Supreme Court of IndiaBengal Kagazkal Mazdoor Union & Another vs The Titaghur Paper Mills Co. Ltd on 11 April, 1963Equivalent citations: AIRONLINE 1963 SC 2PETITIONER:
BENGAL KAGAZKAL MAZDOOR UNION & ANOTHER

	Vs.

RESPONDENT:
THE TITAGHUR PAPER MILLS CO. LTD.

DATE OF JUDGMENT:
11/04/1963

BENCH:


ACT:
    Industrial	Dispute--Bonus--Computation--Gross  Profits-
Income-tax--Working capital--Rehabilitation.



HEADNOTE:
 An industrial dispute having arisen between the  appellants
and the respondents, the Government of West Bengal  referred
the dispute to the Second Industrial Tribunal, West  Bengal,
for  determining the question of bonus for each of the	four
years (from 1955 to 1959) and the method of its distribution
amongst different categories of workmen including  temporary
hands.	The tribunal on examination of the evidence applying
the Full Bench Formula came to the conclusion that there was
no  surplus in any of the four years for the grant of  bonus
and therefore rejected the claim.  The appellants  thereupon
appealed  to this Court with special leave.  The  Tribunal's
Award  was  impugned  by the  appellants  on  four  grounds,
namely, tribunal went wrong in calculating (a) gross profits
for the years 1956-57 (b) income-tax for all the four  years
(c)  working  capital  for  all	 the  four  years  and	 (d)
rehabilitation for all the four years.
    Held  that if there had been any addition to the  profit
on  account  of an increase in the value of the	 stock	that
would  be an extraneous profit for which no credit could  be
claimed by the workmen and such extraneous profit could	 not
be taken into account in calculating the available  surplus.
But in that case the result of the revaluation was not	that
increased  value  was taken into  account in the  matter  of
consumption of raw materials.  The Tribunal overlooked	this
fact in applying the ratio of that case to the facts to	 the
present case.
    Tats  Oil  Mitts  Go. Ltd., v. Its	Workmen,  [1960]   1
S.C.R. 1, explained.
    If the stocks are revalued that is no reason for showing
the  relevant cost on the debit side as consumption, for  in
reality
39
the  revalued price is not  what the mills paid for the	 raw
materials  etc.	 consumed  and therefore to  get  a  correct
picture	 of the actual profit made it is only  the  original
cost price which will have to be taken into account for that
purpose.   On  sale  of paper, the profit  must	 be  on	 the
original  valuation of paper stock and not on  the  revalued
figure.
    FIeld  further, that at p. 962 of the decision  of	this
Court  in  The	Associated  Cement  Companies  Ltd.  v.	 Its
Workmen, [1959] S.G.R.	925, the word "not" has been printed
by  mistake  and  what the court then decided  was  that  in
calculating  the amount of tax payable the  Tribunal  should
take  into  account the concession given by  theIncome-Tax
Act.   The Tribunal was wrong in calculating the income	 tax
after deducting the notional normal depreciation and not the
statutory depreciation.
    Sree  Meenakshi  Mills Ltd. v.   Their  Workmen   [1958]
S.C.R. 878, referred to.
    Held  further  that it is well settled  that  a  balance
sheet cannot be taken as proof of a claim as to what portion
of  reserves has actually been used as working	capital	 and
that  the  utilization of a portion of reserves	 as  working
capital	 has  to be proved by the employer  by	evidence  on
affidavit  or  otherwise  after giving	opportunity  to	 the
workmen	 to  contest  the correctness of  such	evidence  by
cross-examination.  In the present case no acceptable  proof
has been given and the method of proof was not proper.
    Petled  Turkey  Red Dye Works Ltd. v. Dye  and  Chemical
Workers Union, [1960] 2 S.C.R. 906, refered to.
    Held further, that the question whether investments have
been actually used as working capital is a question of	fact
and  it has to be proved by proper evidence. In the  present
case the Tribunal was wrong in assuming that all investments
have  been used as working capital without any	evidence  to
support this assumption.
