Proposed dividend amounts earmarked for liability are provisions, not reserves, for capital computation under super profits tax rules.

An amount specifically earmarked to meet a liability for proposed dividend, and shown in the balance-sheet as a provision, is not a reserve for computing capital under the Super Profits Tax Act, 1963. A sum set apart for a definite and existing liability cannot be treated as a reserve merely because shareholders have not yet approved the dividend proposal. The distinction from earlier authority lies in the absence there of any separate provision, where the amount remained part of general reserve. The amount therefore counts as a provision and is excluded from the capital base as a reserve.

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Issues: Whether the amount set apart for proposed dividend was a reserve or a provision for the purpose of computing capital under the Super Profits Tax Act, 1963.

Analysis: The amount had been specifically earmarked to meet the liability arising from the proposed dividend and was shown in the balance-sheet as a provision. A sum set apart for a definite and existing liability cannot be treated as a reserve merely because the shareholders had not yet approved the dividend proposal. The earlier decision relied upon was distinguishable because, on those facts, no separate provision had been made and the amount remained part of the general reserve.

Conclusion: The amount was a provision and not a reserve, and it could not be included in the capital base as a reserve.

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