the Bank, was : "Under against 'depreciation' was collected from income-tax assessment order" and it was contended that since there was no cross-examination of A. K. Basu in regard. to this statement, it must be accepted as correct and that was sufficient to prove that the depreciation admissible under s. 32 sub-section (I) wa.s Rs. 12.79 lacs. This contentim: is '.vholly fallacious and it proceeds upon a misreading of the statement made by It is no doubt true that A. K. Basu stated that the figure· A. K. Basu. against depreciation was collected from income-tax assessment order, but this statement was made in reference to the figure against deprecia tion appearing in the First Enclosure to Annexure (C) to the written statement of the workmen, which was the computation sheet containing calculation of bonus for the accounting year 1965. That is evident from the context in which this statement occurs. This statement finds place in the paragraph which contains answers given by the witness to the Industrial Tribunal and the six sentences preceding this paragraph as also the first sentence of this paragraph clearly show that the answers were in reference to the accounting year 1965. We have carefully scanned through the entire evidence of A. K. Basu, but we do not find in it any statement in regard to the amount of depreciation shown in the Second Enclosure to Annexure (C) to the written statement of the workmen, which contained the computation in regard to bonus for the accounting year 1966. There was no evidence given by A. K. Basu in regard to the amount of Rs. 12.79 lacs claimed by the Bank by way of depreciation in the computation sheet submitted by it. Not a word c D E F G H 14 2 SUPREME COURT REPORTS [1976] 3 S.C.R. A B c D £ F G H was said about it by A. K. Basu in his evidence and apart from A. K. Basu, no other witness was examined on behalf of the Bank. There was therefore, clearly no oral evidence to support the claim of the Bank. Even if the statement of A. K. Basu that the figures against deprecia tion were collected from the income-tax assessment order be construed as referring to the computatiou sheet in respect of the accounting year 1966, it does not advance the case of the Bank. The income-tax assess ment order for the accounting year 1966 admittedly did not show de preciation at the figure of Rs. 12. 79 lacs and that figure could not, there fore, have been collected by M. A. K. Basu, from the income-tax assess ment order. Even if the words 'Income-tax assessment order' as ap pearing in his statement be read so as to include the income-tax return. it was admitted that the relevant income-tax return was not produced on behalf of the Bank, and moreover, A. K. Basu admitted in his cross examination. that he did not prepare the income-tax return and conse quently it must follow that he had no personal knowledge of the cor rectness or veracity of the income-tax return and what he stated had no probative or evidentiary value. That leaves for consideration the certificate Ex. 12 issued by the Income-tax Officer which was strongly relied upon on behalf of the Bank and on which the Industrial Tribunal rested its decision on this part of the case. It is clear on a plain natural reading of the language of s. 6, cl. (a) that what is deductible under that clause is "deprecia·· tion admissible in accordance with the provisions of sub-s. (!) of s. 32 of the Income-tax Act" and not "depreciation allowed by the Income tax Officer in making assessmen~ on the e1nployer". It is the Industrial Tribunal which has to find for itself what is the amount of depreciation admissible under sub-s. (I) of s. 32 and it cannot abdicate its duty and surrender its judgment to what has been done by the Income-tax Officer while making assessment under the Income-tax Act. Since depreciation may be computed according to various methods recognized by accoun tancy principles, section 6, clause (a) while providing for deduc tion of depreciation, had to specify the method according to which depreciation to be deducted shall be calculated and it adopted the method specified in sub-s. ( 1) of s. 32. But the calculation of depre ciation in accordance with this method would necessarily have to be done by the Industrial Tribunal which is entrusted with the task of determining the amount of bonus by applying the statutory formula. Therefore, it is the industrial Tribunal which must in the exercise of its quasi judicial duty calculate the amount of depreciation by adopting the method set out