1. CORNELIUS, C. J.----This appeal by a company known as the Gul Ahmad Textile Mill Ltd., is brought by special leave to call in question a decision of the High Court , of West Pakistan at Karachi in a writ matter.
2. The writ was moved to obtain certiorari in respect of an award made by an Industrial Tribunal at Karachi to whom an industrial dispute between the appellant-Company and the Trade Union of its workers had been referred for decision. Among other questions raised before the Industrial Tribunal, one was connected with the demand of the workers to be paid a bonus for the year 1955.
3. The company had shown a loss of about Rs. 24,50,000 in their balance-sheet as well as in their profit and loss account for the calendar year 1955. The Tribunal did not accept this result on the ground that a large sum of over Rs. 39 lakhs had been deducted by way of depreciation, which represented nearly 42 % upon the fixed capital assets of the company. Observing that it was "no doubt open to the Mills to fix any amount they think just and reasonable for depreciation fund", the Tribunal felt that there should first have been made a provision for payment of bonus to the workers and that the Management could not be allowed to "cut off such a big slice" from the profits, at their discretion, so that nothing was left for distribution by way of bonus to the workers. He noted that in the profits and loss account, the sum of Rs. 19,54,605 was shown as gross profits and that in the year in question the value of the total output of the Mills was placed at nearly Rs. 82 lakhs. The Tribunal also declined to accept the argument that no dividend had been paid to the shareholders, and came to the conclusion that "the whole trouble has arisen because the profits have been swa llowed up by the huge amount of the deprecation fund". He decided that the workers should be paid 1/12th of their basic wages for the year 1955 by way of bonus, which would impose a burden about Rs. 77,000 on the Mills.
4. In the High Court, this award was challenged and sought to be quashed on the basis that bonus should only be awarded after taking into account provision for firstly, depreciation, secondly, rehabilitation, thirdly, an allowance of 6 % on the paid up-capital as the minimum entitlement of the shareholders, and lastly an allowance of 4 % on the working capital, meaning money which had been borrowed to meet current expenses. This contention was founded upon decisions in a number of labour cases by Tribunals in India. The Division Bench of the High Court rejected this argument on the ground that the point raised was one of fact, and that the Tribunal's conclusion that the company was not entitled to withdraw so large a sum as Rs. 39 lakhs, under a claim of depreciation, so that nothing was left for distribution by way of bonus was "not without substance".
5. The contention that deprecia--tion was claimed under Income-tax law was not accepted, on the ground that the Tribunal was not engaged in determining the profit for income-tax.
6. Leave was granted on this point, namely, as to the validity of the Tribunal's award declaring a bonus and the question was formulated whether it is within the competence of a Tribunal to do so, being a question of general importance. It was, however, not necessary for the Court to examine and pronounce upon any general questions in this case, for Mr. Sharifuddin appearing for the appellant-Company has been able to establish by reference to the various statements of the financial position of the company for the year 1955 that, in fact, when minimum depreciation had been provided for, and the minimum provisions made for the entitlement of shareholders, there was nothing left out of the net profits for the year which could be available for distribution as bonus. Firstly. By reference to the manufacturing, trading and profit and loss account for the year 1955, Mr. Sharifuddin showed that the value of all sales of Mill products for the year, together with the value of finished and unsold goods and the value of work in process was Rs. 81,92,649-12-6.
7. Against this, the cost of raw materials consumed, of oil etc. Used and of manufacturing wages, amounted to Rs. 62,38,044-5-9 leaving a difference of Rs. 19,34,605.6-9 which had been described as the "gross profits". Against this however had to be set the other items of expenditure, over and above the three items already mentioned which amount to Rs. 4,90,992. These include establishment and office charges, machinery repairs and all the other expenses incidental to the running of the Mills. Thus, the net profits appearing from this particular account was reduced to Rs.
8. 14,63,613. Mr. Sharifuddin then referred us to the depreciation schedule for the calendar year 1955, which included depreciation under five heads, namely normal depreciation, additional depreciation, initial depreciation, and supplementary depreciation for double and triple shift working. Although the calendar year 1955 was the first year of the working of the company, when additional and initial depreciations are admissible deductions under normal trade practice, Mr. Sharifud--din was willing, for the purpose of computation, to confine the deduction for depreciation to first, normal depreciation amounting to Rs. 8,05,794, supplementary double shift depreciation amount--ing to Rs. 2,41,068 and supplementary triple shift depreciation amounting to Rs. 1,02,248 giving a total of Rs. 11,49,110. He then pointed out that the entitlement of the shareholders who have received no dividend, at the modest rate of 6 % on a capital of Rs. 80 lakhs was Rs.
9. 4,80,000. If only these two items were put together, they amounted to over 16 lakhs of rupees, a sum in excess of the net profits of the company, which were no more than Rs. 14,63,613. The Tribunal and the High Court, when they regarded the figure of Rs. 39 lakhs for depreciation as wholly exaggerated, should have attempted to determine what was in the circumstances a reasonable deduction for depreciation, since a provision for depreciation is compulsory, besides being essential for the healthy operation of the company in a financial sense. They were plainly in error in excluding the whole figure of over Rs. 39 lakhs., It was clear that there was a loss on the total working, of which the full extent could only be ascertained by including also interest on borrowings, and "rehabilitation" pro--vision, viz. a reserve to cover expected higher costs of replacement of buildings and machinery whose price was constantly rising.
10. The argument appears to us to be unanswerable. The opposite-- party, namely, the Union of the workers is not represented before us, but we can see no escape from the conclusion that on a true calculation, there is no money left over for distribution out of which the directors could at their discretion have awarded a bonus to the workers in addition to the salaries which they had already drawn. We are only surprised that the making of the simple calculations involved in the argument was delayed until the case came up before the Supreme Court.
11. The award of the Tribunal on the point of bonus is vitiated by a clear error appearing on the face of the record with regard to the matter of primary importance affecting the grant or other, wise of the bonus, namely, that in fact, out of the net profits; when due and reasonable allowances at minimum rates had been made, there was nothing left over out of which a bonus could have been awarded, and we accordingly allow this appeal and direct that a writ should issue to quash the award of the Tribunal on the point of bonus. We leave the parties to bear their own costs.