Reserve, the term 'reserve' is not defined in the Act. The dictionary meaning of the word 'Reserve' is: To keep for future use or enjoyment; to store up for some time or occasion; to refrain from using or enjoying at once. To keep back or hold over to a later time or place or for further treatment. To set apart for some purpose or with some end in view; to keep for some use. To retain or preserve for certain purposes.' (Oxford Dictionary). In Webster's New International Dictionary, Second Edition, page 2118, 'Reserve' is defined as follows:To keep in store for future or special use; to keep in reserve; to retain, to keep, as for oneself. To keep back; to retain or hold over to a future time or place. To preserve, Commissioner of Income Tax v. Century Spinning and Manufacturing Co., AIR 1953 SC 501: (1954) SCR 203.
(ii) As to what the word 'Reserves' as used in the Business Profits Tax Act connotes, was considered by this Court in Commissioner of Income-tax v. Century Spinning & Manufacturing Co. Ltd., 1954 SCR 203. It was held that the true nature and character of a sum disputed as reserve was to be determined with reference to the substance of the matter. A reserve in the sense in which it is used in rule 2 can only mean profit earned by a company and not distributed as dividend to the shareholders but kept back by the directors for any purpose to which it may be put in future. The amount designated as 'Undivided Profits' is a part of the reserves and has to be taken into account when computing the capital and reserves within R. 2(1) of Schedule II of the Act, First National City Bank v. Commissioner of Income Tax, AIR 1961 SC 812: (1961) 3 SCR 371.
(iii) The reserve contemplated by Banking Com-panies Act is a separate reserve. The amount trans-ferred to that reserve cannot be utilised for business purposes. The reserve contemplated by proviso (b) to s. 10(2)(vi-b) of the Act is an independent reserve. The amount to be transferred to that reserve is debited before the profit and loss account is made up. That amount is required to be credited to a reserve account to be utilised by the assessee during a period of ten years for the purposes of the business of the undertaking. The nature of the two reserves are different. They are intended to serve two different purposes, Indian Overseas Bank Ltd. v. Commissioner of Income Tax, AIR 1970 SC 1530: (1970) 2 SCC 4: (1971) 1 SCR 348.
In its ordinary meaning the expression 'reserve' means something specifically kept apart for future use or for a specific occasion, CIT v. Standard Vacuum Oil Ltd., AIR 1966 SC 1393 (1401): (1966) 2 SCR 367. [Business Profits Tax Act, 1947, Schedule II, Rule 2(1) and (3)]
Something retained or stored for future use, esp., a fund of money aside by bank or insurance company to cover future liabilities.