in sub-s. (1) of s. 32. The Industrial Tribunal cannot say that it will blindly accept the figure of depreciation arrived at by another authority charged with the function of determining depreciation under a different statute. The determination of the Income-tax Officer in regard to depreciation admissible under section 32, sub-section ( 1) can be taken into account as evidence only if there is some provision of law which provides to that effect. We do not find anything in the Income-tax Act or in the Payment of Bonus Act or in any other pro vision of law which attaches presumption of accuracy to the determina tion of the Income-tax Officer in this matter or invests' it with probative 0r cvidcntiary value in the proceedings before the Industrial Tribunal. And the reason for this is obvious, because the workmen, who are sought • • "" I WORKMEN v. GRINDLAYS BANK (Bhagwati, J.) 143 S to be bound by the determinatiou of the Income-tax Officer, would not A be parties to the income-tax proceedings and they would have no oppor tumty of putting forward their point of view before the determination is arrived at by the Income-tax Ollicer. Moreover, the possibility can- not be ruled out that the determination made by the Income-tax Officer may be wrong and he might have made a bona fide mistake in arriving at the figure of depreciation. If the workmen were to be held bound by the figure of depreciation determined by the Income-tax Officer, they would have no opportunity of challenging its corredness or showing that it is wrong, nor would they be able to verify the figure of deprecia- tion by cross-examination of the employer or his witnesses who may have calculated the same. That would be contrary to the established principles of it1dicial prccedure. There can, therefore, be no doubt that the certificate issued by the Income-tax Officer was not admissible in evidence to prove the depreciation admissible under sub-section ( 1) of C section 32 and ordinarily we would have refused to rely upon it and directed the Industrial Tribunal to arrive at a fresh decision after giving opportunity to the Bank to prove its claim for depreciation by leading evidence, but we find that the certificate of the Income-tax Ollicer was admitted in evidence without any objection on the part of the workmen and at no stage of the hearing before the Indu~trial Tribunal, it was contended on behalf of the workmen that it was an inadmissible piece of D evidence. If the workman had contended before the Industrial Tribunal that the certificate of the Income-tax Officer was not admissible in evi- · deuce, the Bank could have led other evidence to substantiate its claim !or depreciation, but since no objection was raised on behalf of the workmen, the Bank contented itself by producing and tendering in evi dence only the certificate of the Income-tax Officer. We do not, in the circumstances see ·why reason to interfere with the decision of the Tn- dustrial Tribunal in regard to the amount of depreciation deductible under section 6, clause (a). E We then come to item 3(a) of the First Schedule which requires bonus paid to the employees in respect of the previous accounting years to be added back in computing gross profits. The amount paid to the employees-in the accounting year 1965 was Rs. 13.27 lacs and the work- men claimed that this amount of Rs. 13.27 lacs should be added back under item 3 (a) of the First Schedule. The Bank, in the computa- tion sheet filed by it, also showed this amount of Rs. !3.27 '" an add back and, therefore, there should really have been no dispute about it. But the Industrial Tribunal refused to permit the- Bank to add back this amount of Rs. 13.27 lacs on the grou.nd that "a sum out of 1965 ac- coµnt must not be allowed to adulterate the account of 1966". This G was an obvious error committed by the Industrial Trihunal. The amount of Rs. 13.27 lacs paid to the employees in respect of honus for the accounting year 1965 was clearly, on the plain terms of Item 3(a) of the First Schedule, liable to be added back and we direct the Indus- trial Tribunal to do so when the case goes back to it. F The item which then· requires to be considered that under cl. (iv) of the proviso to Item 2 of the Thircl Schedule. That clause provides that in the case of a banking company, any sum which, in H 144 SUPREME COURT REPORTS [1976] 3 s:c.R. respect of the accounting year, is deposited by it with the Reserve Bank of India under s. 11 (2 )(b) (ii) of the Banking Regulation Act, I 949 not