Strict compliance with statutory reserve conditions governs development rebate eligibility; a different reserve cannot substitute for the required account.

A statutory tax concession conditioned on creation of a specific reserve must be strictly complied with, and the required debit to the profit and loss account and credit to a separate reserve account must be made at the time the accounts are prepared. A reserve created under section 17 of the Banking Companies Act, 1949 served a different statutory purpose and could not substitute for the independent reserve required by proviso (b) to section 10(2)(vib) of the Indian Income-tax Act, 1922. The analysis concludes that exact compliance with the taxing condition is necessary, and a reserve maintained for another legal purpose does not satisfy the development rebate requirement.

---

---

Issues: Whether creation of a reserve fund under section 17 of the Banking Companies Act, 1949 satisfied the requirement of creating a separate reserve account under proviso (b) to section 10(2)(vib) of the Indian Income-tax Act, 1922 for claiming development rebate.

Analysis: The allowance of development rebate was a statutory concession subject to strict fulfilment of the conditions in proviso (b) to section 10(2)(vib). That proviso required a debit to the profit and loss account and a credit to a reserve account to be utilised for the business during the stipulated period. The reserve mandated by the Banking Companies Act, 1949 served a different purpose, was a separate reserve, and could not be treated as the independent reserve contemplated by the Income-tax Act. The statutory entries were not a mere formality, and the reserve had to be created at the time of making up the profit and loss account.

Conclusion: The reserve created under section 17 of the Banking Companies Act, 1949 did not amount to compliance with proviso (b) to section 10(2)(vib) of the Indian Income-tax Act, 1922, and the assessee was not entitled to the development rebate.

Ratio Decidendi: Where a tax concession is made conditional upon creation of a specific statutory reserve, compliance must be exact and a reserve created for a different statutory purpose cannot substitute for the reserve required by the taxing provision.

---