Debenture redemption reserve classification controls surtax capital computation, but the record was insufficient to decide its true nature.

For surtax capital computation, the decisive question is whether the debenture redemption reserve was a reserve or a provision. An amount set aside to meet a known or existing liability is a provision and is excluded from capital, while an amount appropriated from profits for future use may qualify as a reserve if it is not earmarked for a current liability. The label used is not determinative; the true nature of the fund controls. On the available record, the exact character of the debenture redemption reserve and the basis of its creation were unclear, so the matter required fresh examination by the Tribunal.

---

---

Issues: Whether the amount standing to the credit of the debenture redemption reserve was includible in the capital computation for surtax purposes under the Companies (Profits) Surtax Act, 1964.

Analysis: The legal distinction between a reserve and a provision was applied by reference to the scheme of the Surtax Act and the interpretation clause in Part III of Schedule VI to the Companies Act, 1956. An amount appropriated to meet a known or existing liability is a provision and cannot enter capital computation, but an amount set apart out of profits for future use may be a reserve if it is not earmarked to discharge any current liability. The decisive question is the true nature of the fund, not its label. On the available material, the record did not disclose the exact nature of the debenture redemption reserve, the basis of its creation, or whether it was linked to any existing liability in the relevant year.

Conclusion: The issue could not be finally answered on the existing facts, and the matter required fresh examination by the Tribunal.

---