Holding

The retaining allowance is remuneration that falls within the definition of "salary or wage" under s.2(21) of the Payment of Bonus Act, 1965 and must be taken into account for bonus calculation.

Summary

The case concerned a seasonal sugar factory that paid a retaining allowance to its workers during the off‑season. The management treated this allowance as part of wages for the Employees' Provident Funds Act but not for the Payment of Bonus Act, 1965. An Industrial Court held the allowance could not be counted for bonus, but the Gujarat High Court reversed that decision, holding the allowance fell within the definition of "salary or wage" under s.2(21) of the Bonus Act. The factory sought special leave to appeal to the Supreme Court. The Supreme Court upheld the High Court, declaring that the retaining allowance is remuneration, part of salary/wage, and must be included in the calculation of bonus under s.10 of the Act. Consequently, the petition for special leave was dismissed.

Issues considered

Whether the retaining allowance paid to seasonal sugar factory workers during the off‑season constitutes "salary or wage" within the meaning of s.2(21) of the Payment of Bonus Act, 1965 for the purpose of computing bonus.

Legislation cited

Employees' Provident Funds Act, 1972
Payment of Bonus Act, 1965s. 10, s. 2(21)

Subjects

Bonus calculationRetaining allowanceSeasonal employmentDefinition of salary or wagePayment of Bonus ActIndustrial dispute

Judgment

738

A MANAGING DIRECTOR, CHALTHAN VIBHAG SAHAKARl
KHAND UDYOG, CHALTHAN, DIST. SURAT
v.
GOVERNMENT LABOUR OFFICER & ORS.

B February 4, 1981
[A P. SEN AND E. S. VENKATARAMIAH, JJ.]

Paynient of Bonus Act, 1965-Section 2(21)-}Vhether the exprcs~ion
'salary or wage• in s.2(21) of the Act covers retaining allowance during tfte
off season granted to the 1vorkn1en in the seasonal estahlislunent of the sugar
C factory of the Udyog.

The appellant whkh runs a sugar factory, treated the retaining allowance
paid to the workmen during the off-season as part of their wages for the
purpose of the Employe_es' Provident Fund Act, 1972, but not for the purpose
of the Payment of Bonus Act, 1965. On a reference of an industrial dispute,
the Industrial Court, Gujarat made an award holding that the allowance cannot
D be included in wages or remuneration for the purpose of calculation of bonu">.
The Gujarat High Court set aside the a\vard in writ petition and held that
the allo\vance fell within the definition of the expression 'salary or wage' in
s. 2(21) of the Act. The appellant sought special leave to appeal under Art. 136
of the Constitution.
•

Dis1nissing the special leave petition, the Court.
E
lJELD : The retaining allowance paid to the employees during the off-season
1n the sugar industry partakes the nature of deferred wages on a lo\Yer
scale and falls within the definition of the expression 'salary or wage' within
the meaning of s.2(21) of the Payn1ent of Bonus Act, 1965 and, therefore,
must be taken into account for the purpose of calculation of bonus payable
]<'
under s.-10 of the Act. The definition of the expression 'salary or wage' as
given in s.2(21) of the Act is wide enough to cover the retaining allowance
granted to the workmen during the off-season. The retaining allowance is
nothing l:a.lt remuneration correlated to service and it would be a misnomer
to call it an allowance. It does not fall within the purview of clause (i) of
the exclt¥ionary clause of s.2(21) but comes within the substantive part of
the definlion uE 'salary or wage' ins. 2(21) of the Act. [741A-D]
G
CIVIL APPELLATE JURISDICTION : Special Leave Petition (Civil)
No. 1122 of 1981.

From the Judgment and Order dated 28-11-1980 of the Gujarat
High Court in Special Application No. 2003 /80.
H F. S. Nariman, TI. K. Puri and Arnn B. Desai for the Petitioner.
Charan/al Salm for Respondent No. 3.
I