    Where  advances  have  been	 given	for  obtaining	 raw
materials  etc.	 they would certainly be part of the  amount
used  as  working capital.  But where  advances	 are  purely
loans and where advances have not been made for the  purpose
of  the business such advances cannot be taken to have	been
used as working capital.
    Held further that the determination of rehabilitation is
a long term affair and once it has been determined it cannot
go
40
on  increasing from year to year except in case of a  sudden
appreciable rise in prices or on account of new blocks being
added  followed by further rise of price after the  purchase
of  the	 new blocks.  All rehabilitation amounts  which	 may
have  been  allowed to the employer  for  rehabilitation  in
previous years but remained unused for rehabilitation in the
meantime  have to be taken into account in arriving  at	 the
amount required for rehabilitation.
    The	 Associated  Cement Companies Ltd. v.	Its  Workmen
[1959] S.C.R. 925, referred to.
    In	Kandesh	 Spinning & Weaving Mills Co.  Ltd.  v.	 The
Rashtriya  Girni Kamgar Sangh Jalgaon, [1960] 2 S.C.R.	841,
this  Court held that before a particular reserve  could  be
said  to  be  not available for rehabilitation	it  must  be
established  that  it had been reasonably  earmarked  for  a
binding	 purpose or the whole or a part of it has been	used
as  working capital and that only such part of the  reserves
coming	under either of the two heads can be said to be	 not
available  for	rehabilitation.	  This	means  that  if	 any
reserve has been earmarked for a particular purpose which is
binding it cannot be deducted from the gross  rehabilitation
amount.	  For example assessment kept in reserve for  paying
debentures when they fail due or working capital which is in
the shape of raw materials cannot be deducted from the gross
rehabilitation	amount.	  The  Tribunal	 misunderstood	 and
misapplied  the ratio of this decision to the facts  of	 the
present case.



JUDGMENT:CIVIL  APPELLATE  JURISDICTION : Civil Appeal  Nos.	 550
and 551 of 1962.Appeals by special leave from the Award dated March	 20,
1961 of the Second Industrial Tribunal, West Bengal, in Case
No. VIII-27 of 1960.Ajit  Roy Mukherjee, M.K. Ramamurthi,  R.K.	 Garg,	D.P.
Singh and S.G. Agarwal, for appellant (in C.A. 550 of 1962).
    Ajit Roy Mukherjee and N.H. Hingorani, for the appellant
(in C.A. No. 551 of 1962).M.C. Setalvad,  D.N.  Mukherjee and B.N. Ghosh, for	 the
respondents.411963. April 11. The Judgment of the Court was  delivered
by
    WANCHOO J.--These two appeals by special leave arise out
of  the same award of the Second Industrial  Tribunal,	West
Bengal and will be dealt with together.	 The two appeals are
by  two unions of workmen of the Titaghar Paper	 Mills	Co.,
Titaghar  No. 1 and the Titaghar Paper Mills  Co.  Kankinara
No.2.  The two mills have been treated as one. establishment
and  are  under one management.	 So the Government  of	West
Bengal referred the dispute between the mills and the unions
for  profit bonus for the years 1955-56,  1956-57,  1957--58
and  1958-59 to the tribunal for determining the quantum  of
bonus  for  each  year and the method  of  its	distribution
amongst different categories of workmen including  temporary
hands.The	 tribunal  went	 into the matter  and  came  to	 the
conclusion  after  the application of what is known  as	 the
Full Bench formula evolved by the Labour Appellate  Tribunal
in  1950  and  approved by this Court  in   theAssociated
Cement Companies Ltd. v. Its Workmen(1),  that there was no
surplus	 in any of the four years for the grant	  of   bonus
and  therefore rejected the claim of the workmen.   The	 two
appeals are  by the two unions against this award.
