Gratuity liability transfers as provisions, not reserves, cannot be included in surtax capital computation.

An amount transferred to a gratuity reserve account was held to be a provision, not a reserve, for surtax capital computation. The controlling distinction depends on the nature of the appropriation, its purpose, and the surrounding circumstances: an ad hoc amount set aside without actuarial valuation for a known gratuity liability is a charge against profits and remains a provision. Only an amount retained as part of the company's capital can qualify as a reserve. On that basis, the gratuity-related amount was excluded from capital computation.

---

---

Issues: Whether the amount transferred to the gratuity reserve account was a provision or a reserve for inclusion in the capital computation for surtax purposes.

Analysis: The distinction between a reserve and a provision depends on the nature of the appropriation, the purpose for which it is made, and the surrounding circumstances. An amount set apart on an ad hoc basis without actuarial valuation, even if described as a reserve, remains a provision when it is intended to meet a known gratuity liability. The governing principle is that only an amount retained as part of the company's capital can be treated as a reserve, whereas a charge against profits for a foreseen liability is a provision.

Conclusion: The amount credited to the gratuity reserve account was a provision and not a reserve, and it could not be included in the capital computation for surtax purposes.

Ratio Decidendi: An ad hoc transfer made without scientific or actuarial basis towards a known gratuity liability is a provision, not a reserve, for purposes of capital computation under the surtax regime.

---