exceeding the amount required under the saiu provision to be so deposited, shall be deducted from the gross profits. The Bank claimed to deduct under this item a sum of Rs. 13.48 lacs on the ground that it represented the amount deposited by the Bank with the Reserve Bank of India under s. 11(2)(b)(ii) of the Banking Regulation Act, 1949 and produced in support of this claim, a certi ficate of the Reserve Bank of India dated 3rd February, 1969 con firming that the Bank had deposited security adequate to fulfil the requirements s. 11 (2 )(b )(ii) of the Banking Regulation Act, 1949 in respect of the accounting year 1966. This certificate was ·produc ed by A. K. Basu on behalf of the Bank without any objection by Industrial Tribunal the workmen and it was marked Ex. 11. The accepted the claim of the Bank on the strength of this certificate and permitted deduction of the amount of Rs. 13.38 lacs. The workmen impugned this decision of the Industrial Tribunal on the ground that the balance sheet of the Bank for the accounting year 1966 showed that the amount deposited by the Bank. with the Reserve Bank of lncEa during that accounting year was only Rs. 70,000/- being difference between Rs. 99.10 lacs and Rs. 98.40 lacs and it was, therefore, only this amount which was respect of this claim. But this contention of the workmen is clearly fallacious. The balance sheet of the Bank for the accounting year 1966 would not show the amount deposited by the Bank with the Reserve Bank of India in respect of that accounting year, for, on a plain reading of s. 11 (2) (b )(ii) of the Banking Regulation Act, 1949, that amount would ordinarily be deposited only after expiration and not during the currency of that accounting year. No reliance can, therefore, be placed on behalf of the workmen on the balance sheet of the Bank for the accounting year 1966 purpose of repelling the claim of the Bank. On' the other hand, the evidence given by A K. Basu on behalr of the Bank clearly showed that the Bank had deposited with the Reserve Bank of India securities adequate to fulfil the requirements of s. 11(2)(b)(ii) of the Banking Regulation Act, 1949 and this statement made by the witness was sought to be supported by the certificate issued by the Reserve Bank of India. The workmen did question A. K. Basu on , this point, but he clearly stated that the deposit was made in securities. Having re gard to this evidence of A. K. Basu supported by the certificate of the Reserve Bank of India, we must hold that rhe claim of the Bank to deduction of the amount of Rs. 13.48 lacs was well founded and it was rightly allowed by the Industrial Tribunal. to be deducted liable That takes us to the last item in dispute which is Item 6(e) of the First Schedule. That item requires that in .the case of foreign (Over Head) banking companies, Proportionate Administrative Expenses of Head Office allocable to Indian business shall ,be de ductible in· computing gross profits. The Bank claimed that a sum of Rs. 43.40 lacs was liable to be deducted under this item, while according to the workmen, the claim for deduction was admissible B ,c I D E F G H I • \ • WORKMEN v. GRINDLAYS BANK (Bhagwati, J.) 145 Indian business amounted only to the extent of Rs. 43.10 lacs. The Industrial Tribunal, how ever, did not accept the figure of either party but made its own calculations and came to the conclusion that the proportionate. ad ministrative expenses allocable Rs. 23.88 lacs and hence that was the amount deductible under this the Industrial Tribunal was challenged item. This decision of on both sides. In order to appreciate the grounds of cl\allenge, it· is necessary to understand how the Industrial Tribunal actually calcu lated the proportionate administrative expenses of Head Office allo cable to Indian business. Foot Note 3 of the First Schedule provides that proportionate administrative expenses of Head Office allocable to Indian business should be calculated "in the proportion of Indian Gross profit (Item No. 7) to total world gross profit (as per consoli Item No. 2 above dated profit and Joss account, adjusted as only)". Now, the administrative expenses of Head Office were admittedly Rs. 120.52 lacs and if X was the amount of proportionate administrative expenses allocable to Indian business, X/120 would be equal to Indian gross profit under Item No. 7 /total world gross profit adjusted as in Item No. 2. The Indian gross profit purpose of working out this proportion was calculated by the Indus trial Tribunal by