ANGLO-FRENCH TEXTILE LTD Vs. INDUSTRIAL TRIBUNAL

JUDGEMENT

(1.) THE petitioner is a company incorporated originally under the French law and is a company within the meaning of the Companies Act, 1956. It operates a textile mill at Pondicherry. Its accounts are made in accordance with the calendar year, which is the accounting year for purposes of the Payment of Bonus Act, 1965. As required under the Companies Act, it has accredited auditors who audited its accounts for the year 1967. According to the profit and loss account and the balance-sheet as at 31st December, 1967 the available surplus and the allocable surplus for purposes of the Payment of Bonus Act, 1965 as-disclosed in the audited statement of account were Rs. 4,68,502 and Rs. 2,82,101, respectively. The 2nd respondent, which is the union representing the workers in the petitioner-company, demanded a 15 per cent bonus for the year 1967. The company, however, having regard to the allocable surplus as disclosed in the audited statement of account, expressed its willingness to pay the minimum bonus of 4 per cent though the actual percentage of bonus in accordance with the profit and loss account would be far below the minimum percentage fixed under the Act. The workers, however, gave a strike notice. Thereafter, the Government of Pondicherry, in exercise of their powers under Section 10 of the Industrial Disputes Act, 1947, referred the dispute, as conciliation failed between the management and the workers, to the Industrial Tribunal at Pondicherry. The 1st respondent, Industrial Tribunal, directed that a sum of Rs. 42,085, being gratuity paid to the employees who retired during the year, and Rs. 4,43,000, being interest paid to the United Commercial Bank Limited on the medium term loan admittedly obtained by the petitioner-company be added back to the net profit shown in the profit and loss account and bonus be paid to the employees for the accounting year 1967 at 5. 48 per cent on the basis of an allocable surplus arrived at by the Tribunal. The Tribunal held that the gratuity paid should be treated as capital expenditure and interpreted the quondam award of the Textile Arbitration Committee in relation to the payment of such gratuity as such. Under the award of the Textile Arbitration Committee, the company was to pay gratuity to its employees as and when it became payable on retirement. The company, instead of providing a fund no sooner the award of the Textile Arbitration Committee was rendered, had spread the said liability over years as its payment was contingent upon the retirement of employees year after year. The 1st respondent again was of the view that interest on the medium term loan was not normal revenue expenditure. Though the 1st respondent noticed that for purposes of the levy of direct taxes interest paid on medium term loan was deducted as was done by the company, yet it directed the adding back of this amount to arrive at the allocable surplus under the Payment of Bonus Act. It is as against these two items which were directed to be added back by the Industrial Tribunal that the present writ petition has been filed.

(2.) THE contention of Mr. Uttam Reddi appearing for the petitioner is that the profit and loss account prepared by the auditors of the company being a document prescribed under the Act and prepared by responsible auditors cannot be lightly brushed aside and ought to have been acted upon by the Tribunal. It is claimed that gratuity has been paid in accordance with the award of the Textile Arbitration Committee and is revenue expenditure in the same way as pensions. It is said that interest on borrowings is an item of expenditure deductible from the gross profits as a usual working charge irrespective of the use to which the borrowed funds are put. In accordance with the understanding of the expression "capital expenditure" under the Income-tax Act which is equally applicable while interpreting the provisions of the Payment of Bonus Act, it is said that the refusal to Textile Ltd. vs. Industrial Tribunal (08. 02. 1972 -MADHC) Page 3 of 10 deduct interest from gross profits, though it has been allowed as such under the Income-tax Act, is perverse. The stand of the labour, however, is that the Textile Arbitration Committee's award is plain and unambiguous and that the amount payable to the employees at the time of retirement as and by way of gratuity which was notionally created for the first time by the Textile Arbitration Committee is an item of expenditure which ought to have been actually evaluated soon after the award of the Textile Arbitration Committee and a fund created therefore from which the operations during the successive years ought to have been made. Though the labour did not object to the practice of the company deducting such gratuity paid year after year after the award of the Committee, yet the employees are not stopped from questioning such a deduction in the year 1967 as by then the Payment of Bonus Act has intervened and the workers have the right to claim such percentage of bonus to which they are entitled under the provisions of law then prevailing. Mr. Dolia would not agree that the amount of gratuity payable could be spread over years and the provisions of the award of the Textile Arbitration Committee be thus satisfied. On the question of interest, he is emphatic that until the machinery purchased by reason of raising the medium term loan are commissioned such interest ought to be treated as capital expenditure and in that behalf particulars having been furnished by the company, on a direction made by Palaniswamy, J. , earlier, the actual date of commissioning of the plant after the borrowing has to be ascertained before an attack can be made against the adding back of such interest as was done by the Tribunal. Though Mr. Dolia in principle would agree that interest paid on borrowings will not amount to capital expenditure, he would qualify his argument by saying that it is deductible only after the machinery or plant for the purchase of which borrowing was made was commissioned and it is only thereafter such interest would become a revenue expenditure. In the supplemental affidavit filed by the company particulars as to when the loans were taken and how they were utilised are given arid on the basis of such information it is said that as the loans were taken for modernisation of the plant in a running concern, no question of commissioning of a new plant would arise and, therefore, the last contention of the union is unsustainable.

(3.) THE contention of Mr. Uttam Reddi is that the adding back of the sum of Rs. 42,085 being gratuity paid to the employees during the year on the incident of their retirement from service and the sum of Rs. 4,43,000 being interest paid is not proper.