Reserve character under super profits tax depends on substance, not balance-sheet label, where liability has not crystallised.

Amounts set apart for an unreal or contingent liability may qualify as reserve capital for super profits tax if they are not, in substance, existing liabilities. The court held that the additional cane price provision, though described in the accounts as a provision, had not crystallised as a current liability and was later taken back into profits. Its true character, not its bookkeeping label, was decisive. It was therefore treated as a reserve forming part of the assessee's capital under the Super Profits Tax Act.

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Issues: Whether the provision for additional cane price of Rs. 8,16,000 was a reserve forming part of the assessee's capital for the purpose of super profits tax.

Analysis: Capital for super profits tax under section 4 and section 2(9) of the Super Profits Tax Act, 1963, read with rule 1 of the Second Schedule, includes paid-up share capital and reserves, but not amounts allowed as deductions in computing income. The amount had not been allowed as a deduction. The decisive question was whether it was a reserve. A reserve, in its ordinary sense, is something specifically kept apart for future use or for a specific purpose, while a provision is normally made against an existing liability. On the facts found, there was no real current liability to pay additional cane price, the demand had not crystallised, and the amount was later taken back into profits. The nomenclature in the balance-sheet was not conclusive; its true character had to be seen.

Conclusion: The amount was correctly treated as a reserve and formed part of the assessee's capital. The question was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: For super profits tax, an amount set apart for an unreal or contingent liability, which does not represent an existing liability in substance, may be treated as a reserve despite its description in the accounts.

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