taking the figure of Rs. 67.39 lacs which was the net profit shown in the profit and loss account and adding Rs. 19.52 lacs representing bonus to employees and Rs. 1.89 lacs representing depreciation and it was, thus, determined at Rs. 88.80 lacs. Here· there was a manifest error committed by the Industrial Tribunal. The net profit of Rs. 67.39 lacs shown in the profit and loss account was admittedly arrived at after deducting from the profit of the Bank a sum of Rs. 43.10 lacs in respect of actual head office administrative expenses allocable to India. This amount of Rs~ 43.10 lacs was obviously required to be added back, since Item 6 ( e) pro vided for deduction of proportionate Head Office administrative expenses allocable to Indian business and the same item could not It is be deducted twice over in arriving at the Indian gross profit. true that Item 1 of the First Schedule requires the Industrial Tribunal to take as the starting point of computation "net profit as shown in the profit and Joss account after making usual and necessary provi sions". But the fact that Item 6(e) provides for deduction of pro portionate administrative expenses of Head Office allocable to Indian business in arriving at the gross profit for the purpose of bonus under Item 7 shows that the net profit contemplated in Item 1 is net orofit arrived at without deducting proportionate administrative expenses of head office allocable to Indian business. That is not regarded by the• Legislature as usual and necessary provision should be deducted fm the nuroose of ascertaining net orofit under Item 1. This position was indeed not disnuted by the learned counsel appearing on behalf of the Bank and it is, therefore, obvious that the amount of Rs. 43.10 lacs should be added back in arriving at the figure of net profit for the purpose of Item I. Then again, it is clear from the calculation made bv the Industrial Tribunal that in comnuting the Indian gross profit at the figure of Rs. 88.80 lacs, the Industrial Tribunal added hack only the amounts representing bonus to employees and deprecia tion as set out in Item 2 of the First Schedule. But Foot Note 3 A 13 c D E F G H A B c D L' ' G H 14 6 SUPREME COURT REPORTS (1976] 3 S.C.R. requires that the Indian gross profit should be determined as shown in Item 7 and, therefore, it was necessary to add back not only amounts under item 2 but also amounts under items 3 and 4 and to deduct amounts under item 6 for the purpose of arriving at Indian gross profit under item 7. This, the Industrial Tribunal clear ly failed to do. We would, therefore, direct the Industrial Tribunal. , When the case goes back to it, to determine the figure of Indian gross profit as set out in item 7 after adding back the amount of Rs. 43 .10 lacs the figure of net profit under Item I. The workmen also pointed out another error in the calculation made by the Industrial Tribunal and that was in regard to computation of total world gross profit. Foot Note 3 requires that !he total gross profit should be as per consolidated profit and loss account after ad justment as in Item 2. That means that the provision made in the consolidated profit and loss account for bonus to employees, de preciation, development rebate reserve and any other reserves should be added back to the net profit as shown in the consolidated profit and loss account for the purpose of arriving at the total world gross profit. What the Industrial Tribunal, however, , did in the present case was to add back merely the provision made in the profit and loss account of the Indian business for bonus to employees and de preciation. The Industrial Tribunal did not examine what was the provision made in the consolidated profit and loss account of the Bank for bonus to employees, depreciation, development rebate If any provision were made in the con reserve and other reserves. solidated profit and loss account for bonus to employees, which would mean employees of the Bank throughout the world, depreciation on world assets and development rebate and other reserves, such provision . would have to be added back to the net profit as shown consolidated profit and loss account. This would have to be done it on by the Industrial Tribunal when the matter goes back remand. . The Industrial Tribunal will, thus, after calculating the Indian gross profit above, apply the proportion of Indian gross profit/total world gross profit to the· amount of Rs. 120.52 lacs re~resenting the administrative expenses of Head Office and determine