    The	 contention of the workmen is  that the.  tribunal's
conclusion that there was no available surplus in any of the
years  is incorrect and four points have been urged in	this
connection  to	show  how the tribunal	went  wrong.   These
points are: (1)	 The tribunal's calculation of gross profits
for  the  years 1956-57 was wrong; (2)	 The  tribunal	went
wrong in the matter of calculation of income-tax for all the
four  years; (3)  The tribunal went wrong, in the matter  of
calculating working capital for all
(1) [1959] S.C.R. 925,42the  four  years;  and	(4)   The  tribunal  went  wrong  in
calculating rehabilitation  for all the four years. We shall
deal with these points one by one.Re. (1).The contention in this behalf is that for the year 1956-
57  the	 mills	revalued  their	 stock	of  raw	  materials,
chemicals  and dyes etc. as well as general stores,  machine
furnishings  etc.  and paper stock as well  as	coal  stock.
This revaluation resulted in an increase of Rs.	 38,81,618/-
in  the	 value of these things as on April  1,	1956.	This
increase in value was reflected	 in the	 consumption of	 raw
materials, general stores and coal and in the sale of  paper
with  the  result that the  profit-and-loss  account  showed
inflated  figures  in terms of money on the  basis  of	this
revaluation,  though  in  actual fact this  amount  was	 not
spent,	the  increase being merely due to a paper  entry  on
account	 of revaluation.  Therefore it is said that  as	 the
tribunal  ignored  this	 aspect of the	matter	it  did	 not
correctly calculate the gross profits for the year  1956-57.
The  tribunal in this connection relied on the	judgment  of
this  Court  in theTata Oil Mills Co. Ltd. v.	Its  Workmen(1),  and  said that if there had been any addition  to	 the
profit on account of an increase in the value of the  stock,
that  would  be an extraneous  profit for  which  no  credit
could  be claimed by the workmen and such extraneous  profit
could not be taken into account in calculating the available
surplus.It is urged on behalf of the appellants that	 the
tribunal was in error in applying the principlelaid down intheTata Oil Mills Co.scase (1), to the facts of this case.
    There is in our opinion force in this contention.It  is
true  that  inThe Tata Oil Millscase (1),  the  profit  of
rupees	three  lacs  which  arose merely  on  account  of  a
change in the method of accounting was treated as extraneous
income; but the Judgment
[1960] 1 S.C.R. 1.43of  that  case	does  not  show	 that  the  result  of	 the
revaluation was that increased value was taken into  account
in  the	 matter of consumption	of raw materials  etc.	 The
tribunal  overlooked  this  fact when it proceeded to  apply
the  ratio in theTata Oil Millscase (1), to the  facts  of
the present case. It has however been urged on behalf of the
respondent that there is a contra-entry in  the	 profit-and-
loss  account and that shows that the tribunal was right  in
ignoring  the effect of revaluation on the debit  side,	 for
the  same sum of money i.e. Rs. 38,81,618/- was	 entered  on
the credit side and so there could be no mistake in arriving
at the correct gross profit for that year.  We have not been
able  to  understand what the effect of this  entry  on	 the
credit	 side	is in arriving at the gross profit  for	 the
year;	nor has the learned counsel for the respondent	been
able  to  explain  the position clearly to us.	 We  are  of
opinion	 that the matter requires looking into and  evidence
may  have  to  be taken to find out  how  exactly  the	real
profits	 have been affected by showing on the debit side  as
consumption  the  valuation  of	 raw materials etc.  at	 the
revaluation  cost.   The matter will therefore	have  to  be
investigated further. But it may be added that if the stocks
are revalued that is no reason for showing the revalued cost
on  the	 debit	side as consumption,  for  in  reality,	 the
revalued  price	 is  not what the mills	 paid  for  the	 raw
materials  etc.,  consumed and therefore to  get  a  correct
picture	 of the actual profit made, it is only the  original
cost price which will have to be taken into account for that
purpose,  for  that  is what the  mills	 actually  paid	 for
acquiring the raw materials.  Further on sale of paper,	 the
profit made must be on the original valuation of paper stock
and not on the revalued figure which was not the cost to the
mills of making the paper.  Finally it will also have to  be
considered what is the effect of the so-called	contra-entry
on the credit side of the profit and-loss  account for	that
year.  Expert evidence may be necessary to explain
(1) [1960] 1 S.C.R. 1,
the position properly and arrive at the correct profits	 for
that  year  and so there will have to be a  remand  for	 the
determination of this question by the tribunal, as it is not
possible for us on the materials available on the record  to
arrive at a final conclusion ourselves.Re. (2).The	 contention  under this head is	 that  the  tribunal
while calculating income-tax has only taken into account the
notional   normal   depreciation  and  not   the   statutory
depreciation,  as  it  should have done.   This	 matter	 was
considered  by	this Court inSree Meenakshi Mills  Ltd.  v.
