Reserve classification under super profits tax turns on real character, while saved declarations continue after repeal.

A saved declaration under the repealed income-tax law continued to operate under the later income-tax law, so no fresh declaration was required for super profits tax liability. The article also explains that, for capital computation under the Super Profits Tax Act, 1963, "reserve" takes its ordinary meaning and depends on the real character of the amount, not its label. Retained earnings and unremitted foreign income were treated as reserves because they were consciously set aside for future use, and the provision for Federal, foreign and State income-tax was also a reserve where no existing demand had arisen. A provision for dividend set against declared dividends was not a reserve.

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Issues: (i) Whether a declaration that the assessee was a company under the repealed income-tax law continued to operate under the later income-tax law for the purposes of liability to super profits tax. (ii) Whether retained earnings, unremitted foreign income, provision for dividend, and provision for Federal, foreign and State income-tax were reserves forming part of the capital base under the Super Profits Tax Act, 1963.

Issue (i): Whether a declaration that the assessee was a company under the repealed income-tax law continued to operate under the later income-tax law for the purposes of liability to super profits tax.

Analysis: The charge under the Super Profits Tax Act, 1963 applied to a company, and the expression had to be read with the Income-tax Act. A declaration made under the earlier income-tax law was saved by the statutory saving provision in the later Act, and the words "notification" and "order" were wide enough to comprehend such a declaration. No fresh declaration was necessary after the repeal of the earlier Act.

Conclusion: The assessee was a company for the purposes of super profits tax, and this issue was decided against the assessee.

Issue (ii): Whether retained earnings, unremitted foreign income, provision for dividend, and provision for Federal, foreign and State income-tax were reserves forming part of the capital base under the Super Profits Tax Act, 1963.

Analysis: The expression "reserve" was held to bear its ordinary natural meaning, determined by the real nature and character of the amount and not by its label. Amounts consciously set apart for future use could form reserves, even if they were described as provisions, but sums earmarked against an existing demand could not. Retained earnings and unremitted foreign income were treated as reserves because they were kept in that form under the law governing the foreign incorporation and remained available as capital. The provision for Federal, foreign and State income-tax was also treated as a reserve because no existing demand had arisen. The provision for dividend, however, was set apart against dividends already declared and was therefore a liability already demanded.

Conclusion: Retained earnings and unremitted foreign income were reserves, the provision for Federal, foreign and State income-tax was a reserve, and the provision for dividend was not a reserve; this issue was decided partly against the assessee and partly in its favour.

Final Conclusion: The reference relating to company status was answered against the assessee, while the reference on reserves was answered partly in favour of the assessee and partly against it, resulting in a mixed outcome on the capital-computation question.

Ratio Decidendi: For super profits tax computation, reserve means an amount of profit consciously set apart and available for future use on the relevant date, and a prior declaration or statutory order continues to operate where saved by the later Act.

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