the proportionate administrative expenses of head office allocable to Indian business for the purpose of deduction under Item 6(e) of the first Schedule. We must also refer to one other ground of challenge put forward on behalf of the Bank against the decision of the Industrial Ttibun11I in regard to the amounts deductible under els. (ii) and (iii) of the proviso to Item 2 of the Third Schedule. This ground of challenge was urged on behalf of the Bank in support of the ultimate award of the Industrial Tribunal determining the bonus payable It was workmen at a little over 9 per cent. of their salary or wage. clearly open to the Bank to urge this ground of challenge since the Bank was entitled to support the award of the Industrial Tribunal I • • • WORKMEN v. GR!NDLAYS BANK (Bhagwati, J.) 14 7 funds' even on a ground decided against .it. Vide J. K. Synthetics Ltd. v. J. K. Synthetics Mazdoor Union(') and Management of l.C.C. v. Workmen('). The controversy arising out of this ground of challenge turned on the true interpretation of the words 'working clauses (ii) and (iii) of the proviso to Item 2 of the Third Schedule. 'working funds' to The Industrial Tribunal interpreted the words mean "paid up capital, reserves and deposits" and rejected the con tention of the Bank that they also included borrowings from other banking companies, bills payable and. balance of profit and account. This view taken by the Industrial Tribunal was assailed on behalf of the Bank at the hearing of the appeal before us. The ·the Bank contended that borrowings from other banking companies, amounts of bills issued by the Bank and balance of profit and account constituted part of the working funds of the Bank and were, therefore, within the expression "working funds". This contention, plausible though it may seem at first sight, is, in our opinion, not well founded. The words "working funds", when used in relation to a banking company, are not to be construed in their ordinary popular sense by reference to a dictionary. They have a history of own and they have acquired a definite meaning. These words were first defined in the award made by Mr. K. C. Sen in 1949 in regard to banks and the' definition he gave was that 'working funds' consisted of "paid-up" capital, reserves and deposits". So also in the Sastri Award made in 1953 in regard to Industrial desputes between certain banking companies and their workmen, the words 'working funds' were defined to mean "paid-up capital, reserves and the average of the deposits for 52 weeks of each year for which weekly returns of deposits are submitted to the Reserve Bank of India under the provi sions of the Reserve Bank of India Act". So far as banking com panies are concerned, the \vords 'working funds' have always been understood in this sense and that is the sense in which they must be deemed to have been used by the Legislature when it enacted els. (ii) and (iii) of the proviso to Item 2 of the Third Schedule. It is a the Legislature uses well settled rule of interpretation that when certain words which have acquired a definite meaning over a period of time, it must be assumed that those words have been used by the Legislature in the same sense. The words 'working funds' in els. (ii) and (iii) of the proviso to Item 2 of the Third Schedule must, there fore, be construed to mean paid up capitaL reserves and avera?c of the deposits for 52 weeks of each year for which weekly returns of deposits are submitted to the Reserve Bank of India. It could hardly be disputed that borrowings from other banking companies, amounts of bills issued by the Bank and the balance of profit and loss account are neither reserves nor deposits and they are not liable to be shown in the weekly returns of deoosits therefore. Reserve Bank of India. The Industrial Tribunal was. rioht in excluding them from the category of 'working funds' this m-ound of challange urged on behalf of the Bank must · be rejected. submitted (1) [1972] I S.C.R. 051 (2) [1973] I S.C.R. 105. A c D E F G H 148 SUPREME COURT REPORTS [J 976] 3 S.C.R. A B We accordingly set aside the award made by Industrial Tribunal and remand the case to the Industrial Tribunal with a direc tion to dispose it according to law in the light of the decisions given and observations made in this judgment. Since the workmen have partly succeeded and partly failed, we think that the fair order of costs would be that each party should bear and pay its own costs of these proceedings. P.B.R. Appeal allowed in part. • '