Their  Workmenand again in theAssociated Cement  Companiescase (2), and it was pointed out that in calculating income-
tax  the tribunal should  take into account the	 concessions
given by theIncome-tax Actto the employers, for two	more
depreciations  are  allowed  unders. 10  (2)  (vi)of	 the
income-tax  Act.   At p. 962 of the report in  the   Supreme
Court  Reports,e  word	"not"  has  been	 printed  by
mistake	 and  what  this Court then  decided   was  that  in
calculating  the amount of tax payable, the tribunal  should
take  into account  the	 concessions given by theIncome-tax
Act,  though in the report it is printed that the   tribunal
should	not  take into account the concessions.	  This	will
however be clear from the calculation of income-tax which is
made  at  p.  994. Chart V shows that  the  notional  normal
depreciationin that casewas Rs. 100.22 lacs.	Note A below
that  chart further shows that in arriving at the amount  to
be  deducted  as  income-tax,  the  statutory	depreciation
amounting  to  Rs. 165.49 lacs was deducted from  the  gross
profits	 and it was on the balance that	 income-tax  payable
was  calculated.   We  may add that a  correction  slip	 was
issued	later.	 In  the  present  case	 the  tribunal	 has
apparently calculated incometax after deducting the notional
normal depreciation and not the statutory depreciation.	 The
contention(i) [1958] S, C. R, 878.    (2) [1959] S. C.R. 925.45of the appellants is that the statutory depreciation is much
higher.	 The respondent has not been able to controvert this
contention of the appellants, though there does not seem  to
be any evidence on the record as to what is the exact amount
of  statutory depreciation allowed during these	 years.	  It
seems that on behalf of the workmen calculation sheets	were
put  in	 for  all the four years,  according  to  which	 the
statutory depreciation was much higher than the depreciation
which  was  deducted by the tribunal from gross	 profits  in
arriving  at the income-tax payable.  But as the  appellants
were  unable  to  point out any evidence  beyond  their	 own
charts	to  prove the exact statutory depreciation  for	 the
years in controversy, it is not possible for us to calculate
the  correct  amount  of income-tax to be  deducted  in	 the
absence	 of such evidence.  The matter will  therefore	have
to  go back to the tribunal for taking further	evidence  on
this  point  and  then arriving at  the	 amount	 payable  as
income-tax  after  deducting   statutory  depreciation	from
gross profits.Re. (3).Three  contentions	have been raised in this respect  on
behalf	of  the appellants.  It is now well settled  that  a
balance-sheet  cannot be taken as proof of a claim  of	what
portion	 of  reserves  has actually  been  used	 as  working
capital	 and  that  the	 utilization of	 a  portion  of	 the
reserves as working capital has to be proved by the employer
by   evidence  on  affidavit  or  otherwise   after   giving
opportunity  to	 the workmen to contest the  correctness  of
such  evidence b  cross-examination :(seePetlad Turkey	 Red
Dye  Works Ltd. v. Dyes & Chemical Workers' Union(1).	What
happened  in the present case was that the accountant of the
respondent gave two alternative calculations for arriving at
the reserves  used as working capital.	Thus there were	 two
figures	 given by the respondent to show what reserves	were
actually
(1) [1960] 2 S.C.R. 906.46used   as  working  capital.   Further,	 according  to	 the
accountant,  the lower figure represented the  assets  which
could be at once converted into liquid cash while the higher
figure	represented both cash invested in the  business	 and
liquid	cash that would be available.	He  then went on  to
state that the amount was  always available for	 utilization
as  working capital and that it was actually utilised during
the years.  There was no effective cross-examination of this
statement.   However, before the tribunal it was claimed  on
behalf	of the respondents that the lower figure  should  be
taken  as the actual working capital and that  the  tribunal
did.   We  must say that it looks odd  that  the  respondent
should	have  produced two figures for	working	 capital.for
each  year.  We should have expected more positive  evidence
on  the	 point	which  would  have  shown  one	figure,	 for
reserves  actually used as working capital  could   only  be
represented by one figure.  Though therefore the  accountant
did  swear that the amount was used as working	capital	 and
his  oath was apparently with respect to both  figures,	 the
respondent  in the end was content to take the lower figure.
