Debenture redemption reserve treated as a reserve, not a provision, and included in capital base for surtax computation.

A debenture redemption reserve was treated as a reserve, not a provision for a known liability, where the assessee retained an enforceable right to use the amount for business purposes until the redemption date. Applying the commercial accountancy distinction between reserve and provision in the surtax context, the amount was therefore includible in the capital base for surtax computation.

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Issues: Whether the debenture redemption reserve created by the assessee was a provision to meet a known liability or a reserve includible in the capital base for surtax computation.

Analysis: The reserve was created under the debenture trust deed and the assessee was entitled to use the moneys standing to its credit for the company's business purposes until the redemption date. On the facts found, the amount was not treated as irrevocably set apart to meet an immediate known liability. The distinction between a provision and a reserve was applied in the context of commercial accountancy and the surtax schedule, and the decisive factor was the assessee's right of user over the amount until redemption.

Conclusion: The debenture redemption reserve was held to be a reserve and not a provision to meet a known liability, and it was includible in the capital base. The issue was answered in favour of the assessee and against the Department.

Final Conclusion: The reference was answered by upholding the Tribunal's view that the debenture redemption reserve formed part of the capital computation for surtax purposes.

Ratio Decidendi: An amount retained as a debenture redemption reserve will be treated as a reserve, and not as a provision for a known liability, where the assessee retains an enforceable right to use the amount for business purposes until the redemption date.

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