Reserve versus provision: substance and accounting treatment determine inclusion in capital for super profits tax purposes.

The Super Profits Tax Act, 1963 required a company's capital to include reserves, but not mere provisions against anticipated liabilities. The character of an amount must be determined from its substance and accounting treatment, not only from the label used in the balance-sheet. On the stated facts, the sum set apart as additional cane price was not a real provision: no actual liability existed, no payment was made, the entry was later reversed, and it was not a commercial charge against profits. It was therefore treated as a reserve and included in the company's capital for super profits tax purposes.

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Issues: Whether the amount set apart as additional cane price was a "provision" or a "reserve" for inclusion in the company's capital under the Super Profits Tax Act, 1963.

Analysis: The applicable scheme under section 4 and section 2(9) of the Super Profits Tax Act, 1963, read with rule 1 of the Second Schedule, required the capital of a company to include its reserves, but not amounts that were merely provisions against anticipated liabilities. The true nature of the sum had to be determined from its substance and character, not merely from the description used in the balance-sheet. On the facts, there was no actual liability, no payment was ever made, the entry was reversed in a later year, and the amount was not a charge against profits in the commercial sense. The surrounding accounting treatment showed that the item was not a real provision.

Conclusion: The amount was correctly treated as a reserve and was includible in the assessee's capital for super profits tax purposes, against the assessee.

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