This  in  our opinion is not the right way of  proving	what
reserves  were actually used as working capital	 during	 the
year  and we should expect a firm figure to be given by	 the
employers for this purpose.  But as. there was no  effective
cross-examination  on the point by the appellants, we  would
not disallow interest on working capital altogether.  As  we
are  remanding the matter we expect  proper evidence  to  be
given by the respondent in this connection.
    The	 next point urged on behalf of the  appellants	with
respect	 to  the  calculation of  working  capital  is	that
investments cannot be taken into account in arriving at	 the
figure	of  working capital.  Put in -this broad  form	 the
contention  of the appellant cannot be accepted,  for  there
may   be  circumstances in which investments may  have	been
used,47as working capital while equally there may be  circumstances
in which investments may not have been so used, and it	will
depend upon the evidence available whether investments	have
been actually used as working capital or not.  For  example,
where investments at the beginning of a particular year were
of a particular kind and the same investments appear at	 the
end  of the year without any change, it cannot be said	that
the  amount invested has been used as working  capital.	  We
may make this clearer by a hypothetical example.  Suppose at
the  beginning of the year the employer has  investments  in
government  securities of 3 percent conversion loan  to	 the
tune  of  20 lacs.  At the end of the year  also,  the	same
investment  continues  in the same form, namely,  3  percent
conversion   loan   for	 Rupees	 twenty	 lacs.	  In   those
circumstances  it  cannot be said that this  investment	 has
been used during the year as working capital.  On the  other
hand  where investments have been realised during  the	year
and actually used as working. capital, evidence can be given
to  show that this has happened and then the investments  so
realised and,used as working capital can be taken to be part
of  working  capital  for the year.  If	 such  a  thing	 has
happened  the  balance-sheet  will  show  that	though,	 for
example,  at  the  beginning  of  the  year  the  investment
consisted  of 3 percent conversion loan for Rs. 20 lacs	 but
at the end of the year it consisted of 3 percent  conversion
loan  for Rs. 5 lacs, which would show that Rs. 15 lacs	 out
of  investments,  might have been used as  working  capital.
Similarly where investments are pledged as security for	 the
purpose	 of business, even though there may be no change  in
them, that may show that part of the investments so  pledged
has  been  used as working capital. Therefore  the  question
whether	 investments  have  been actually  used	 as  working
capital	 is a question 'of fact; whether they have  been  so
Used   will  have  to  be  shown  by  evidence,	  oral	 and
documentary,  in  support  thereof.   In  the  present	case
however it seems to48have been assumed by the tribunal that all investments	have
been used as working capital and this in our opinion was not
correct.  The matter will therefore have to go back to	find
out exactly what investments were used as working capital.
