3. MISCELLANEOUS
3.1 Query
Whether profit centers of a company can be considered as separate ‘establishments’ for the purpose of computation of bonus under Payment of Bonus Act, 1965
1.A public sector undertaking is engaged in the manufacture of white crystal sugar at its two units one each at Gurdaspur and Zira with corporate office at Chandigarh. The said units were commissioned in November, 1980 and started its commercial production in the year 1980-81. The accounting year of the company ends on 30th June.
2.The querist has informed that for the purpose of accounting, each of the above units is ‘maintaining separate profit centres’. The accounts of both the units are consolidated at Chandigarh and final balance sheet and profit and loss account are prepared.
3. Since the Zira unit is incurring losses continuously from 1980-81, the overall picture of the company shows a loss till date even though from the year 1981-82, the Gurdaspur unit has started earning profits.
4.The querist has drawn the attention of the Expert Advisory Committee to Section 16 of the Payment of Bonus Act, 1965, the relevant excerpts of which are reproduced below:
“(1) Where an establishment is newly set up, whether before or after the commencement of this Act, the employees of such establishment shall be entitled to be paid bonus under this Act in Accordance with the provisions of sub-sections (1A), (1B) and (1C).
(1A) In the first five accounting years following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, bonus shall be payable only in respect of the accounting year in which the employer derives profit from such establishment and such bonus shall be calculated in accordance with the provisions of this Act in relation to that year but without applying the provisions of section 15.”
5. The querist has sought the opinion of the Committee in the above context on the following issues:
(i) Whether the bonus is payable for the company as a whole or according to units?
(ii) Whether the company is liable to pay 8.33% as minimum statutory bonus?
(iii) Whether there is any court reference specifying the payment of bonus in respect of profit centre?
(iv) Can the company pay bonus at its discretion in case of a profit centre only?
Opinion January 8, 1985
1.The Committee notes that Section 3 of the payment of Bonus Act, 1965, provides as below:
“Where an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, all such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act:
Provided that where for any accounting year a separate balance sheet and profit and loss account are prepared and maintained in respect of any such department or undertaking or branch, then such department or undertaking or branch shall be treated as a separate establishment for the purpose of computation of bonus under this Act for that year, unless such department or undertaking or branch was, immediately before the commencement of that accounting year, treated as part of the establishment for the purpose of computation of bonus.”
2.The Committee is therefore of the opinion that the two units of the company can be considered as separate establishments only if the requirements to the proviso to Section 3 of the Act are fulfilled, i.e., a separate balance sheet and profit and loss account are prepared and maintained in respect of each such unit. The answer to the issues raised by the querist in (i) and (ii) of para 5, would therefore depend on this. Regarding the information sought by the querist as per para 5 (iii), the Committee wishes to state that it has not come across any court reference specifying the payment of bonus in respect of ‘profit centres’. Regarding the issue raised in para 5 (iv), the Committee is of the opinion that the Payment of Bonus Act does not prohibit payment of bonus on voluntary basis to any one or more of its units as an incentive.
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