Tax provision is neither reserve nor fund when it meets an ascertained year-end liability under capital computation rules.

A specific provision for current tax liability cannot be treated as a reserve or a fund under the super profits tax and surtax schedules. The schedules require capital to be computed by reference to balance-sheet concepts and ordinary accounting usage; an amount set apart for an ascertained liability is a provision, not a reserve, and it is not a fund absent a separate accumulation or earmarked asset pool. A circular on reserves for unexpired risks was inapplicable because it dealt with contingent future liabilities, not a liability crystallised at year-end. The provision for taxation therefore could not be deducted from the cost of excluded investments or increase the capital base.

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Issues: Whether a provision for taxation could be treated as a reserve or, alternatively, as a fund so as to be deducted from the cost of excluded investments in computing the capital base under the super profits tax and surtax provisions.

Analysis: The relevant schedules under both enactments require capital to be computed in the light of balance-sheet concepts and accounting usage. A provision made for current tax liability is not a reserve, because it is an amount set apart to meet an ascertained liability. Nor is it a fund, because there is no separate accumulation of assets or systematic earmarking for future use in the sense contemplated by the statutory scheme and ordinary accounting meaning. The Board circular dealing with reserve for unexpired risks did not assist, because that reserve related to a contingent future liability and not to a specific liability arising at the close of the accounting year.

Conclusion: The provision for taxation was not deductible from the cost of the excluded investments and could not augment the capital base; the answer was in favour of the Revenue.

Ratio Decidendi: A specific provision for an ascertained tax liability of the current accounting year is neither a reserve nor a fund for purposes of computing capital under the relevant super profits tax or surtax schedules.

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