    The	 last  argument	 under this  head  is  that  certain
advances  have	also  been taken  into	account	 as  working
capital	 and  that this is not permissible. Here  again	 the
contention  of	the appellants cannot be  accepted  in	this
broad form.  There may be some advances which may have	been
used as working capital while there may be others which	 may
not  have been so used. Where advances have been  given	 for
obtaining  raw materials etc., they would certainly be	part
of  the	 amount used as working capital. On the	 other	hand
where  advances are purely loans and have not been  realised
during	the year and the same advances which appear  at	 the
beginning  of the ,year continue at the end of the  year  to
the same person and the advances have not been made for	 the
purpose	 of business, such advances cannot be taken to	have
been  used as working capital.	Further, as in the  case  of
investments, if advances have been realised during the	year
and  the  amount  realised has then  been  used	 as  working
capital, evidence will have to be given to show this. In the
present case however ,it seems that advances have been taken
en  bloc as part of working capital and this in our  opinion
is not correct.The  result therefore is that there will have to  be  a
remand	on the question of determining working	capital	 and
the  interest  to  be  allowed on it in	 the  light  of	 the
observations we have made herein.Re. (4).We  now come to the question of rehabilitation. It is  urged
that the tribunal had occasion to consider49the  question  of  rehabilitation  in  connection  with	 the
respondent-mills  for the year 1954-55, i. e.,	just  before
the  four  years  now in dispute.   On	that  occasion,	 the
tribunal   found  that	the  total  amount   necessary	 for
rehabilitation was Rs. 43.39 lacs per year; but in the	four
years  in dispute the tribunal has increased this amount  to
Rs.63.56 lacs in 1955-56 and Rs. 67.66 lacs in 1956-57.	  As
for the years 1957-58 and 1958-59 the tribunal has found the
rehabilitation	amount	only for the pre-1939 block  as	 Rs.
64.59 lacks and Rs. 64.71 lacs respectively. The  appellants
contend	 that  these  calculations are	incorrect  and	that
rehabilitation	calculations  are  a  long term	 matter	 and
there  was no reason for the rehabilitation amount to go  up
as compared to that for 1954-55 as there was no	 appreciable
change	in  prices  during  the four  years  in	 dispute  as
compared  to  the prices in 1954-55.  It  is  conceded	that
rehabilitation may have increased slightly on account of new
blocks which came into existence after 1954-55.	 Even so  it
is urged that the tribunal has fallen into two basic  errors
and that is how it came to arrive at such an inflated figure
of  rehabilitation for the years  in dispute as compared  to
the  year 1954-55.  The first base error is said to be	that
the   tribunal	did not take into account what	had  already
been  allowed  for  previous years  as	 rehabilitation	 and
proceeded to calculate rehabilitation as if nothing had been
allowed	 for rehabilitation for previous years, which  would
naturally have	the  effect of	inflating the rehabilitation
amount	year by year.  The second basic error is said to  be
that  the tribunal did not give credit for all the  reserves
available for rehabilitation as it should have done with the
result that the amount of rehabilitation found by it  became
inflated.We	are of opinion that there is force in this  argument
and the tribunal has undoubtedly fallen into error  on	both
counts.	 In the first place49determination  of rehabilitation is a long term	 affair	 and
once it has been determined it cannot  go on increasing from
year to year except in case of a sudden appreciable rise  in
prices	or on account of new blocks being added followed  by
further rise of prices after the purchase of the new blocks.
As  was pointed out in theAssociated Cement Companiescase
(1),  the tribunal has before awarding the proper amount  in
respect	 of rehabilitation, to make  deduction,	 (firstly)on
account	 of  break-down	  value, (secondly)  on	 account  of
depreciation  and general liquid reserves available  to	 the
employer other than those reasonably earmarked for  specific
purposes,  and	(thirdly) on account of	 the  rehabilitation
amount	which  may  have been allowed  to  the	employer  in
previous  years	 and  remained unused in  the  meantime.  It
appears	 that in the year 1954-55 the net figure arrived  at
for rehabilitation for	that  year  was Rs. 33.39 lacs after
allowing  depreciation	for that year and as  the  available
surplus	 after	deducting other prior charges was  only	 Rs.
