TULSI DAS KHIMJI Vs. WORKMEN

JUDGEMENT

(1.) JUDGMENT of Sinha C. J., Subba Rao, Mudholkar and Venkatarama Aiyar JJ was delivered by

(2.) THIS appeal, by special leave, is directed against the award dated 10/05/1961, made by the central government's Additional Industrial tribunal (Shri Salim M. Merchant) Bombay, in Reference No. 4 of 1960, on a reference made by the central government under cl. (d) of sub-s. (1) of s. 10 of the Industrial Disputes Act (XIV of 1947). The main point in controversy between the parties relates to the question of bonus, both traditional or customary bonus and profitsharing bonus.

(3.) WE shall take up the points in the order indicated above. It is not contested on behalf of the respondents that some deduction has to be made on account of income-tax, but their learned counsel has contended that the tax should be what the firm as such has to pay by way of income-tax. It was said in this connection that a registered firm is a legal entity for the purposes of income-tax, and that the tribunal was perfectly justified in giving credit only for the sum of about Rs. 10,000.00 , worked out on that basis. On the other hard, it was contended on behalf of the appellants that 51.5%, or whatever may be the actual rate of income-tax payable by a company should have been deducted. Alternatively, it was argued that 7 annas in a rupee would be a fair basis. In our opinion, it would not be right to equate a registered firm to a company for the purpose of deduction of income-tax. It is true that the income-tax deduction has to be made on a notional basis, laid down by a bench of 5 Judges in this court, in The Associated Cement Companies Ltd., Dwarka Cement Works, Dwarka v. Its Workmen (1). But even so, the notional basis must have relevance to the law of income-tax in respect of firms. In this connection, the following alternatives were suggested on behalf of the appellants, namely, (1) income-tax at 7 annas in a rupee which will wipe off about rupees 85 thousand or about 45% of the profits; (2) a sum of about Rs. 53,000.00 odd on the basis of income-tax payable on an income of 1.95 lakhs of the firm on the footing of the partners paying the tax at the appropriate rate on their shares of the income, this would account for about 27% of the profits, after adding the ten thousand rupees, which is a registered-firm tax, as already indicated; (3) tax of one lakh forty thousand odd on the basis of the firm being unregistered, which the income-tax authorities are entitled to do in certain circumstances this would account for about 70% of the profits; (4) income tax amounting to roughly 68 thousand rupees, plus ten thousand rupees in respect of registered-firm tax, on the basis of the tax payable by the partners on the income of the registered firm at the rate applicable to their world income, on their shares in the firm. WE have no hesitation in rejecting the first suggestion of deducting about 7 annas in the rupee because that will be on the basis of a tax on a corporation, the basis which we have already rejected as unfair. Even more unacceptable is the suggestion of knocking off a lakh and 4 thousand rupees, which has the effect of setting apart the major share of the profits for income-tax on a highly notional basis. The 4th alternative of taking into account the world income of the partners of the firm would be equally unjust and unfair to the workmen in the case of the members of the firm being very rich persons. This course would be highly objectionable from another point of view, which is a very important consideration, namely, that in order to determine the bonus payable for a particular year of working of the firm, the word income of the partners of the firm may have to be determined in the first instance, which process may take years. As the appellants themselves have rightly stated that the deduction on account of income tax has to be on a notional basis, the basis has got to be such as to be readily ascertainable, and that can only be done by making calculations on the profits of the firm itself, for the particular year. The last alternative of allowing deduction under this head of calculating income tax on the actual figures of the profits of each of the partners separately appears to be reasonable, because the figures are known and the tax of each constituent members of the firm can be easily calculated on the basis of his share. But it has been argued On behalf of the respondents that the amount of income-tax payable by the firm as such, viz., about Rs. 10,000.00 should be permissible deduction and not what each partner had to pay on his share of the profits, because it is the firm which is the employer and which can claim deduction under this head. But this contention cannot be pushed to its logical conclusion because a firm is not a legal person within the meaning of the Industrial Disputes Act. It is the partner of the firm who are the employers. It is that fact that has to be taken into account in considering the question of income-tax, even as in other matters like remuneration, etc.; i. e., the amount of tax payable by each: partner, qua the business of the firm, irrespective of their other sources of income or loss, because national is quit different from the actual, though not wholly dissociated from it. But the question still arises whether the registered-firm tax can also be added to the figure of income-tax arrived at by the process just indicated. In our opinion, it would no',-, be right to give the employers the double benefit of granting deduction on the basis of income-tax payable by each partner in respect of his share in the profits of the firm, and at the same time adding the registered-firm tax, which is paid by the firm in order to obtain certain reliefs under the Income Tax Act, which they would not otherwise have obtained. Hence, as a result of the foregoing considerations, the sum of 53 thousand rupees, in round figures, should be allowable under this head of income-tax. Even that figure, it was admitted, would represent about one quarter of the profits.