Development rebate reserve compliance is satisfied when the earmarked amount is clearly credited in accounts, even without a separate fund name.

Section 34(3)(a) of the Income-tax Act is satisfied when the requisite amount is clearly credited in the accounts and earmarked as a reserve for the statutory business purpose during the prescribed period. The provision does not require a separate fund or a particular account head, so a transfer shown in the balance-sheet under shareholders' account can still qualify if the amount is identifiable as development rebate reserve. The absence of a separate entry in the directors' report does not by itself defeat compliance. The analysis distinguishes cases involving a distinct statutory duty to maintain a separate reserve fund.

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Issues: Whether the entries in the balance-sheet showing transfer of a sum to a development rebate reserve satisfied the requirement of section 34(3)(a) of the Income-tax Act, 1961, so as to entitle the assessee to development rebate under section 33.

Analysis: Section 34(3)(a) requires that an amount equal to seventy-five per cent of the development rebate actually allowable must be credited to a reserve account to be used for the business during the prescribed period, subject only to the statutory exceptions. The balance-sheet disclosed that the relevant sum had been set apart as a reserve, even though it was shown under the shareholders' account rather than under a separate nomenclature of development rebate reserve. The Act does not require a separate fund in a particular form or head, and the amount was identifiable and earmarked for the statutory purpose. The reliance on the banking-company decision was rejected because that case turned on a distinct statutory obligation to maintain a separate reserve fund. The absence of a separate entry in the directors' report did not negate the reserve shown in the accounts.

Conclusion: The reserve requirement was complied with, and the assessee was entitled to development rebate; the answer to the referred question was in the affirmative and in favour of the assessee.

Ratio Decidendi: For section 34(3)(a) of the Income-tax Act, 1961, compliance is satisfied if the requisite amount is clearly credited and earmarked as a reserve for the statutory business purpose, even if it is not maintained under a separately named fund or account.

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