24.46  lacs,  the tribunal did not grant any  bonus  to	 the
workmen.   Even	 so  h	is  remarkable	that  out   of	 the
rehabilitation amount of Rs. 33.39 lacs for that year a	 sum
of  Rs. 24.46 lacs was	left  in  the hands of the  employer
as  rehabilitation  amount.   The  tribunal  seems  to	have
ignored	 this fact altogether in calculating  rehabilitation
amount for the years in dispute.As was pointed out  in	 theAssociated     Cement	Companiescase   (1),	  all	 the
rehabilitation	 amount which may have been allowed  to	 the
employer  for rehabilitation in previous years but  remained
unused	for rehabilitation in the meantime, has to be  taken
into  account  in  arriving  at	 the  amount  required	 for
rehabilitation.	 The same result can be	 arrived at in other
way,  provided there is no  appreciable .rise in  price,  by
taking the rehabilitation amount  once arrived at and adding
to it such amounts as may be due for rehabilitation for	 new
blocks	and also such amounts as may not have been  left  in
the hands of
(1) [1959] S.C. R. 925.51the  employer in the previous years,  because the  available
surplus	 in his hand after allowing all other prior  charges
was  less than the rehabilitation amount found due.  In	 any
case  the  tribunal was certainly wrong in not	taking	into
account the rehabilitation amounts allowed in previous years
in  working out the rehabilitation amount for the  years  in
dispute.The second error into which the tribunal fell was in the
matter	of  deducting  the  amount  available  from   liquid
reserves other than those  ear-marked for specific purposes.
What  the  tribunal  did  in this case was that it  did	 not
properly  take	into account the liquid	 reserves  available
and deduct them from the rehabilitation amount found due  by
it.   The tribunal seems to have held that whatever sum	 was
working	 capital  could	 not  be  deducted  from  the  gross
rehabilitation	amount	found by  it and  reliance  in	this
connection   was  placed on  the judgment of this  Court  inKhandesh Spg. & Wvg. Mills Co. Ltd. v.	The Rashtriya  Girni
Kamgar Sangh Jalgaon(1).  In that case the employer claimed
that  the balance-sheet disclosed that the  entire  reserves
had  been  used	 as working  capital and  consequently	such
reserves   should  not be excluded from	 the  claim  towards
rehabilitation.	  It was however held that the employer	 had
failed	to  prove  that reserves had in fact  been  used  as
working capital and as such the amount was rightly  deducted
by   the  industrial  court  from  the	amount	 fixed	 for
rehabilitation.	 In our opinion	 the ratio of that case	 has
been   misunderstood.  That case does not lay down that	 all
the  amount on which interest is allowed as working  capital
cannot	be  deducted from the  gross  rehabilitation  amount
found by  the  tribunal to arrive at the net  rehabilitation
amount.	 What that case decided was that before a particular
reserve could be said to be not available for rehabilitation
it must be established that it has been reasonably earmarked
for a binding purpose or the whole or a
(1) [1960] 2 S. C. R. 841.52part  of it has been used as working capital and  that	only
such  part  of the reserves coming under either of  the	 two
heads  can be said to be not available	for  rehabilitation.
