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Section 32: Sums deductible from gross profits

The Code on Wages, 2019 (Act No. 29 of 2019) • Official Statutory Text & Plain English Practice Guide

Statutory Mandate
Chapter IV: Payment of Bonus
Competent Labour Forum
Act No. 29 of 2019
Section 31 All 67 Sections of Code on Wages, 2019 Section 33

Legal Commentary & Landmark Judgments: Section 32

Section 32 enumerates the exhaustive statutory 'prior charges' deductible from gross profits under Section 31 to arrive at available surplus, authorizing deductions for statutory depreciation, development allowances, direct taxes payable under Section 33, and specific capital returns prescribed in the Third Schedule.

  • Statutory Depreciation Deduction: Section 32(a) authorizes deduction of depreciation admissible in accordance with Section 32(1) of the Income-tax Act, 1961 or relevant agricultural income-tax enactments.
  • Development Rebate and Investment Allowance: Section 32(b) allows deduction of development rebate, development allowance, or investment allowance which the employer is entitled to deduct under the Income-tax Act.
  • Direct Taxes and Third Schedule Prior Charges: Section 32(c) authorizes deduction of direct taxes calculated under Section 33; Section 32(d) authorizes deduction of sums specified in the Third Schedule, including return on paid-up equity and preference capital and reserves.
Key Landmark Precedents:
  • Workmen of Associated Battery Makers (Eastern) Ltd. v. Associated Battery Makers (Eastern) Ltd. (1974) 4 SCC 309: The Supreme Court affirmed that only statutory depreciation allowable under income tax law is deductible as a prior charge, ruling that arbitrary management depreciation or revaluation write-offs cannot reduce the bonus pool.
  • Tata Chemicals Ltd. v. Workmen (1978) 3 SCC 42: The Supreme Court held that return on paid-up capital and working capital reserves specified in the Third Schedule are legitimate prior charges intended to preserve capital formation and industrial growth.
Courtroom Practice & Strategic Litigation Guidance:

Counsel must rigorously audit the employer's prior charge schedule before submitting it to an Industrial Tribunal. Employers cannot deduct unabsorbed depreciation of past years, speculative provisions, or write-offs of bad debts under Section 32. Ensure that return on capital is calculated strictly on paid-up equity and qualifying reserves shown at the commencement of the accounting year.

Section 31 All 67 Sections of Code on Wages, 2019 Section 33