SAHAKARI KHANO UDYOG v. LABOUR OFFICER (Sen, !.) 7 39

A
The Order of the Court was delivered by
SEN, J.-The controversy in this case is whether for the purpose of
bonus to the workmen employed in the Chalthan Vibhag Sahakari
Khand Udyog, Chalthan, which is a seasonal establishment, retaining
allowance paid to such workmen should be regarded as remuneration
or wages under the Payment of Bonus Act, 1965. The question arises B
under the following circumstances :
The Industrial Court, Gujarat, by its Award dated July 11, 1980
held that the retaining allowance pairt to the. workmen could not be
included for the purpose of calculation of bonus and, therefore. the
demand of the workmen was not justified. Thereupon, the workmen
challenged the Award by a Writ Petition in the Gujarat High Court.
c
The High Court by its judgment dated December 15, 1980 set aside
the Award of the Industrial Court and held that the. retaining allowance
falls within the definition of the expression 'salary or wage' given in
s. 2(21) of the Payment of Barrus Act, 1965 so as to attract the pay-
ment of bonus in the context thereof under s. 10 of the Act. D
For a proper understanding of the question involved, it is neces-
sary •to state a few facts. Chalthan Vibhag Sahakari Khand Udyog
runs a seasonal factory which crushes sugarcane and produces sugar.
It does not work for all the 12 months in year. There is an off-
season during the year during which the factory remains closed. Fnr
this off-season during which the workmen suffer forced idleness, full E
wages are not paid. There are several categories of workmen emplo-
yed by the management. There are unskilled workm~n who are paid
10% of the basic wages and dearness allowance as retaining allowance
during the off-season. There are also semi-skilled workmen who get
25 % of the basic wages and dearness allowance as retaining
allowance. The rest, i.e., skilled 'C' to supervisory class of F
workmen, are paid at the rate of 50% of basic wages and
dearness allowance as retaining aUowance during the off-season. The
retaining allowance is paid to these workmen after 40 days of work
in the next crushing season. Workmen in sngar factories in the State
of Gujarat usually come from the State of Uttar Pradesh. During the
G
off-season, they engage themselves in different occupation. Retaining
allowance is a sort of incentive which is offered to the workmen to
attract them to return to the factory after the expiry of the off-season.
The retaining allowance is paid in pursuance of the Report of
thel Second Central Industrial Wage Board on the Sugar Industry and
subsequently in implementation of the Award of the Tndustrial ronrt. H
Gujarat, based on the adoption of the U.P. Pattern Scales of Wages
:md Dearness Allowance for workmen employed in all sugar factories
740 SUPREME COURT REPORTS [1981] 2 S.C.R.

A working by vacuum Pan Manufacturing Process. Jn the Manage-
ment of Shri Cha/than Vighab Khand Udyog Sahakari Mandali Ltd.
etc. v. B. S. Barot and Anr. etc.(•) the Management challenged the
Award on other grounds but did not question its liability to pay retain-
ing allowance to the seasonal workmen. The payment of the retaining
allowance by the Management to the workmen during the off-season
B is obligatory. The Management treated the retaining allowanc to be
part of wages for purposes of the Employees' Provident Funds Ae,t,
l 952 but not for purposes of the Payment of Bonus Act, 1965.
The obligation to pay bonus to the workmen is cre~ted by '· 10
of the Act. Under s. 8 thereof, every employee is eligible for pay-
c ment of bonus. The question is whether retaining allowance should
be regarded as remuneration or wages for purposes of computation
of bonus. The decision· whether the retaining allowance forms '""t
of 'salary or wage' must tum on the construction of the definition of
that expression contained in s. 2(2.ll of the Act which. in so far as it
is relevant. reads :
2(1). "salary or wage" means all remuneration (other
than remuneration in respect of overtime work) capable of .
being expressed in terms of money which would, if the terms
of employment, express or implied, were fulfilled, be pay-
able to any employee in respect of his employment or of work
done in such employment and includes dearness allowance
E (that is to say, aII cash payments, by whatever name called,
paid to an employeR on account of a rise in the cost of liv-
in.11). but does not include-
(i) any other allowance which the employee is for the
time being entitled to;
F xx xx xx
There can be no donbt that the retaining allowance paid to thP- ~-
workmen dnring the off-season falls within the substantive part of
the ifeflnition of the expression 'salary or wage'. It nndoubtedlv
is remuneration which would, if the terms of employment, express or
G imolied, were fulfilfod, be payable to any employee in respect of his
employment. The retaining allowance is a remuneration on a lower
scale which is paid to the workmen by the management during tl1e
off-season for their forced idleness. The pavment of such allowance
b;v the management to its workmen during the off-season when there
is no work and when the factory is not working, is indicative of t]1e (
H fact that it wants to retain their services for thP- next crushing season.
The very fact that retaining allowance is paid to the workmen dearlv
(!) [1980] I SCR 509,
SAHAKARI KHANO UDYOG V. LABOUR OFFICER tSe11, J.) 7 41

shows that their services are retained and, therefore, the jural relation- A
ship of employer and the employee continues. It is true that a
workman may "not return to work and may take up some other job
or employment. In that event, be forfeits the right of payme"nt of the
retaining allowance. But when the workmeh returns to work when
!he next crushing s•oason starts, the payment of retaini11g allowa11ce
B
during the off-season, partakes the nature of basic wag•2 on a dimi-
nished scale. The definition of the expression 'salary or wage' given
in s. 2 (21) of the Act is wide enough to cover the payment of retain-
ing allowance to the workmen. It is nothing but remuneration cor-
related to service and it would be a misnomer to call it an allowance.
The retaining allowance does not fall witjl.in the purview of clause c
(i) of the exclusionary clause of s. 2(21), but comes within the subs-
tantive part of the definition of 'salary or wage' in s. 2(21) of the Act.
Tue retaining allowance cannot be construed to be any O\her allow-
ance which the employee· is, for the time being, entitled. The High
Court was, therefore, justified in holding that the retaining allowance
paid to the seasonal employees was a part of iheir 'salary or wage' D
within the meaning of s. 2(21) of the Act and, therefore, must be taken
into account for the purpose of calculation of bonus payable under

- the Payment of Bonus Act, 1965.
For these reasons, the judgment of the High Court is upheld.

s. R. Petition dismissed.

)