This  means  that if any reserve has been  earmarked  for  a
particular purpose which is binding and must be carried out,
for example, an amount kept in reserve for paying debentures
when  they  fall due, it cannot be deducted from  the  gross
rehabilitation	 amount.  Further when	that case lays	down
that  the  whole or apart of the reserves  which  have	been
actually  used as working capital cannot be   deducted	from
the gross rehabilitation amount it does not mean that  money
which  may  be available for use as working capital  in	 the
next   year   cannot  also  be	deducted  from	 the   gross
rehabilitation	amount.	 The position would be clear  if  we
indicate  how  generally  the  amount of working capital  is
arrived	  at.  What is usually done is to take into  account
the  liquid  assets  of	 various  kinds	 available  at	 the
beginning of the relevant year and the total of such  assets
available  at  the beginning of the year  is  considered  as
working capital for that year, if there is evidence that  it
has been actually used during the year.	 But when we come to
the end of the year and look at the balance sheet we have to
find out the liquid assets available at the end of the	year
from  which the amount available as working capital for	 the
next  year  may	 be  arrived  at.   But	 the  liquid  assets
available  at  the end of the year will usually	 be  of	 two
kinds;	firstly	 there will be cash assets  in	the  various
reserves  and secondly there will be assets in the shape  of
raw  materials etc. and both together become  the  available
working	 capital  for  the next year  subject  to  necessary
adjustments  and  also subject	to the evidence	  that	they
were   actually used as working capital. Now, what waslaid
down intheKhandesh Spg. & Wvg. Co.scase (1), when it	 was
said that the amount which had been actually used as working
capital could not be deducted from the	gross rehabilitation
amount was that
(1) [1960] 2 S.C.R,841.53that  part of the working capital Which is in the  shape  of
raw  materials etc. could not be deducted.  The	 distinction
which we have pointed out did not arise for considerationin
that  case, for it was heldin that casethat there  was  no
evidence to show that any part of such reserves had in	fact
been used as working capital and this Court upheld the award
of  the industrial court deducting the entire reserves	from
the gross rehabilitation amount.  The matter will be clearer
if  we take a concrete example. Take the year  1955-56.	 Now
the  working capital is generally arrived at by finding	 the
liquid	reserves  available on April 1, 1955.  These  liquid
reserves  may  be in the form of reserves of  various  kinds
i.e.   depreciation  reserve,	general	  reserve,   renewal
reserve,  and  so on, and also in the form  of	investments,
advances and raw materials etc. in stock.  All these have to
be  taken  into account in arriving at the  working  capital
after  necessary adjustments.  As we have  already,  pointed
out, the amount of working capital thus arrived at if  there
is evidence that it was actually used as working capital for
the year may be allowed interest in accordance with the Full
Bench  formula.	 But then we come to the end of the year  i.
e.  March 31, 1956.  At that time we have again to see	what
the  position of the reserves is. The reserves may be  again
in the form of cash reserves or investments or advances	 and
also  in the form of raw materials etc. From these  reserves
working capital for the next year may have to be  calculated
and  if	 evidence is given that it has been  actually  used,
interest may have to be allowed on it; but that is no reason
for not deducting that part of the reserves which is in	 the
shape of cash reserve, investments or advances on the ground
that  it is not available for rehabilitation, as it  may  be
used as working capital for the year 1956-57. Only that part
of the reserves which is in the shape of raw materials	etc.
or  which  is  car-marked as  indicated	 already  cannot  be
deducted for purposes of rehabilitation, for it will not  be
available for that purpose and54would be consumed or sold during the course of the next year
or used for a specific purpose.	 But all other reserves	 are
available  for rehabilitation on March 31, 1956 and have  to
be  deducted  from the gross rehabilitation amount  for	 the
year.	The tribunal in this case however, has not  followed
this  principle	 on a misappreciation of the effect  of	 the
judgment  of this Court in Khandesh Spg. & Wvg.	 Co.'s	case
(1).  All that that decision lays down is that that part  of
the  reserves which go to make up the working capital  which
is  in the shape of raw materials etc. or earmarked  reserve
will  not be deducted from the gross-rehabilitation  amount;
it does not lay down that all cash reserves in the shape  of
depreciation  reserve,	general	 reserve,  renewal   reserve
and so on and also in the shape of investments and  advances
cannot	be deducted from the gross rehabilitation amount  as
they  may be used as working capital next year.	 This  means
that  the  tribunal has to  recalculate	 the  rehabilitation
amount due in view of what we have said above.
    In	view of the fact that the adjudication of the  claim
for  bonus has already been delayed, we direct the  tribunal
to recalculate the available surplus in accordance with	 the
observations made in this judgment after giving	 opportunity
to   the parties  to adduce further evidence and submit	 its
findings to this Court within three months of the receipt of
the  record  by it.  When the findings of the tribunal	have
been  received,	 notice	 will be given to  parties  to	file
objections  if	any within ten days of the  receipt  of	 the
notice	and thereafter the appeals will be listed for  final
disposal.Case remanded.(1) [1960] 2 S. C. R.841.55