Reserve classification turns on future business use, while provisions for dividend and actual tax liability are excluded.

Amounts set apart out of profits for future use constitute a reserve under rule 1 of the Second Schedule to the Super Profits Tax Act, 1963, even where the appropriation is made after the close of the accounting year and relates back to the first day of the relevant year. On that footing, the excess provision for bonus, the excess provision for taxation beyond the actual liability, and the excess development rebate reserve were treated as reserves because they remained available for the company's business use. By contrast, the dividend provision and the amount referable to the actual income-tax liability were not reserves, as they were earmarked for specific present liabilities.

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Issues: Whether amounts set apart towards bonus, dividends, taxation, and excess development rebate constituted reserves under rule 1 of the Second Schedule to the Super Profits Tax Act, 1963.

Analysis: The expression "reserve" in rule 1 denotes specific amounts set apart out of profits for future use by the company. An appropriation made after the close of the accounting year may relate back to the first day of the relevant year for the purpose of rule 1. On that basis, the excess provision for bonus and the excess development rebate reserve were available for the company's business use and formed part of its capital structure, and therefore answered the description of reserves. The provision for dividend, having been actually paid to shareholders, represented an amount earmarked for a specific liability and not a fund available for future use. Likewise, the provision for tax to the extent of the actual tax liability was a provision for a present and ascertainable liability and not a reserve. However, the excess amount over the actual tax liability remained available to the company and satisfied the test of a reserve.

Conclusion: The excess provision for bonus, the excess provision for taxation, and the excess development rebate reserve were reserves; the dividend provision and the amount referable to the actual income-tax liability were not reserves.

Ratio Decidendi: An amount qualifies as a reserve only if it is specifically appropriated out of profits for future use and is not merely a provision for an accrued specific liability already chargeable against the company.

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